Patient Protection and Managed Care: Legislation in the 107th Congress

Patient Protection and Managed Care: Legislation in the 107th Congress

Order Code IB98017
Issue Brief for Congress
Received through the CRS Web
Patient Protection and Managed Care:
Legislation in the 107th Congress
Updated September 16, 2002
Jean P. Hearne and Hinda Ripps Chaikind
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Regulation of Managed Health Care
The Role of ERISA
The Bills
Major Issues
Scope of Application
Access and Choice of Providers
Grievance and Appeals Processes and Remedies
Internal Appeals Process
External Appeals
Remedies and Access to Courts
Association Health Plans and Qualified Health Benefit Purchasing Coalitions
AHPs
HBPCs
LEGISLATION
FOR ADDITIONAL READING

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Patient Protection and Managed Care:
Legislation in the 107th Congress
SUMMARY
Most Americans have health insurance
such laws for about 56 million persons en-
plans that provide services through some kind
rolled in “self-insured” group health plans
of managed care arrangement. While finan-
through private employers. These are plans in
cial incentives under fee-for-service insurance
which the employer takes some or all of the
can lead to wasteful and possibly harmful
risk of paying for covered items and services.
excess services, incentives under managed
For enrollees of self-insured plans, federal law
care plans could lead to underutilization of
applies, but few protections currently exist in
necessary services. Congress is responding to
the federal statutes. As a result, there is a
this concern by proposing to regulate, at the
patchwork of federal and state regulation
federal level, various aspects of managed care
leading many to seek federal standards that
and other types of health insurance. During
would apply broadly to all health plan en-
the 106th Congress, the House and Senate
rollees, regardless of who sponsors their
passed comprehensive patient protection bills
health plan or whether they self-insure.
but were unable to reconcile the differences
and send a bill to the President. (H.R. 2990
Both of the bills under consideration
passed on October 7th, 1999 and S. 1344,
would apply federal patient protections to all
passed on July 15, 1999.) The 107th Congress
insured Americans. The most significant
is revisiting the patients rights debate. The
differences between these bills are in the
Senate and the House have each passed a bill
provisions expanding patients’ legal remedies
(S. 1052 and H.R. 2563, respectively) that
against their health plan providers when medi-
would establish federal standards mirroring
cal care is unjustly denied and the denial
various state laws as well as recommendations
results in harm. Other differences include
in the 1997 Consumer Bill of Rights as devel-
provisions applying the protections to federal
oped by former President Clinton’s Advisory
health programs, prohibiting discrimination on
Commission on Consumer Rights and Quality
the basis of genetic information, and encour-
in HealthCare. This document provides back-
aging health insurance coverage expansions.
ground information on the issues surrounding
patient protection and reviews the major
The health insurance industry and many
differences between the Senate-passed and
employer groups are strongly opposed to
House-passed bills. For more detailed de-
increased federal regulation of managed health
scriptions of the provisions included in S.
care. They argue that it is unnecessary be-
1052 and H.R. 2563 see CRS Report
cause the market is responding to consumer
RL30978: Patient Protection During the 107th
concerns, and that more regulation will raise
Congress: Side-by-Side Comparison of House
health care costs, increasing the number of
and Senate Bills.
uninsured Americans. On the other hand,
supporters of increased federal regulation,
Traditionally, the regulation of health
including many provider and consumer advo-
insurance largely has been left to the states.
cacy groups, believe that such regulation is
They have passed numerous managed care and
needed to restrain market excesses that could
patient protection laws. However, the federal
jeopardize health care quality and access and
Employee Retirement Income Security Act of
that such regulation would result in only small
1974 (ERISA) preempts the application of
additional costs.
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MOST RECENT DEVELOPMENTS
A conference committee has not been appointed to negotiate between House and
Senate-passed versions of patient protection bills. The President and the Senate Leadership,
however, have suggested that continued negotiations on patient protection is a priority for
the 107th Congress and occasional press reports suggest that informal discussions about this
issue continue to take place.
BACKGROUND AND ANALYSIS
Managed care generally refers to a payment system or delivery arrangement in which
a health plan attempts to control or coordinate the use of health services by its enrollees in
order to control spending and promote health. Like fee-for-service insurers, managed care
organizations (MCOs) accept financial responsibility for a set of benefits in return for a
premium paid by or on behalf of each enrollee. Unlike fee-for-service insurers, many MCOs
directly provide or arrange for health care services, through affiliated physicians, hospitals
and other providers, instead of simply paying bills.
