Who Wins Witherisa Essay, Research Paper
3 June 1999
Who Wins With ERISA?
The system of managed care began in the United States in the early 1900s, in an effort ?to provide coordinated health care in a cost-effective way?(Amer. Assoc. of Retired Persons). Until recently,? managed care has emerged from the shadows to become the dominant form of health insurance and delivery,? succeeding the older fee-for-service program (Zelman and Berenson 2). Today, about 160 million Americans are enrolled in some kind of managed care plan. Managed care ?has made health care more affordable andmore accessible for Americans. But sometimes cost
cutting can lead to lower standards? (Clinton 1).
Because managed care plans provide medical care to
their members at a fixed rate, there is a substantial
limit to the medical care each member can receive.
Under this system of prepayment, managed care
organizations (MCOs) can profit off every dollar of
revenue that is not directly spent on patient care.
This produces the problem of incentives, or
temptations for MCOs not to provide sufficient medical
care to their members, all too often resulting in
tragedy (Fox, et al. 56). This problem explicitly
impacts the estimated 125 million Americans who
receive health insurance through MCOs that are
provided by their employers. A federal law known as
the Employment Retirement Income Security Act of 1974
(ERISA) governs these self-insured plans. Under the
Employment Retirement Income Security Act,
ERISA-regulated MCOs are not legally held accountable
for their actions. Until Congress passes The
Patients? Bill of Rights, MCOs will continually and
wrongfully deny patients from quality care.
Health costs have continually risen over the last
decade. The average-income American family now spends
an estimated $5,000 per year on health care alone, an
amount that more than doubled from 1988-1996
(Maciejewski). In an effort to relieve working
Americans from this burden, Congress devised a federal
tax law that would enable employees to obtain tax
benefits for health insurance through their employers.
Today, the vast majority of insured Americans acquire
their health insurance through the workplace. ERISA
governs the employer-based health system to protect
employees from the potential abuses from their health
plans (Amer. Psych. Assc.). Although both the tax
code and ERISA were concocted to help and protect
employees, they play an indirect role in shaping the
inefficiencies that envelop the employer-based system
of health care. Subsequently, regulations imposed by
managed care organizations (MCO) on physicians also
contribute to the inefficiency.
Under today?s tax code, Americans can receive a
discount on health insurance, granted that they attain
it through an employer. The reason for this stems
from a single provision of the Internal Revenue Code,
?which excludes employer premiums from the employee?s
taxable income? (Goodman). This means that health
benefits provided by insurers are exempted from an
individual?s earnings, treating them as if they were
expendable to the actual income. This tax alleviation
?can reduce the cost of health insurance by 30 percent
or more for an average-income family? (Goodman). By
calculation, ?an extra dollar of earnings can be used
to buy a dollar?s worth of health insurance as an
alternative to 70 cents of take-home pay? (Goodman).
In contrast, individuals who purchase their own health
insurance receive no tax benefits; therefore, most
employees choose to join their employer-based health
Many employers want to ensure that their workers have
good access to health care so that they are more
likely to stay healthy. Despite having to provide
health insurance for their employees, employers also
have to worry about the competition in the market.
Because of this added obstacle, ?employers will strive
to push their employees into the least expensive
insurance program in order to cut costs and remain
competitive? (Gervais). Employers tend to favor
managed care organizations because of their
cost-cutting strategies. Doctor Robert P. Gervais,
member and Board of Director of Physicians Who Care,
explains MCOs? cost-cutting approach: ??managed care
instruments promise to rein in medical costs by paying
doctors, hospitals, and nurses more money to do less
for patients?When fewer health care services are
provided, health care costs should go down. It is
clear that patients lose under a managed care system?
(Gervais). Employees are also usually limited to the
choice of one health plan?that which their employer
chooses to provide (The Center for Patient Advocacy).
