The future of managed care: The debate continues. (Health Policy Update).

Health care reform continues to occur in incremental steps. The Employee Retirement Income Security Act (ERISA), once a sacred cow, is now under intense scrutiny. The "Patient Access to Affordable Care Act" has served as a catalyst to address consumer concerns about access and quality. Congressional action could bring about a fundamental shift in the control over health care.

In a year when Congress plans to do little on health care and has a short legislative schedule because of the Fall elections, two health care wild cards are the subject of intense lobbying. One is a national tobacco policy. The other is the future of managed care, which has surfaced in the form of a debate over one proposal, "The Patient Access to Affordable Care Act" (PARCA) H.R. 1415 / S. 644.

PARCA amends the Employee Retirement Income Security Act of 1974 (ERISA) to permit consumers to choose their own physicians, and provide direct access to specialists. Patients also would be able to receive emergency care without preauthorization from their managed care plans. It contains two features from the 1994 Clinton health care reform plan. One is "guaranteed issue" (ensuring people can get health insurance even if they wait until they are sick before they purchase it. The other is "community rating" (ensuring everyone would pay the same premium regardless of risk. The proposal further permits consumers to sue their managed care plans for malpractice, widening the liability exposure for managed care organizations.

PARCA is sponsored in the House of Representatives by Representative Charles Norwood (R-GA) and in the Senate by Senator Alfonse D'Amato (R-NY). Representative Norwood was a practicing dentist for 25 years before coming to Congress two years ago. Like many health care providers. he was unhappy about health maintenance organizations and the limits he perceived they put on patient choice. The House version of PARCA has more than 200 co-sponsors, while the Senate version has less then a dozen.

Even though the bill was introduced by two Republicans, it is under attack from a full range of those in the political spectrum. More important than the bill itself is the impact it has had on the debate of how to regulate managed care. Many have declared PARCA dead, but it has spawned a series of "work groups" on Capitol Hill developing alternatives and is under attack through a major advertisement campaign by employers and insurers.

Why reform ERISA?

Ironically, it was the states' failure to police pension plans adequately before 1974 that led to the passage of ERISA. This act is credited with allowing large employers to deliver uniform benefits across a diverse spectrum of state jurisdictions and to avoid compliance costs of satisfying hundreds of state mandates. Much of the law that has developed under ERISA has evolved through court cases. Rights developed by the courts contain duties of disclosure to plan participants and beneficiaries beyond ERISA's reporting and disclosure requirements including: providing correct and complete information to participants about their options under a plan; disclosing negotiated discounts that should effect participants heath care costs; and accurately disclosing financial incentives provided under HMO/physician contracts.

In a 1997 decision involving incentives, the judge noted that a patient's reliance on a physician's advice was such that the "patient must know whether the advice is influenced by self serving financial considerations created by the health insurance provider"--in this case, an ERISA plan. (1)

The challenge to ERISA comes at a time when the universe of self-insurance has been expanding to include an increasing number of smaller firms, many of which do not purchase reinsurance. These smaller companies, as well as larger employers that began self-funding in the 1980s, are now migrating rapidly into capitated managed care despite the financial risks that arise. In addition, state insurance commissioners vary in how aggressively they police these firms.

ERISA is credited with controlling health care costs, but is criticized as being a stumbling block to reform. More recently, the U.S. Department of Labor has begun the process of reexamining ERISA regulatory infrastructure with a view to updating early standards for claim processing that have become anachronisms in the world of managed care. While ERISA is often seen as a shield from state health insurance regulation, It has provided an alternative framework for self-insured health plans. Now Congress will have to decide how far to revise ERISA in order to address consumer unhappiness.

Almost all private health plans, providing care to 125 million people, are covered by general provisions of the law. Only the 40 percent that are self-insured are exempt to some extent from state health insurance regulations. One of the biggest sources of hostility toward ERISA in both Congress and the states is a provision limiting liability for damages for self-insured plans. By limiting wrongful denials to the value of the denied treatment, ERISA plans avoid penalties for pain and suffering or punitive damages in egregious cases.