MCOs try to control hospital admissions, diagnostic tests, or specialty referrals, either
through programs to review the use of services or by giving participating physicians a
financial stake in the cost of the services they order. They may also select low-cost providers
of services or negotiate discounted rates from providers. (For more detail, see CRS Report
97-482, CRS Report 97-913 and CRS Report 98-117.)
At one time, the only type of arrangement that offered managed care was a health
maintenance organization (HMO). Today, managed care is provided by an array of entities,
such as preferred provider organizations (PPOs) and provider sponsored organizations
(PSOs), many of which offer more open-ended access to providers than do traditional HMOs.
Like traditional HMOs, these arrangements provide covered services through provider
networks. Enrollees are given financial incentives to use services within the plan’s provider
network, but still receive some coverage even if they decide to obtain care from outside
providers.
Almost 93% of insured employees were covered by some form of managed care in
2001: Over 23% of covered employees were enrolled in HMOs, twice as many workers,
48%, were enrolled in PPO plans and 23% were in point-of-service plans. Point of service
plans are defined as being similar to HMOs but they allow patients to use non-network
providers at a higher cost than for network providers. Since the early 1990s, insured
workers’ enrollment in traditional fee-for-service plans dropped from about 50% to only 7%,
reflecting the addition of managed care features to many of the former fee-for-service plans.
The broad shift to managed care has been driven, largely, by cost concerns. Among all size
employers in 2001, average fee-for-service premiums were almost 20% higher than HMO
premiums and about between 4% and 7% higher than PPO premiums, according to the
Employer Health Benefits 2001, Annual Survey by the Kaiser Family Foundation and Health
Research and Educational Trust.
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Regulation of Managed Health Care
Employers’ benefit plans, which often include health insurance (or health benefits
through managed care), are regulated by the federal government under the Employee
Retirement Income Security Act (ERISA). Such “ERISA plans” are subject to standards for
reporting and disclosure, fiduciary conduct, enforcement of rights, and protections against
discrimination whether the employer purchases health insurance for employees or self-
insures by accepting some or all of the risk for the cost of services. Consequently, managed
care entities that provide benefits under an employer benefit plan must include those ERISA
protections in their products. (Employer benefit plans sponsored by governmental employers
and churches are not subject to ERISA.)
States, too, regulate many health insurance products. States have traditionally had
regulatory authority over the business of insurance and most have exercised that authority
in areas where ERISA standards are largely absent or viewed to be inadequate. For example,
reporting and disclosure rules under ERISA may not be particularly timely, procedures for
claims denial leave great room for variation among plans, and court remedies available under
ERISA do not allow for money damages. As a result, many states have stepped in to establish
stronger protections for health plan beneficiaries. Since many managed care products are
considered insurance, managed care entities must include those protections in the products
they sell.
States, on the other hand, are not permitted under ERISA to regulate employers’ benefit
plans (this is known as the ERISA preemption clause, discussed in greater detail below).
ERISA frees employer benefit plans from state regulation but many employers offer benefit
plans that include health insurance products. In this case the employer purchases health
insurance from a traditional insurer (or MCO) and the insurer bears the risk of covering the
cost of the benefits. Despite ERISA’s preemption on employer benefit plans, these insurance
products have already met state requirements for insurance. Other employers offer “self-
insured” health plans – where the employer bears some or all of the risk of paying for the
plan’s covered services. Such self-insured (or self-funded) plans are not generally considered
insurance and therefore, are not subject to many of the states’ insurance and patient
protection laws.
This division of regulation between the states and the federal government is further
complicated by the Health Insurance Portability and Accountability Act of 1996 (HIPAA,
P.L. 104-191), as amended. Prior to HIPAA, the states regulated such aspects of health
insurance and managed care as licensure, solvency, benefits, and rating. HIPAA, however,
imposes federal requirements relating to portability of health insurance on state-regulated
insurers and MCOs. It also applies such requirements to ERISA plans. (The term
“portability” as used in HIPAA means, for example, the ability to change health plans
without experiencing preexisting condition exclusions.)
Whether more federal regulation of health insurance is desirable or needed is hotly
debated. HIPAA regulates only certain aspects of eligibility and coverage. It does not
regulate broader aspects of health care delivery, such as choice of providers, grievance
procedures, and quality assurance. States have been passing managed care laws, but these
do not apply to the enrollees in self-insured ERISA plans. This means that roughly 30% of
a state’s privately insured population is not covered by these laws. State laws also are widely
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variable, with some providing for comprehensive protections, and others providing for
narrowly targeted measures.
