Managed care liability. (Health Policy Update).

There are more than 146 million employees in employer-based health insurance plans. More than 125 million of these individuals are in plans that are exempt from state oversight because of the Employee Retirement Income Security Act of 1974 (ERISA). ERISA was originally designed to protect employee pension benefit plans offered by private employers, however, one unintended consequence of this act is that it also applies to self-insured employer-sponsored health benefit plans.

Specifically, the aspect of ERISA that relates to liability preempts state law, thereby prohibiting a member of an ERISA protected employer-sponsored health benefit plan from suing for damages. The effect of this preemption is to deny employees covered under such plans the same level of medical legal protection afforded employees of other plans not protected by ERISA. This has become an Important issue for consumers and is expected to result in intense debate during this year.

Health plan liability

Individuals have the right to sue a practitioner of medicine for damages caused by clinical negligence in all states of the nation. Managed care organizations have historically been spared this action because of the view that they were simply an insurer and do not make clinical decisions. As health plans have become more directly involved in issues related to the delivery of care, the line between insurer and provider of care has become increasingly blurred. Decisions surrounding the denial of benefits or the delay of needed services have become the focus of intense debate. Consumers have reacted by demanding more protection, such as the right to timely appeal of health plan coverage decisions, external review of denied services, and more legal remedies when damages occur.

In theory, individuals can sue their managed care organizations for negligence under state malpractice and liability laws. This is true for both employer-sponsored and nonemployer-sponsored plans. The problem occurs when the managed care organization asserts that it is a self-insured plan and, thereby, protected by ERISA. In these cases, the organizations are usually successful in moving the liability suit from state to federal court, where the question presented is whether ERISA preempts state law remedies. Under state law, a patient can usually seek compensation for compensatory (pain and suffering), consequential (lost wages), and punitive damages. However, under ERISA a patient may be limited to receiving the cost of the wrongly denied benefit in lieu of any other damages.

The courts have taken a more active role in allowing individuals in non-ERISA protected plans to sue. The courts now view managed care as part of an integrated system of care that is responsible for ensuring the quality of its providers, the outcomes they produce, and the integrity of their service delivery system. Managed care plans are also under increased scrutiny as their membership grows and as the legal profession becomes more proficient at trying benefit cases. (1)

Several Congressional proposals that failed last session contained provisions to waive the ERISA preemption. Should Congress act this year to allow individuals to sue their health plans, It would have two options. It could either remove the state preemption of ERISA as it relates to medical liability, or it could create a civil enforcement provision within the current ERISA framework. Such a provision would allow patients to receive compensatory, consequential, and punitive damages from ERISA exempt plans. At the local level, several states have passed legislation to allow individuals to sue their health plans. An additional 31 state legislatures plan to address this issue in 1999. (2)

Last year, the Clinton Administration supported legislation giving patients the right to sue their health plans and reversing ERISA preemptions. A recent decision by the U.S. Department of Labor that regulates employer-sponsored health plans supports the notion that patients should be able to sue their health plans under state law. This decision is limited to employers that buy policies for their workers, but is important because it represents a reversal of an earlier position on the Issue. It also demonstrates the dramatic shift in administration policy in this direction.

The cost to sue

Clearly, there will be some increase to the cost of allowing individuals to sue their health plan. Recent estimates of the rise in premium costs include:

* Congressional Budget Office: 1.2 percent of the average employer-sponsored plan;

* Milliman & Roberts: 0.34 cents on a monthly premium of $160;

* The Multinational Business Service: $1.26 per month per enrollee;

* Price Waterhouse (California plans): 0.1 to 0.4 percent of average monthly premiums;

* Muse and Associates: 0 to 0.2 percent of average monthly premiums;

* Coopers & Lybrand: 0.3 to 0.13 cents per month.

