Who Wins Witherisa Essay, Research Paper

David pham

#63540197

Writing 39C

Proposal 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

plan coverage.

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

their needs.

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.

Assoc.).

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.

Psych. Assoc.).

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).

Works Cited

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.

*http://www.apa.org/practice/erisa.html*

(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.

*http:www.aarp.org/monthly/managedcare/home.html* (21

April 1999).

Pollack, Ron. ?Current Problems with the Federal

Employment Retirement Income

Security Act of 1974.? 14 May 1998.

*http://www.familiesusa.org/erisa2.htm*

(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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755

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.