I have been wondering about the question of whether state insurance commissioners can effectively gut the industry practice of including discretionary clauses in disability policies by refusing to approve forms for use that include them, or whether ERISA preemption precludes that action. I was preoccupied with a trial at the end of October when the Ninth Circuit concluded that they could do exactly that, without running afoul of preemption, according to this post by Mitchell Rubinstein at the Adjunct Law Prof blog. I have to wonder, though, whether it is something of a pyrrhic victory, since my view, without ever having seen actuarial data one way or the other, is that discretionary clauses reduce litigation costs and thus likely reduce the price of group long term disability policies. If insurance commissioners effectively gut the industry of that option, it would seem to me it could only drive up claim costs and, naturally then, policy pricing. Will that reduce employer willingness to provide this important benefit? Time will tell, but we already know that rising costs are the primary reason that employers don’t provide as much health insurance as they used to. We should keep this in mind when legal and regulatory decisions occur that can only drive up the cost of other employer provided, and ERISA governed, benefits.