This is unfair to employees because they cannot shop
around to find a health plan that would best suit
The whole medical system becomes inefficient. The
tax code neglects that individual choice is ruled out
in the employer-based health system. How could
quality care be insured in the health care system if
individual choice does not exist? Furthermore, the
tax code fabricates health care as an invisible
benefit, ?seemingly free to employees? because costs
are directly deducted from their paycheck
(Maciejewski). As a resulting effect, employees
become less cost-conscious, overpaying for unnecessary
coverage and services ?that could have been purchased
more efficiently out of pocket or might not have been
purchased at all? (Goodman).
In sum thus far, Congress has inadvertently placed
the health of working Americans in the hands of their
employers, which in turn is overseen by the physicians
of the managed care plan. Because of strict
regulations and policies imposed by managed care plans
on their physicians, they represent yet another factor
in the inefficient system of managed care. Physicians
are attracted to Managed care plans under the premise
that they would be guaranteed an abundant number of
patients. Once enrolling, physicians are prompted to
sign a contract. Provisions or ?gag clauses? in
physician contracts prevent them ?from giving patients
information about treatment options that may not be
covered by their health plans? (Cooper). This is a
clear violation of the informed consent requirement
that Congress has dictated as law. Moreover, gag
clauses may also limit physicians from referring
patients to specialists outside their health plans.
Some managed care organizations and insurance
companies retaliate against doctors who send their
patients to specialists too many times, or too soon,
or order expensive tests that the doctor feel is
necessary but the MCO does not. They retaliate by
firing doctors who do not follow their rules even if
their rules may be dangerous to patients.
The pre-determined budget or utilization target that
MCOs establish and their physician payment system
affix more problems. The system of capitation that
physicians are paid accordingly to, provides
physicians a fixed amount, not per service, but per
enrollee on a monthly basis. Because physicians are
given a utilization target that limits how much they
could spend on patient care, they can be put in a
financially insecure situation. If the utilization
target is surpassed, the physician must pay for the
extra services himself. Therefore, instead physicians
are tempted to provide less service to their patients.
Providing fewer services can be detrimental to
patients but can be rewarding for physicians. Bonuses
are given to physicians from the unspent fund when
services of their patients? are lower than the
utilization target. The expressed concern that MCO
policies and regulations have in interfering with the
doctor-patient relationship is keenly expressed by Dr.
Bruce Rushbaum, who practices internal medicine: ?The
plans have swung so far against what is good for the
patient and what is fair for the physician that it has
impacted most negatively on the quality of health care
in this country? (Bierbauer).
If physicians are making negligent decisions that are
jeopardizing the health care of patients, why don?t
they file a claim for damages against their physician
or their health plan? Congress has passed patient
protection acts that would allow patients to be
compensated for damages caused to them, however, this
does not apply to everyone. Those patients that are
enrolled in employer-based health plans, governed by
the Employment Retirement Income Security Act, don?t
have the same protections. ERISA, which was ratified
by Congress in 1974, was ?intended to protect
employees from potential abuses by their benefits
plans. However, with the evolution of the health care
system from a fee-for-service to a managed care
system, ERISA has evolved into a shield of immunity
that protects MCOs from potential liability for their
negligent denial of health benefits (Amer. Pysch.
The main reason for ERISA?s failure is its ?preemption
clause?. This loophole requires that ?federal law
override state laws relating to employee pension and
benefits plans. When applied to managed care health
plans, the clause creates an incentive to deny care
because it removes (?preempts?) state law protections
for patients, while federal law offers them virtually
no effective remedy? (Hoffman and Hiepler A19). This
unfortunately puts workers and their families much at
risk. In a Louisiana case, Corcoran v. United
Healthcare, Inc., 965 F .2d_1321 (5th Cir. 1992),
Florence Corcoran was insured through her employer
which administered United Healthcare as the
utilization reviewing agency. Mrs. Corcoran was
deemed to have a high-risk pregnancy because of her
history with pregnancy-related problems. Taking this
into careful consideration, ?her doctors recommended
hospitalization so that the fetus could be monitored
as the due date approached, and another obstetrician
(who was used for a second opinion) concurred?