It is partly because of this patchwork of regulation that some are seeking federal
standards for managed health care that would apply to all enrollees, regardless of whether the
plan is sponsored by an employer or by an MCO. Proponents of federal action are divided,
however, over the scope of federal regulation, how it should interact with ERISA, and its
relationship to state laws. Should standards govern the entire range of plan-provider and
plan-enrollee relationships or should they be more targeted? Should standards apply to fee-
for-service insurance as well as managed care? Should there be uniform national standards
or should there be flexibility for state laws similar to or more protective of consumer and
provider rights?
MCOs and employer groups tend to oppose federal regulation of managed care. They
argue that a market unimpeded by federal interference is the most efficient way to ensure that
health plans meet consumer demands for affordable, accessible, and high quality health care.
In their view, government regulation is not only unnecessary because the market is already
responding to consumer concerns but also would add significantly to the cost of health
insurance. This, in turn, would lead to greater numbers of uninsured. Moreover, they assert
that national standards are inflexible and would impede cost-effective innovations in the
design of health insurance coverage.
The Role of ERISA. One concern during the patient protection debate is whether to
apply such standards only to self-insured plans or to all group health plans and health
insurance issuers (“health insurance issuers” is defined in HIPAA to include insurance
companies, insurance services, or insurance organizations including HMOs licensed to
engage in the business of insurance). As mentioned above, ERISA already imposes
minimum standards for plans sponsored by private-sector employers, including fiduciary
standards, reporting and disclosure requirements, nondiscrimination, and grievance
procedures. It also requires such plans to comply with federal portability, maternity stay,
coverage for reconstructive surgery following mastectomy (discussed below), and mental
health requirements as a result of HIPAA, P.L. 104-204, and P.L. 105-277) .
The ERISA preemption clause impedes states from implementing laws that “relate to”
employer benefit plans. In practice, this frees self-insured plans from state laws regulating
insurance because they are not considered to be insurance. (See CRS Report 97-938 and
CRS Report 98-286.) This preemption provision was designed to ensure uniform national
requirements for multi-state employer plans, and protects self-insured health plans from
potentially costly state regulation, such as state mandated benefit laws, risk pool assessments,
premium taxes, and consumer protection managed care laws. Continuation of ERISA
preemption is viewed as critical by the self-insured, employer community. Other
stakeholders, in contrast, such as governors, state insurance regulators, and consumer groups,
see ERISA as a major impediment to state insurance reform. In their view, it is largely
because of ERISA’s regulatory limitations and its preemption of state insurance law that
Congress needs to act.
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The Bills
The two patient protection bills under consideration are S. 1052: the “Bipartisan Patient
Protection Act”, passed by the Senate on June 29th, 2001, and H.R. 2563, the “Bipartisan
Patient Protection Act”, passed by the House on August 2nd, 2001. S. 1052 was introduced
in the Senate by Senators McCain, Edwards and Kennedy on June 14th, 2001. H.R. 2563,
was introduced on July 19, and incorporated many of the amendments included in the
Senate-passed bill, with several major exceptions: 1) H.R. 2563 includes only a sense of the
Congress, rather than a requirement, that these protections would apply to federal health
programs; and 2) H.R. 2563 does not include provisions expanding the current law
prohibitions on discrimination based on genetic information, and 3) H.R. 2563 includes tax
provisions not found in S. 10521. H.R. 2563 was further modified before passage to include
2 new major amendments. The 2 major amendments resulted in other differences, the most
significant of which are in provisions expanding the right to sue for benefits denied,
increasing health insurance coverage options (Association Health Plans and Medical Savings
Accounts), and defining the ability of states to apply substantially equivalent state laws in
lieu of the federal laws.
Major Issues
Scope of Application
One important distinction among the patient protection bills considered during the 107th
Congress is in their scope of application. The question here is whether the federal
protections should apply to all Americans, only to those who are covered under employer-
based plans, or only to those with employer-based coverage who do not have access to
similar protections from their states. The reach of the proposed protections is the subject of
the first of the President Bush’s principles: that federal protections should apply to all health
plan enrollees while giving deference to existing state protections. Both of the bills under
consideration in the 107th Congress would apply their standards to all (insured) Americans,
but each also include provisions allowing state laws to apply under certain circumstances to
those plans that are subject to state laws. Both bills allow for the substitution of state law, if
it meets criteria for substantial compliance to federal standards with two exceptions. The
first exception is that the House-passed bill does not allow state laws defining internal and
external appeals processes to apply in lieu of the federal laws. The second exception is
related to state laws limiting damages in health care-related lawsuits. S. 1052 would allow
a state to determine non-economic damage amounts in state court, while H.R. 2563 allows
states to apply their own damage limits, but only up to the federally established maximum
amounts.
