A War of Words.

The self-insured health insurance industry is facing its biggest challenge in Washington, but it has the president of the United States on its side.

A specific passage in the patients' bill of rights that's currently before Congress is causing an uproar in the self-insured health insurance industry. As seen in past battles over President Clinton's national health plan agenda and the Health Insurance Portability and Accountability Act privacy rules, insurers are summoning troops to make their voices heard against a perceived threat to the industry. The self-insurance industry and its lobbyists are fighting back with an arsenal of phone calls, e-mails, faxes and letters sent to legislators and waves of lunch meetings to ensure that the troublesome verbiage is erased from the final version of the McCain-Kennedy Bipartisan Patient Protection Act of 2000.

Self-insured group health plans, in which the employer assumes the financial risk for providing health-care benefits to its employees, are lobbying for the changes. About 55 million U.S. workers and their dependents receive their health care through self-insured group health plans--that's 36% of the 152 million participants in employment-based plans, according to the Self-Insurance Institute of America Inc. About 60% of companies of 500 or more employees operate self-insured health plans.

The sentences in question are contained in a provision of the bill that for the first time allows policyholders who accuse their self-insured health plan of denying payments or services to seek up to $5 million in punitive damages in lawsuits brought in federal courts. The amount is in addition to awards for economic and noneconomic damages, both of which would be for unlimited amounts. This "right-to-sue" provision will increase the cost of health coverage as employers charge more to cover potential legal costs and will force some employers to reduce or terminate coverage for employees, thus increasing the pool of uninsured and underinsured, according to the institute.

In fact, the Congressional Budget Office reports that allowing patients to sue their health plans could increase the average annual health insurance premium by 4.2%, or about $100. Both sides of the issue spin the figures to their advantage. Co-sponsor of the current bill, Sen. Edward Kennedy (D-Mass.), said the increase was equivalent to the price of a ham burger and fries a month, after factoring in an employer's share of health insurance costs. Opponents of the bill, who requested the numbers from the CBO, said because health costs are already on the rise, anything extra would be an additional financial burden to Americans.

These sentiments concur with the recent findings of a Blue Cross and Blue Shield Association survey on top issues in health care. About 95% of the respondents cited affordable health care coverage as the main priority, while only 46% said the right to sue was important.

In another survey, conducted by Hewitt Associates, 46% of employers who responded said that if legislative changes make employer plan sponsors subject to expanded liability, they would likely stop providing health-care coverage. Participants also said exposure to greater liability would have a negative effect on employer costs (81%) and consumer costs (80%).

Jim Manley, spokesman for Kennedy, said the option to sue an employer is an important part of the bill, because employers should be held account able if they deny coverage. However, the institute contends that protection for employees already exists under the Employee Retirement Income Security Act. ERISA holds plan sponsors liable for actions that may be adverse to the interests of plan participants and guarantees participants the right to bring litigation in federal court to obtain any health treatment that may have been denied, said James Kinder, the institute's chief executive officer.

Alfred Moore, the president and CEO of third-party administrator Wausau Benefits put it bluntly: "ERISA provides a good set of rules. The pro posed law will be a bad law."

Opponents also point out that since the majority of self-funded plans use the preferred-provider system, the issue of medical treatment doesn't even come into play as it does with health maintenance organizations. PPOs allow enrollees to use any provider in the organization or outside of the PPO without prior approval, but there is a financial incentive in lower coinsurance payments to use providers within the PPO, according to the American Association of Preferred Provider Organizations. "Certain legislators believe there should be liability for most insured arrangements, but there is a huge difference between HMOs and PPOs," said George Pantos, the Self-Insure Institute of America's Washing ton counsel.

Washington View

Handicapping the McCain-Kennedy bill, Washington insider Paul Dennett said priorities changed when the new administration came to town. Whether a patients' bill of rights becomes a reality depends on what the most powerful person in Washington, D.C.--President George W. Bush--thinks about the legislation. "Some of the momentum has slowed down concerning this bill compared to other issues such as taxes, the environment and education," said Dennett, vice president, health policy for the American Benefits Council, a lobbying group focused on how federal regulation affects the employee benefit system.

The political dynamics have changed from a Democratic president calling for a tougher version of a patients' bill of rights to a conservative Republican president searching for a middle ground. Bush has indicated he will not sign the McCain-Kennedy bill, because he said it will cause unnecessary litigation. "Americans want meaningful remedies, not a windfall for trial lawyers resulting in expensive health-care premiums and unaffordable health coverage," according to the White House's response to the McCain-Kennedy bill.

"The McCain bill doesn't make it across the goal line. It's contrary to the president's principles, and Republicans would have to think long and hard to vote for something he would veto," Dennett said.

