Order Code RS20937
Updated June 19, 2001
CRS Report for Congress
Received through the CRS Web
Federal and State Causes of Action Against
Health Plans Under S. 1052 and S. 889
Angie A. Welborn
Legislative Attorney
American Law Division
Summary
One of the central issues in the debate over patient protection legislation is the
jurisdiction in which suits against health plans may be brought. Both S. 1052 and S. 889
provide federal causes of action for certain types of suits against managed care plans, and
to differing degrees, allow certain types of suits to be brought in state courts. However,
each bill presents a different set of requirements for cases heard in either jurisdiction.
This report discusses the provisions under each bill that would give a federal court
jurisdiction over suits against managed care plans, and under what circumstances a state
court would likely have jurisdiction.
S. 1052, Bipartisan Patient Protection Act
S. 1052,1 introduced by Senator McCain and cosponsored by Senators Kennedy and
Edwards, would amend ERISA to create a new federal cause of action against managed
care plans and to exclude certain state causes of action from ERISA’s preemption
provisions, allowing participants and beneficiaries to bring these claims in state court.2
Federal Causes of Action
Federal causes of action would be allowed in situations where the health plan fails to
exercise ordinary care in making decisions regarding the terms of the contract between the
plan and the participant or beneficiary, including whether an item or service is covered
under the plan, whether an individual is enrolled in the plan, and the application of specific
exclusions and limitations under the plan, and such failure is the proximate cause of the
1 S. 1052 is similar to S. 283 and S. 872, earlier bills introduced by Senator McCain and
cosponsored by Senators Kennedy and Edwards. S. 872 was the subject of an earlier version of
this report.
2 Employee Retirement Income Security Act of 1974, 29 U.S.C. 1132, 1144.
Congressional Research Service ˜ The Library of Congress

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participant’s personal injury or wrongful death.3 Additionally, a cause of action could be
brought in federal court where the plan fails to exercise ordinary care in the performance
of any duty under the plan, which is the proximate cause of the participant’s injury or
wrongful death. Federal causes of action may not involve a “medically reviewable
decision” and may not be brought if a cause of action may be brought in state court.4 All
administrative remedies must be exhausted before a cause of action may be brought unless
the personal injury is first known to the participant or beneficiary after the latest date by
which the administrative remedy requirements could be met. Additionally, the exhaustion
requirements do not apply in any case of immediate and irreparable harm or death
occurring, as a result of the denial of a claim for benefits, prior to the completion of the
administrative process.5
Examples of the types of cases brought in federal court, under S. 1052, would be a
case in which a participant or beneficiary alleges that the plan has failed to exercise
ordinary care in refusing to cover an item that is not specifically excluded from coverage
under the terms of the plan, or a case in which a participant or beneficiary challenges the
plan’s allegation that a dependent child is not enrolled in the plan. These types of cases
would not involve the quality of the care received or the plan’s denial of a claim for
benefits based upon a “medically reviewable decision,” only the plan’s interpretation of the
health care contract or a failure to exercise ordinary care in the performance of a duty
imposed under the terms of the plan.
State Causes of Action
ERISA’s preemption clause would be amended by S. 1052 to allow a participant or
beneficiary to recover damages resulting from personal injury or wrongful death in a cause
of action against a managed care plan in state court, if the cause of action arises by reason
of a “medically reviewable decision.”6 Medically reviewable decisions involve the plan’s
denial of a claim for benefits based upon a determination that the item or service is not
covered because it is not medically necessary and appropriate or that it is experimental or
investigational, or a determination that an item or service is not covered on grounds that
require an evaluation of the medical facts by a health care professional to determine the
coverage and extent of coverage for an item or service.7 Medically reviewable decisions
are those that are eligible for independent review, and such review must be exhausted
3 Liability as to employers or plan sponsors is limited to those who directly participate in the
decision making process. For an analysis of the direct participation language see CRS Report
RS20868, Employer Liability Provisions in Selected Patient Protection Bills, by Angie A.
Welborn.
4 See infra for a discussion of what constitutes a “medically reviewable decision” and when a cause
of action may be brought in state court.
5 Irreparable harm is defined in S. 1052 as “an injury or condition that, regardless of whether the
individual receives the treatment that is the subject of the denial, cannot be repaired in a manner
that would restore the individual to the individual’s pre-injured condition.”
6 See supra note 3.
7 Items or services denied coverage based upon one of the above stated determinations must be
items or services that would otherwise be covered under the terms of the plan. The bill does not
require coverage of items or services that are expressly excluded from plan coverage.