The bills would apply to individually-purchased plans as well as employer-sponsored
plans, and to state and local government-sponsored plans. S. 1052 was amended before
passage so that its provisions, including the expanded right to sue, would apply to all
federally sponsored health plans including the Federal Employees Health Benefits Program,
1 For a discussion of the tax provisions, see CRS Issue Brief IB98037, Tax Benefits for Health
Insurance: Current Legislation, by Bob Lyke and Christopher Sroka.
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Medicare, Medicaid, the State Child Health Insurance Program, Veterans, Department of
Defense and all other federal programs providing health care or coverage. H.R. 2563 does
not specifically apply its provisions to federal government-sponsored plans, but since the
Federal Employee Health Benefit (FEHB) program plans are offered by insurers and HMOs
which are subject to the group plan provisions, FEHB plans would be expected to comply
with patient protection legislation, if passed. Other federally sponsored health plans or
programs, such as Medicare and Medicaid, would not be covered by the provisions of H.R.
2563, although this bill includes a provision expressing the sense of the Congress that the
President should issue an Executive Order requiring Federal officials take feasible steps to
apply patients rights to federal health programs.
Both bills include provisions that exempt fee-for-service plans from many of the
protections in the bill, including a requirement for a consumer choice option, choice of health
care professional, access to emergency care, specialists, OB/GYN and pediatric care, and
continuity of care. S. 1052 does not apply its exemption to federal health plans and
programs. Fee-for-service plans are defined in the bills as those that reimburse providers on
a fee-for-service basis without placing them at financial risk, do not vary providers’
reimbursement based on contract terms or use of health care services, allow access to any
provider legally authorized to provide covered services (and are willing to accept the
payment terms) and do not require prior authorization.
Access and Choice of Providers
S. 1052 and H.R. 2563 include a number of identical provisions ensuring that health
plan enrollees have access to certain types of services and providers without such barriers as
prior authorization and increased copayments. The provisions in common include:
! Access to Emergency Services. Some MCOs require prior authorization for
emergency department services. Without it, consumers who go directly to
the emergency room, and for whom the plan later determines that emergency
care was not medically necessary, may be responsible for the entire bill. The
bills addressed this issue by establishing a “prudent layperson” standard for
plans that cover emergency services. This standard would require plans that
cover emergency care to cover such care for the treatment of any condition
for which a prudent layperson would reasonably believe puts them at serious
risk of injury or death. The bills also prohibit plans or issuers from
charging patients more for using a non- network provider than would have
been charged if the services were provided in-network. The bills include a
provision requiring that emergency ambulance services be subject to the
same type of standard.
! Access to Physicians Specializing in Ob/Gyn and Pediatric Care and other
Specialty Services. Some MCOs restrict access to specialty care and
specialists by requiring referrals from primary care or “gatekeeper”
physicians. Although gatekeeping has enabled plans to reduce costs, its use
has led to consumer complaints about difficulties in gaining access to
medical services. The bills passed in the 107th Congress include provisions
1) requiring plans that cover obstetrical and gynecological care to allow
enrollees to visit physician and non-physician specialists without first
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receiving a referral and prohibiting prior authorization for the OB/GYN
services that they order, 2) requiring that pediatricians be considered as
primary care providers for plans that require such a designation, and 3)
requiring plans that cover the services of specialists to ensure enrollees have
timely access to those specialists.
! Continuity of Care A patient undergoing a course of treatment in the care
of a health care provider whose contract with an MCO is terminated would
be at risk of losing access to their established providers. The bills would
require plans to cover some continued care with terminated providers for
certain plan enrollees undergoing a course of treatment during a transition
period of at least 90 days.
! Point-of-Service Option. Point-of-service options allow enrollees of closed-
network plans to have access to non-participating providers, though typically
at a higher cost and on a fee-for-service basis. By 1996, over 80% of HMOs
reported having a POS option of some kind. The bills would require group
health plans that have closed panels to provide point-of-service options. S.
1052 and H.R. 2563 do not require point-of-service coverage for those
individuals given a choice of non-network coverage through another plan or
issuer in the group market.
! Information Disclosure. Economists maintain that access to information
and the ability to choose among competing options are the hallmarks of an
efficiently functioning market. They reason that informed consumers and
purchasers can help maximize value if cost and quality data are readily
available and understandable. Although the health care system in total may
diverge in significant ways from a free market model, many observers
nevertheless believe that the disclosure of useful health care information is
an important goal. Each of the bills requires extensive information to be
provided to individuals at time of enrollment and annually thereafter.