(Pollack). Despite her doctor?s request, United
Healthcare insistently denied the hospitalization, but
appointed an in-home nurse to attend Mrs. Corcoran ten
hours a day. While the nurse was off duty, the fetus
developed complications and died. Mrs. Corcoran and
her husband brought their litigation to court,
alleging that the MCO?s decision not to provide her
with the hospitalization caused the death of their
unborn child. Despite the obvious injustice, the
courts ruefully ruled in favor of the MCO because of
the ERISA preemption clause. Sadly, but true enough,
the haplessness of this situation can be best put in
the words of Bob Herbert of the New York Times,
?Insurance companies are not in the business of curing
people, they are in the business of making money.
They will use any excuse to deny payment of what they
perceive as more expensive therapy? (qtd. in Zelman
and Berenson 106).
Under ERISA, patients are entitled to equitable
relief. This means that a patient can recover the
value of the denied service, which sometimes comes far
too late. However, ERISA restricts patients from
obtaining monetary damages or ?compensation to make
him or her whole from the benefit denial, even in an
event of loss of life because of the health plan?s
improper denial? (Pollack). The Corcoran family only
received in compensation, the value of the denied
hospitalization, an insignificant amount compared to
the life that was lost.
The Patients? Bill of Rights, supported by the
American Medical Association and the American Nurses
Association to name a few, would ensure an end to
MCOs? wrongful conduct. Should Congress enact this
bill, the Patients? Bill of Rights would provide
patients an independent authority where they can
appeal their managed care plan?s decisions. Patients
would also have the right to hold health plans
accountable when things go wrong. Another important
aspect of the bill is that it would allow patients to
get emergency services when the patient thinks he or
she needs them. Had this bill been approved in
previous legislative reforms, Troy Benoit would still
be walking today. In Benoit v. WW. Grainger, Inc. et
al., No. 98-1315, 1998 U.S. Dist. LEXIS 16988, 7 (E.D.
La. Oct. 21, 1998), Mr. Benoit?s health insurer,
Aetna, refused to provide the emergency services he
needed. After sustaining serious neck and spinal
injuries from a motorcycle accident, hospital
physicians urgently recommended that he have surgery
immediately. Aetna formally refused to fund the
procedure, but eventually certified it. Despite the
reversed decision, Mr. Benoit was left paralyzed with
little or no chances of ever walking again (Amer.
It is evident that the tax code unintentionally limits
the choice of health plans that employees can choose
from, sometimes being limited to only one choice.
Employees are wrongfully compelled to join a health
plan that is not in their best of interests.
Regulations imposed on physicians also add to
inadequate health care. The failure of the intended
role of ERISA, to protect employees, predominantly
adds to the inefficiency of the managed care system.
The working American, thus, is truly a victim of a
non-ending cycle of negligence and irrationality
embedded in the lawmaking by Congress.
Yet opponents in Congress and the managed care
industry, especially self-insured employers, have
reasons to believe that expanded liability will force
insurers and employers to pay for unnecessary health
care, encouraging employers to drop health coverage.
Also, the Patients? Bill of Rights will increase
health plan costs, which would ultimately increase the
number of the country?s uninsured.
The managed care industry fears that the Patients?
Bill of Rights would have a reverse effect. The
opponents of legislative reform argue that expanded
liability on ERISA-regulate MCOs (mainly the
employer-based system) would force insurers and
employers to ?practice ?defensive utilization
review??paying for unnecessary or inappropriate health
care to reduce their risk of even more costly
litigation? (Arg. Against Liability). Patients would
have the incentive of taking advantage of health care
services causing an unbalance in the health care
budget. If managed care legislation passes, it would
further more encourage employers to drop health
coverage. If employers were to be discouraged from
providing health insurance, this would force insurance
companies to downsize their networks and eventually
consumers would ?have substantially less choice among
available types of coverage? (Arg. Against Liability).
Another point that opponents of the Patients? Bill of
Rights want to clarify, is the effect that managed
care reform will have on the costs of health
insurance. Because the health system is so
competitive, insurers ?cannot afford to absorb the
increased cost of expanded liability? (Arg. Against
Liability). These costs would be passed on to
employers, who also cannot afford to absorb the costs.