Signing a patients' bill of rights is still a priority for the president, however. The president "believes this is the year it can be done, and he's going to dedicate himself to getting it done," said White House spokesman Ari Fleischer at a briefing in February. In the meantime, lobbyists are watching for several signals to gauge the fortunes of the bill, such as any comments the president makes to guide efforts toward a middle ground and statements from the Democratic leadership on priorities for the next congressional session. But Dennett says the bill is in the "behind-the-scene phase, not a front-and-center issue."

In response to the president's veto threat for the McCain-Kennedy bill, another bipartisan bill is in the works. The new bill, drafted by Sens. William H. Frist (R-Tenn.), James Jeffords (R-Vt.) and John Breaux (D-La.), allows for no punitive damages and would place a $500,000 cap on noneconomic damages and allow for unlimited economic damages.

The Verbal Offensive

As the bipartisan McCain-Kennedy bill lingers in House and Senate committees, members of the Self-Insurance Institute of America, like Wausau Benefits, are busy lobbying legislators to vote against the bill. They view the effort as part educational and part exercising their rights. Pantos said the institute's goal is to educate Congress in the finer points of the bill, such as the differences between PPOs and HMOs. Moore said he "strongly believes in his right to petition."

Right now, lobbyists, employers and self-insurance industry members are focusing on visiting the members of the House and Senate committees where the bill resides. Before the sum mer recess, Pantos plans to accelerate the lobbying efforts by making more Capitol Hill visits and urging institute members to call, write or visit their local legislators. "We sent letters containing key talking points to all committee members and have institute members visit them back in their home state," Pantos said. As a large employer in Wisconsin, Wausau Benefits has targeted that state's legislative delegation for lobbying against the McCain-Kennedy bill. This grass-roots effort is more important than lobbying, Pantos said. "Legislators are more concerned about voters than lobbyists. The most effective kind are visits to legislators by employers. We try to tie a one-on-one visit with a legislator to how it will affect their constituents back home," Pantos said.

Self-Insured Health Plans

In 1999, more than two-thirds (67%) of employees enrolled in PPO plans were in self-insured plans, but only 19% of those with HMO plans were in self-insured plans.

Conventional           62%
Preferred Provider     67%
Organization
Health Maintenance     19%
Organization
(In-Network Only)
Point-of-Service       47%
Plan (Out-of Network)
Source: Kaiser/HRET survey of
employer-sponsored health benefits.

A Plan for a Self-Insured Health Plan

Large, financially sound companies are finding several advantages to setting up a self-funded health insurance plan. They include paying only for claims that occur, rather than for premiums prior to a participant's claim experience, and being able to modify the coverage to reflect the needs of employees.

For instance, if the majority of a company's employees are young families, it can offer a health plan that covers well-child visits. Employers with self-funded health plans have control over the plan's reserves, allowing the company to invest the money to its maximum benefit. The self-insurance option also means the employer doesn't have to pay state health insurance premium taxes, which are 2% to 3% of the premium dollar's value. "Many employers want to spend money on benefits for their employees, not on taxes on insurance premiums," said Alfred Moore, chief executive officer of third-party administrator Wausau Benefits.

Because self-insured companies need a strong financial base, the overwhelming number have 500 or more employees, while only 29% of companies with 100 to 500 employees participate in self-funded programs. Good candidates for self-funded health plans have a long operating history and a predictable cash flow, so they will be able to pay the claims, Moore said.

Before setting up a plan, employers need to contract with a third-party administrator and a stop-loss insurance carrier. Some companies, such as Wausau, the ninth-largest third-party administrator in the United States, offer both services. The third-party administrator's job is to administer the plan for the employer by managing enrollment and claims and arranging for a medical-delivery system, through preferred-provider or health maintenance organizations. Stop-loss insurance covers claims for the entire plan or a set of predetermined individuals in the plan when claims reach a maximum limit. Generally, a firm would set its total limit between $65,000 and $200,000, depending on demographics, claims history and type of health insurance plan, according to the Self-Insurance Institute of America.

Moore advises employers to choose a third-party administrator that can offer a guaranteed level of service in areas such as claims-turnaround time and enrollment accuracy. Choosing a technologically advanced third-party administrator is essential, he said. "In today's world, how automated a TPA (third-party administrator) is drives the cost of success," Moore said. The more automated the third-party administrator is, the more efficiently and cost effectively it is able to process claims, he said.

Wausau Benefits, which receives 25,000 claims a day, reports that 65% of its claims are handled online and "not touched by human hands." Moore cautioned, however, that the third-party administrator of choice must have a sufficient amount of electronic data capacity and offer service via the Internet.