! Medical Communications. The phrase “gag rules” refers to clauses in
provider contracts that prohibit or limit provider-patient communications
about: 1) medical conditions, care, and treatment; and 2) compensation
arrangements that produce financial incentives to under-provide care.
Although some recent studies suggest that gag clauses are not prevalent in
today’s contracts, other observers point to some of the more subtle ways
plans may discourage certain forms of medical communications between
health care professionals and patients. The bills include prohibitions on
such contract clauses.
! Access to Prescription Drugs and Clinical Trials. The current bills include
provisions requiring plans that limit coverage of drugs to those on a list,
sometimes referred to as a formulary, to develop those formularies with
physicians and pharmacists and to allow exceptions from the formulary
when a non-listed drug is medically necessary and appropriate. S. 1052 and
H.R. 2563 would limit additional cost-sharing for non-formulary drugs.
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The bills also include provisions requiring plans to cover routine patient
costs incurred through participation in an approved clinical trial.
! Discrimination Protection for Providers. Both bills include a provision that
would prohibit discrimination with respect to participation or
indemnification against any provider who is acting in accordance with
license or certification under state law.
One significant set of protections included in the Senate bill are provisions that expand
upon the current law prohibition on discriminating against individuals based on genetic
information. The Senate bill would prohibit plans or issuers, in both group and individual
markets, from: 1) establishing rules for eligibility (including continued eligibility) for any
individual based on genetic information of that individual or their dependent, 2) denying
eligibility or adjusting premium or contribution rates on the basis of predictive genetic
information for an individual or their family member, and 3) requesting or requiring that an
individual or their family members provide predictive genetic information. It would also
require plans to provide notice of confidentiality safeguards when requesting such
information, to post or provide notice of confidentiality practices and to have safeguards in
place with respect to predictive genetic information.
Grievance and Appeals Processes and Remedies
Most MCOs have internal procedures to address enrollee complaints about waiting
times, unresponsive staff, and other quality of service issues. While such grievances may or
may not be resolved to an enrollee’s satisfaction, often they are not appealable. (Enrollees
in state-regulated MCOs can complain to the state’s department of insurance.)
In addition, many health plans have procedures to deal with complaints about
reimbursement for, and coverage of, medical care. Under the traditional fee-for-service
system where the insurer is separate from the health care provider, such complaints usually
relate to a health plan issuer refusing to pay for care already received. In certain MCOs, on
the other hand, where the entity managing care is also providing care, patients may be denied
certain services or treatments in the first place — a practice which has led many to complain
that they are not receiving sufficient medical care to retain or regain their health.
The House- and Senate-passed patient protections bills under consideration in the 107th
Congress include provisions requiring and defining the internal review procedures for
coverage denials. The timeframes for reviews are reflected in Table 2.
Internal Appeals Process. An enrollee in an ERISA plan has a right to reasonable
opportunity for a full and fair review by the plan of a decision denying a claim. The
Department of Labor has established procedures for such reviews (see 29 CFR Part 2560,
11/21/2000 for the final rule). Plans must conform with those requirements for all claims
filed on or after January 1, 2002. Until the rules are in effect, there is little uniformity of
internal appeals procedures. At present, if the internal review determination is in the
enrollee’s favor, then the plan provides the service and/or pays the claim. If it is not in the
enrollee’s favor, he or she may sue under ERISA for the benefit that has been denied (see
below). As an intermediate step, some employers provide for an independent external review
of the benefit denial (see below).
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For an enrollee who is not in an ERISA plan (such as a managed care plan bought in the
individual market or one that covers state and local governmental employees), the internal
appeals process is different. State laws require that HMOs have a procedure in which they
reconsider initial denials of payment or coverage. Upon being notified that an HMO has
denied approval of a service or benefit, an enrollee (or an enrollee’s provider) has a right to
appeal a decision to an individual or panel within the HMO.
Table 2. Timeframes for Appeals: 107th Congress
Patient Protection Proposals
S. 1052 and H.R. 2563
Initial decision
ASAP - “As soon as possible” in accordance with the medical exigencies
of the case, but no later than:
Routine: 14 days after receiving information but no later than 28 days;
Expedited: 72 hours;
Ongoing: ASAP with sufficient time for appeal;
Previously provided services: 30 days after receiving necessary
information but no later than 60 days
Internal review
ASAP - “As soon as possible” in accordance with the medical exigencies
of the case, but no later than:
Routine: 14 days after receiving information but no later than 28 days;
Expedited: 72 hours after request;
Previously Provided Services: 30 days after receiving necessary
information, but no later than 60 days.