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before these claims can be brought in state court, except under the special circumstances
discussed above.
An example of the types of cases that would be allowed in state court under S. 1052
would be a case in which the plan has denied coverage of an experimental treatment for
breast cancer when other breast cancer treatments are covered under the plan. Cases in
which a participant or beneficiary has been denied a specific item or service, such as a
wheelchair or extended physical therapy, based upon a medical necessity determination
could also be brought in state court. These types of cases would not involve a
interpretation of the plan’s contract, only the plan’s denial of a claim for benefits based
upon a medically reviewable decision that has given rise to the participant’s personal injury
or wrongful death. Additionally, S. 1052 would not affect any state law relating to the
practice of medicine or the provision of medical care, or a cause of action based upon any
such law. Thus, state laws relating to medical malpractice or negligence would not be
affected, and suits based upon the quality of care received could continue to be brought
in state courts.
S. 889, Bipartisan Patients’ Bill of Rights Act of 2001
S. 889 would amend ERISA to create a new federal cause of action against health
plans, but would not amend the preemption provisions of ERISA to allow new causes of
action to go forward in state courts.
Federal Causes of Action
Participants or beneficiaries would be allowed to bring a cause of action in federal
court in situations where the plan failed to exercise ordinary care in approving coverage
pursuant to the written determination of the independent medical reviewer, where the
independent reviewer reversed the plan’s denial of a claim for benefits, and such failure is
the proximate cause of substantial harm to the participant or beneficiary.8 In addition,
federal causes of action would be allowed where the plan failed to exercise ordinary care
in making an initial denial of a claim for benefits or during the internal appeals process, that
denial is subsequently reversed by the independent medical reviewer, and the delay in
providing benefits resulting from the denial is the proximate cause of substantial harm to
the participant or beneficiary. Administrative remedies must be exhausted prior to the
commencement of a cause of action. However, a participant or beneficiary may seek
injunctive relief prior to the exhaustion of administrative remedies if it is demonstrated to
the court, by a preponderance of the evidence, that the exhaustion of such remedies would
cause irreparable harm to the health of the participant or beneficiary.
The types of cases that would likely be brought in federal court under S. 889, include
cases in which a plan refuses to cover an item or service, such as in-home nursing care,
based upon a determination that such item or service is not medically necessary, the
participant pursues administrative remedies through the independent review stage, and the
8 Liability is imposed on the plan’s designated decision maker. See CRS Report RS20868,
Employer Liability Provisions in Selected Patient Protection Bills, by Angie A. Welborn, for an
analysis of the designated decision maker language.

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independent reviewer reverses the plan’s denial, but the plan fails to exercise ordinary care
in approving coverage pursuant to the independent medical reviewer’s reversal. Cases in
which an item or service was denied coverage based upon a determination that the item
or service was experimental or investigational, such as an experimental treatment for
multiple sclerosis, and the denial was later reversed by the independent reviewer, could
also be brought in federal court where the participant or beneficiary has suffered
substantial harm as a result of the delay in providing care.
State Causes of Action
The preemption provisions of ERISA would not be amended under S. 889; therefore,
S. 889 would not allow any new causes of action against health plans to be brought in
state court. However, S. 889 would not preclude any action under state law against a
person or entity for liability or vicarious liability with respect to the delivery of medical
care. The bill specifically excludes cases involving a health plan’s administration or
determination of a claim for benefits from the definition of state laws relating to the
delivery of medical care.
The types of cases that would likely go forward in state courts would be those
allowed under current law.9 The bill states that it would not preclude “any action under
State law against a person or entity for liability or vicarious liability with respect to the
delivery of medical care.” Presumably, cases alleging medical malpractice or negligence
on the part of a physician, as well as cases in which a health plan is held vicariously liable
for a physician’s alleged malpractice would be allowed. However, cases which involve the
administration of the benefit plan or a determination of a claim for benefits would continue
to be preempted by ERISA. For example, a participant or beneficiary could go forward
with a claim against a physician for malpractice in performing knee replacement surgery,
but could not bring a claim against a health plan in state court for failure to cover intensive
physical therapy following the surgery.
9 Federal courts seem to be split on the issue of whether state causes of action for medical
malpractice or vicarious liability against managed care plans are preempted by ERISA. Some
federal courts have held that such causes of action may go forward as they relate to the quality of
care received, and not the administration of the health plan. However, other federal courts have
held that such causes of action inherently relate to the administration of the plan and should
therefore be preempted by ERISA. For a discussion of ERISA preemption and state law claims
for medical malpractice, see CRS Report 98-286, ERISA’s Impact on Medical Malpractice and
Negligence Claims Against Managed Care Plans
, by Angie A. Welborn.