Impact of PARCA

President Clinton signed an Executive Order on February 20, 1998, making the Consumer Bill of Rights policy for all federally funded health care programs. While additional legal authority is required to fully implement some portions of the order, the target date for most provisions is December 1999. This order covers as many as one third of insured Americans making ERISA the next major target for health care reformers, The Presidents' Bill of Rights is viewed by many as more moderate than PARCA, therefore many on Capitol Hill have become concerned that the Norwood bill will not pass. The Republicans have begun to create other proposals to compete with the Clinton Administration's efforts. Democrats also want to create additional proposals setting off another set of work groups on Capitol Hill.

In the House of Representatives, Speaker Newt Gingrich (R-GA) has assigned the responsibility of coming up with an alternative proposal to Representative Dick Armey (R-TX), the House Majority Leader, Minority Leader Richard Gephardt (DM0) has also established a task force that will craft an omnibus Democratic proposal.

In the Senate, Senator James Jeffords (R-VT), Chairman of the Senate Labor Committee, has unveiled his latest and final draft of a consumer protection bill. This proposal details information that health plans must provide, but leaves out other consumer protections, such as direct access to specialists. The Jeffords' proposal requires plans to provide consumers with user-friendly information about coverage, procedures to access specialty and emergency care, and complaint resolution procedures. Plan administrators would also be required to give participants of group health plans a copy of the most recent summary plan description with comparative data.

Democrats in the Senate are also working to put together a bill. Minority Leader Tom Daschle (D-SD) and Senator Edward Kennedy (D-MA) are leading this effort. That bill includes the President's Bill of Rights, creates an ombudsman in every state, and leaves it up to the states to determine whether individuals may sue their health plans for malpractice.

Political opposition

PARCA has been opposed by the Health Benefits Coalition for Affordable Choice and Quality, a group of 31 health care and business organizations. This coalition began running a million dollar advertisement campaign against PARCA and other federal health care mandates. The Christian Coalition also opposes PARCA, and sent a letter to Capitol Hill calling PARCA "Clinton Care with a face lift." (2) It has also been estimated that PARCA will create nearly 500 new regulations which some find burdensome.

The Health Insurance Association of America, the American Association of Health Plans, and the National BlueCross/BlueShield Association, as well as individual insurance companies, have been touting their own consumer and patient protections initiatives for months, realizing public frustration will not allow Congress to ignore the issues raised by PARCA.

The cost argument

Representative Norwood admits that his bill might raise patient premiums, but claims the benefits of PARCA would offset any costs incurred. In addition, by "leveling the playing field," he claims managed care companies would then compete against one another fairly. A recent Milliman and Roberts study showed that PARCA might drive up health premiums anywhere from 7 to 39 percent. (3) Another actuarial study by Muse and Associates estimates PARCA will only increase premiums between 0.7 to 2.6 percent. Norwood has said his "gut" estimate is that it might raise premiums one dollar a person. (4)

The Congressional Budget Office and the Lewin Group indicate that every one percent increase in health care premiums could force 200,000 to 400,000 Americans to lose their health insurance. The Health Benefits Coalition believes PARCA could lead to an additional 5 to 9 million uninsured. (5) They also cite polling data showing that regulating HMOs looses significant support when people understand it has the potential to raise premiums and increase the numbers of uninsured people. (6)

Conclusion

PARCA has acted as a catalyst in the health care debate over the future of managed care. ERISA, once a sacred cow, is now under intense scrutiny. Congress is laying the ground work to create consumer protections in health care, but time in this legislative session may run out. If Congress acts this year, there could be a fundamental shift in the control over health care.

References

(1.) Cunningham. R. (Editor). "Perspectives," Medicine and Health, October 27, 1997.

(2.) Christian Coalition letter to Members of Congress, January 28, 1998.

(3.) Coat of Consumer Protections Debated. The Wall Street Journal, December 5, 1997.

(4.) PARCA Costs Defended, Federal Filings, January 27, 1998.

(5.) Coalition Finds Fault With Consumer Proposals. PR Newswire, January 21, 1998.

(6.) Public Opinion Research for the Health Benefits Coalition, January 11, 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.