External review
ASAP - “As soon as possible” in accordance with the medical exigencies
of the case, but no later than:
Routine: 14 days after receiving necessary information (but no longer than
21 days after request);
Expedited: 72 hours after request;
Ongoing: 24 hours after request;
Previously Provided Services: 30 days after receiving information (but no
later than 60 days after request).
The 107th Congressional bills broadly allow for denied claims for benefits or coverage
or disputes over cost sharing amounts to proceed to internal review. The bills would require
that internal review be conducted by an individual with appropriate expertise so long as that
person was not involved in the initial determination, and also require that a physician with
appropriate expertise conduct the review if the appeal is based on a denial of a claim for a
lack of medical necessity, is experimental or investigation or requires evaluating medical
facts. The only difference between the two bills on internal review is that S. 1052 would
allow state internal review statutes that are determined to be substantially similar to those
described in the bill, to apply in lieu of the federal provisions while H.R. 2563 would not.
External Appeals. Under current law, ERISA does not require plans and issuers to
provide for external review of coverage determinations, although some private employers
voluntarily provide such a process. Enrollees in these plans, whether the plans are fully-
insured or not, can appeal adverse coverage decisions to an external appeals entity if one
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exists. On the other hand, enrollees in non-ERISA plans may have external appeal rights if
they reside in states that have enacted laws requiring MCOs to provide for an external
appeals process.
The debate on codifying a definition of “medical necessity” most often comes up with
respect to establishing a standard of review for external appeals, although such a definition
could also impact initial coverage decisions. Today, physicians and their patients sometimes
complain that their treatment decisions and referrals are determined by the plan not to be
“medically necessary”. As a result, insurers refuse to pay for such services or MCOs refuse
to provide the services. Some states have responded to such complaints by establishing a
definition of medical necessity in state law— thereby legislating a standard for medical
decision making. Such a definition could provide enrollees who are appealing adverse
coverage decisions with an objective standard to claim that a service is needed — a standard
that is not set by the plan itself. Some advocates, including providers, argue for a standard
of care for medical necessity that is the “generally accepted standard of practice.” Opponents
believe that a federal definition of medical necessity will be overly bureaucratic and will
result in defensive and costly medical practices. Others propose that a federal definition of
medical necessity is unnecessary if strong, valid, and scientific standards for external
reviewers are defined and if those standards make clear that the review cannot be limited by
insurers’ contract clauses that define medical necessity in a restrictive way.
The external review provisions have evolved significantly since the 106th Congress
where there were major differences between the bills especially with respect to the
characteristics of the external review entities, standards for review (including the
consideration of plans’ medical necessity definitions), whether the decisions of the reviewers
are binding, and whether other types of dispute resolution are allowed. Today the bills are
mostly alike in those areas, with a few remaining differences. H.R. 2563 would not allow
state external review laws to apply in lieu of the federal provisions, and further specifies that
the external review panel 1) would consist of 3 individuals, and 2) in a case involving a
physician, all three reviewers would be physicians.
The two bills are the same with respect to the types of adverse coverage decisions that
may enter into external review. They would require a system for the external review for
benefits denied because they are determined by the plan to not be medically necessary, are
investigational or experimental, or involve medical judgement. The bills would also allow
insurers to require payment of a refundable filing fee of no more than $25. They would
allow plans to condition the external review on the completion of an internal review except
when internal review decisions do not meet specified time lines, and to waive the internal
review process allowing claims to proceed directly to external review.
The bills include selection criteria for external reviewers designed to ensure adequate
expertise of panel members, independence from the plan or issuer, as well as fairness. Both
bills would also require the “applicable authority” to implement procedures to assure that the
process of selecting the external review entity will not create incentives to bias the decisions
of the entity. In addition, they would prohibit participants, beneficiaries, enrollees or the plan
or issuer from determining or influencing the selection of the external review entity.
The bills would require the reviewing entities to screen the claim to determine if it
meets the criteria to proceed to external review and require reviews to be consistent with
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standards developed by the appropriate Secretary. Reviewers would be directed to take into
account whether the plan or issuer’s decision is in accordance with the medical needs of the
patient; the medical condition and personal medical information of the patient; the opinion
of treating physicians or health care professionals; the plans’ definition of medical necessity
and experimental coverage, although the reviewers would not be bound by such definitions;
and the decisions of internal reviewers. Other information, such as valid scientific and
clinical evidence, treatment guidelines, and community standards of care may also be
considered. The bills would require a de novo determination. The decision of the external
reviewer would be considered to be binding.