Unfortunately, these costs are eventually passed on
to employees, ?either directly or indirectly lowering
their pay or decreasing the amount of benefits they
receive? (Hoffman 17). Moreover, expanded liability
could escalate the costs of health care. Increased
costs of health plan coverage would have a chilling
effect in increasing the number of uninsured
Americans. This negative aspect of managed care
reform is supported by the general counsel of the Self
Insurance Institute of America, Brian Davenport, who
also practices law in Franklin, Indiana: “If you
substantially increase the cost of providing the
benefits, I think there?s a strong possibility that
you will substantially increase the number of people
without benefits? (Hoffman 17).
The supporters of the managed care industry and the
employer-based health care system have brought into
perspective, rational arguments. Despite their
contrasting viewpoints, they fail to realize that
employers are not the ones making the medical
decisions, managed care plans are. Managed care
reform protects employers from liability when they are
not involved in the medical decision that results in
harm. The principle that we should be held
accountable for our own actions is universally
accepted. The bottom line is that managed care plans
should be held accountable, just as everyone else is.
Congress can improve ERISA by explicitly removing the
?preemption clause? that currently limits states?
abilities to establish accountability for wrongful
denials of MCOs? to their patients. If ratified, the
Patients? Bill of Rights would amend the loophole in
ERISA. Congress should do its part to protect the
welfare of those Americans that are affected by
ERISA-regulated MCOs. Three of the top managed care
organizations in the industry, including Kaiser
Permanente, are calling for legally enforced
standards. Clearly, ?when respected leaders of an
industry are calling for standards to be placed upon
themselves, it is a sure sign that Congress should
act? (Managed Care Reform: Fact vs. Fiction).
Clinton, Bill. ?The President?s Radio Address.?
Weekly Compilation of Presidential
Documents. 10 August 1998: 1556.
?ERISA Managed Care Organizations Should Be Held
Accountable for Decisions that
Harm Patients.? 1 February 1998.
(21 April 1999).
Fox, Peter D., et al., eds. Determinents of HMO
Success. Office of Health Maintenance
Organizations. January 1998: 56.
Hoffman, Ronald F. and Mark O. Hiepler. ?An Easy Out
for Managed Care.? The
Washington Post. 4 April 1998: A19.
?Managed Care Reform Legislation: Fact vs. Fiction.?
1 January 1999.
(21 April 1999).
?Managed Care: What Consumers Need to Know.? 3 August
Pollack, Ron. ?Current Problems with the Federal
Employment Retirement Income
Security Act of 1974.? 14 May 1998.
(21 April 1999).
Zelman, Walter A. and Robert A. Berenson. The Managed
Care Blues and How to Cure
Them. Washington D.C.: Georgetown Press, 1998.
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Clinton, Bill. “The President’s Radio Address.” Weekly Compilation of Presidential Documents. 10 August 1998: 1556.
“ERISA Managed Care Organizations Should Be Held Accountable for Decisions that
Harm Patients.” 1 February 1998.
(21 April 1999).
Fox, Peter D., et al., eds. Determinents of HMO Success. Office of Health Maintenance Organizations. January 1998: 56.
Hoffman, Ronald F. and Mark O. Hiepler. “An Easy Out for Managed Care.” The
Washington Post. 4 April 1998: A19.”Managed Care Reform Legislation: Fact vs. Fiction.” 1 January 1999. http://www.patientadvocacy.org/main/managed care/mcrl_fvf.html
(21 April 1999).
“Managed Care: What Consumers Need to Know.” 3 August 1998.
(21 April 1999).
Pollack, Ron. “Current Problems with the Federal Employment Retirement Income
Security Act of 1974.” 14 May1998.
(21 April 1999).
Zelman, Walter A. and Robert A. Berenson. The Managed Care Blues and How to Cure Them. Washington D.C.: Georgetown Press, 1998.