Contract enforcement reform.

MOST AMERICANS ARE Unaware that, under current law, they can be denied coverage by their workplace insurer but have no real remedy to fight back. Congress has made no effort to change this. Why not?

The Employee Retirement Income Security Act of 1974, designed to protect pension plans, was amended to cover employee health plans as well. Insurers were aware of "federal pre-emption," a concept alien to most citizens: Once Congress acts in an area, all state law on the subject, including normal civil remedies, is voided--even if Congress provides less of a remedy or none at all to replace those it has nullified.

Federal courts have ruled that ERISA so operates unless Congress declares otherwise.

Although ERISA provides strict penalties for mismanaging pension funds, the only recourse it gives someone denied medical coverage is to ask a federal judge (no jury trial is permitted) to order the denied benefits paid.

To prevail, a patient must prove the denial was "arbitrary and capricious," an all-but-impossible burden when the insurer insists that it was merely implementing a general policy. Thus immune from state law, and with no federal teeth in ERISA, workplace group insurers engage in rampant coverage exclusion and claim denial--and are among the most profitable corporations in the insurance industry.

Some patients die before their cases can be heard, and the need for medical care expires. Damages for wrongful death are barred, as are damages for harm caused by the delay. The result is immunity for carriers who masquerade as a worker's best friend while hiding behind the legal fiction that it is "the plan," not the insurer, that has denied coverage. Some insurers even reserve the right to amend "the plan" unilaterally, an overweening power rarely permitted an insurance company under state laws.

ERISA claims crowd the federal court system, delaying justice for themselves and for other cases, sometimes for years, to the delight of the insurance companies and the dismay of patients--and of federal judges struggling to keep dockets current. Many of the oft-mentioned "47 million Americans without health care insurance" actually once had workplace coverage that was denied. All are bereft of the basic common-law remedies available to commercial claimants, who routinely enforce their fire, casualty and other claims in state court.

If a farmer's barn burns or his pigs die from bad feed and his insurance company denies or arbitrarily postpones payment, he can in most states sue and recover penalties and interest, and maybe even punitive damages. But a health insurer that kills a young worker stricken with multiple myeloma by denying payment for an "experimental" bone marrow transplant slithers away scot-free.

Clearly, one key to quality health care is the certainty of contract enforcement. The repeal of the ERISA pre-emption would be a strong step in that direction. When health carriers know they can be called to account like any other insurance company that breaches its contract, there will be a dramatic decrease in benefit denials and a simultaneous increase in prompt care delivery. Federal judges will be relieved of thousands of health insurance claims, and individual patients will, as in other consumer areas, prove far more effective regulators than battalions of new government lawyers.

Congress itself, in the McCarran-Ferguson Act of 1945, expressly forbade any federal regulation of the business of insurance, leaving that to the states. And no intent to repeal or modify McCarran-Ferguson is mentioned in ERISA. So why is the restoration of the freedom of contract enforcement (the repeal of the ERISA pre-emption) not included in any of the health care reform measures now before Congress?

ERISA does not apply to government workplace plans, but lifting its preemption of state remedies for subscribers of non-governmental plans would open the door to the use of the same remedies against government plans. And many insurers and single-payer advocates have privately concluded that budgetary triage and rationing are inevitable. Hence, it is in the interest of all insurers, even the government, to retain ERISA immunity.

Unless Congress repeals the ERISA pre-emption, whatever version of "health care reform" is enacted will, for many, prove illusory.

E-mail Little Rock lawyer Sandy McMath at [e-mail].