S. 1052 and H.R. 2563 would authorize civil penalties of up to $1,000 a day if the
determination of the external reviewers was not followed and additional penalties for cases
in which the relevant Secretary determines that there is a pattern or practice of repeated
refusals to authorize benefits following external review. This penalty could not exceed the
lesser of 25% of the value of benefits not provided or $500,000. In addition, both bills would
allow the Secretary to assess a civil penalty against any plan of up to $10,000 for the plan’s
failure to comply with deadlines, to be paid to the participant or beneficiary if the
determination of the external reviewers is not followed.
Remedies and Access to Courts. ERISA plans. Under ERISA, enrollees in
employer-sponsored plans can only sue an ERISA plan for benefits due under the plan. State
law causes of action, which include consequential and punitive damages, are not available
and ERISA does not provide for such damages. This is the case whether the employer-
sponsored health benefits are insured or self-insured. It is also an exception to the usual
interpretation of ERISA preemption – that is, that ERISA overrides state laws regulating
employer benefit plans but not those regulating the business of insurance. This unusual
interpretation results from a 1987 Supreme Court decision (Pilot Life Insurance Co. vs.
Dedeaux, 481 U.S. 41).
It is less clear whether or not enrollees in ERISA plans can sue for negligence, wrongful
death, or medical malpractice. Some courts have found that MCOs or other entities that
contract with an ERISA plan can be held liable for the quality of the medical care, including
substandard care and negligent or faulty delivery of services. In this case, an enrollee would
be able to sue under state law. If, however, an enrollee sues the ERISA plan itself for
malpractice, wrongful death, or negligence, the court could dismiss the suit because no such
cause of action exists under ERISA and any state laws relating to the plan could be
preempted.
Further complicating the question of liability is that for many self-insured employer
plans, the line between the administrative functions of the plan and the medical decisions of
the plan can be blurred. The courts have been clear that state laws that relate to
administrative functions of ERISA plans are preempted. On the other hand, the courts have
spoken equivocally on the question of where an administrative (i.e., quantitative) decision
ends and a medical or qualitative decision begins. If, for example, a plan denies urgently
needed medical care that a patient cannot afford to pay on his or her own, or promised
coverage is delayed until it is too late to do any good, then is that a benefit decision or a
medical decision? Because the federal circuit courts are divided on this issue, some legal
experts predict the Supreme Court will take it up. Against this backdrop, however, are
proposals to resolve the ERISA plan liability issue through legislation.
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Non-ERISA plans. If an enrollee in an individually purchased plan or other non-
ERISA plan receives an adverse coverage determination at the external review stage, then
he or she can attempt to sue the MCO in state court. Remedies vary by state. Typically, they
include the cost of the denied service as well as consequential costs (such as lost wages) and
non-economic costs (such as pain and suffering). An enrollee may also be able to sue for
punitive damages.
State laws also vary as to whether they allow enrollees in non-ERISA plans to sue
MCOs (as opposed to doctors or other providers) for medical malpractice. In many states,
such suits never get to trial because the organization is protected by the anti-corporate
practice of medicine laws. Simply stated, those laws hold that an HMO cannot make medical
decisions because the HMO is not a health care professional. Since it cannot make medical
decisions, it cannot be held responsible for medical malpractice. Many would like to see this
shield against HMO liability removed. In their view, the organization should be legally
responsible for withholding care or delivering poor quality care because it influences
providers’ actions through financial incentives or more direct controls over medical practice.
In May 1997, Texas became the first state to explicitly override its corporate practice of
medicine law with a new law that holds MCOs liable for medical decisions affecting a
patient’s health. This law was challenged in federal court by Aetna Health Plans, which
argued that the law is preempted by ERISA because it improperly interferes with
administration of employee benefit plans (see below). The court upheld the states’
provisions subjecting MCOs to liability for such decisions. (For more information on this
issue, see CRS Report 98-286.)
Remedies and access to courts: The bills. Provisions involving judicial
remedies and access to courts have proved to be the most difficult to resolve during the
debates in both of the chambers. While both the House- and Senate- passed bills allow some
lawsuits to proceed at the state level and expand both the causes of action and the damages
available at the federal level, the approaches approved by the House and Senate are
significantly different. Compromise during conference negotiations will require addressing
the two different approaches.