Despite the increase, most supporters believe the costs are worth it. They cite benefits in overall consumer satisfaction and improved health care. Opponents argue that in addition to the added costs, such a law encourages trivial suits and represents more of a benefit to the lawyers than to patients. In addition, they point out that consumers do care about premium costs, and are less likely to support additional mandates if their costs are significantly increased. Consumer tolerance for price increases was evaluated in a recent Blue Cross Blue Shield survey that demonstrated that support for additional mandates decreases from 72 to 45 percent if premium costs increased by 10 percent. (3)

The U.S. Chamber of Commerce, which represents business Interests, is concerned about workers filing suit against their employer if ERISA protections are removed. The Chamber has threatened to advise its members to stop offering health insurance coverage to employees unless they are shielded from liability in any future legislation.

The American Association of Health Plans predicts that more than 1.8 million Individuals would loose their health insurance coverage and as many as 240,000 jobs would be lost in the year 2003. (4) Both the "Patient Access to Responsible Care Act" (PARCA) and the Democratic "Managed Care Bill of Rights' attempted to "carve out" employers from this liability risk if they did not materially participate in the decision that caused injury. It is, however, unclear if either of these proposals would be effective in their intent.

Alternatives to liability suits

External appeal and grievance procedures have been touted as an effective alternative to tort reform. However, a recent review of protection for consumers in managed care plans noted that while plans covered under ERISA provide for a written denial of a claim, and a "full and fair internal review," there is no provision for external review. This leaves the patient with suing in federal court for relief as their only external remedy. As noted earlier, this remedy is limited to the cost of the denied care. (5)

Twenty-two states and the District of Columbia will debate the Independent review of health plan coverage decisions during their 1999 legislative sessions, according to the National Conference of State Legislators. (2) Health plans believe states and the federal government should wait to see the outcome of these efforts and the effect of both internal and external appeal and grievance procedures before moving ahead on tort reform.

In his testimony before Congress, Ron Pollack, Executive Director of Families USA, a leading consumer group, stated that "consumers are most interested in preventing wrongful denials and delays of care, not seeking remedies after the fact. "6 He further stated that he supports both legal remedies, as well as a timely, impartial appeal and grievance process.

Conclusion

The outcome of this issue is difficult to predict. It is clear that several recent legal opinions have eroded the protection that managed care plans have previously enjoyed. Addressing ERISA concerns presents a unique legislative challenge to balance consumer protection against employer and health plan concerns. Managed care plans are increasingly making coverage decisions that directly influence clinical outcomes. Physician executive input is essential to making sound health policy in this area. Congressional action on this issue will dramatically increase consumer protection for more than 125 million individuals.

References

(1.) Moskowitz. D. (Editor). Recent Losses in Liability Lawsuits Portend problems for HMOs, Perspectives on the Marketplace: Medicine & Health, Vol. 52. No. 44, 1998.

(2.) Reichard. J. (Editor). Most States to Consider Right to Sue HMO Bills in 1999, Perspectives on the Marketplace: Medicine & Health, Vol. 52, No. 48, 1998.

(3.) Cunningham, R. (Editor), Patient Protection: Key Differences Emerge on Information, Appeals, Access, and Scope Provisions; But Bills Languish. Medicine and Health Perspectives, Sep 14, 1998.

(4.) Reichard. J. (Editor). Frightening Consequences Seen from PARCA, Bill of Rights Act. Perspectives on the Marketplace: Medicine & Health, Vol. 52, No. 18, 1998.

(5.) Tapay. N. Feder. J. and Dallek. G. "Protection for Consumers in Managed Care Plans: A Comparison of Medicare. Medicaid and the Private Insurance Market," Institute for Health Care Research and Policy. Georgetown University Medical Center, August 1998.

(6.) Congressional Testimony: Senate Labor, Health and Human Services. Education and Relate Agencies Subcommittee. Ron Pollack, Families USA, May 14, 1998.

Georges C. Benjamin, MD, FACP, is the Maryland Deputy Secretary for Public Health Services in Baltimore. He can be reached at 410/767-6510 or via fax at 410/767-6489 or via email at [e-mail].