S. 1052 would allow state causes of action involving medically reviewable decisions
and would expand federal law causes of action for denials of benefits that are not based on
medical decisions. This approach is based on the traditional authority of ERISA over the
administrative duties of the plan’s fiduciary. S. 1052 would create a federal cause of action
for personal injury or wrongful death but only when a state cause of action is pre-empted by
ERISA. It would also expand the remedies available under ERISA to include economic and
non-economic damages in cases of personal injury or death but would not allow for
exemplary or punitive damages. For state law claims, S. 1052 would not allow for punitive
or exemplary damages when plans meet the requirements for the review and appeals process,
with a two exceptions: 1) when state law allows only for punitive or exemplary damages in
cases of wrongful death, or 2) when the defendant can prove the plan’s willful or wanton
disregard for the rights or safety of others. Finally, S. 1052 would allow a civil assessment
in any action of up to $5 million payable to the claimant if he can establish the bad faith and
flagrant disregard on the part of the plan for the rights of its participants or beneficiaries.
H.R. 2563 would amend ERISA to create a federal cause of action if a designated
decision makers fails to exercise ordinary care in making a determination for either an initial
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claim or for internal review, or fails to comply with the external review decision; if that
failure is the proximate cause of personal injury or death. State courts would have concurrent
jurisdiction over claims under this new federal cause of action, which means that state courts
could hear those claims, the federal law would apply, but the state courts’ procedural rules
could be used to process those claims. The designated decision maker would be liable for
economic and noneconomic damages. Noneconomic damages would be limited to $1.5
million and punitive damages of up to $1.5 million could only be awarded when benefits
were not provided following an independent reviewer’s determination that they should be
provided. States may further limit those damages for federal law claims heard in state courts.
Economic damages are uncapped.
Both bills include provisions intended to protect employers, by limiting federal or state
causes of action against a group health plan, employer or plan sponsor unless such person or
persons directly participated in the consideration of a claim for benefits and in doing so,
failed to exercise ordinary care. The bills would shield employers from liability when those
employers have “designated decision makers”. Designated decision makers would assume
all liability of the employer or plan sponsor. Finally, S. 1052 would prohibit any federal
cause of action against a group health plan that is self-insured and self-administered by an
employer or a multi-employer plan, for the performance of, or the failure to perform any non-
medically reviewable duty under the plan.
Both bills generally require administrative processes (internal and external review) to
be completed before a cause of action may be brought against any individual in connection
with a denial of a claim for benefits. The bills allow, in federal causes of action, for a
participant or beneficiary to seek injunctive relief before finishing internal and/or external
review if he can demonstrate that completing the processes would result in irreparable harm.
In state causes of action, S. 1052 and H.R. 2563 allows an exception to the exhaustion rule
in cases where the external review entity fails to make a determination within the defined
timelines. Finally, both bills would limit certain class action lawsuits and S. 1052 would
limit attorneys’ contingency fees.
MCOs, employers and the health insurance industry are strongly opposed to changes in
the ERISA preemption enjoyed by private employer-sponsored plans. These and other critics
argue that increasing access to such remedies as compensatory and punitive damages would
significantly inflate health care costs. They assume that patients, attorneys and even
providers would much more readily pursue state law causes of action against health plans and
plan sponsors for medical negligence and malpractice. The result, critics predict, would be
defensive medicine, higher liability insurance and thus premiums, and perhaps even
reductions in covered benefits or a higher number of uninsured individuals. Conversely,
many of those who support the modification of ERISA consider the likely cost effects to be
far more modest. To support this view, they cite the absence of runaway medical cost
inflation in those sectors — non-ERISA employer sponsored plans and the individual
insurance market — that do not now enjoy preemption from state causes of action. In June
1998, CBO estimated the cost of ending the ERISA preemption as 1.2% of the premiums of
all employer sponsored plans. However, it should be noted that CBO cautioned that this
estimate “depends on assumptions for which the supporting data are extremely limited or
nonexistent.” Recent CBO cost estimates for S. 1052 conclude the liability provisions would
increase premiums by .8 percent.
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Association Health Plans and Qualified Health Benefit Purchasing
Coalitions
The House bill identifies two types of employer purchasing arrangements; Association
Health Plans (AHPs) and Qualified Health Benefit Purchasing Coalitions (HBPCs). The
purpose of such groups is to provide a mechanism for employers to band together to purchase
insurance coverage for their employees. The concept of employers grouping together to
purchase insurance is not new. A number of different styles of employer-based health
insurance purchasing groups exist today. There are both public purchasing groups and
private purchasing groups; some that self-insure and others that bargain with carriers to offer
a single or multiple insured products. There are a number of possible advantages for
employers that purchase insurance through a well-designed group. By pooling their
insurance risks together, the employers in the group may be able to increase their bargaining
power with carriers and share administrative functions resulting in lower premium costs.
Employees of those firms may be able to select from a larger number of plans than if their
employers were to obtain insurance independently. Multiple employer welfare arrangements
(MEWAs), a broad category of employer purchasing groups, have traditionally been
established by trade or business associations to provide insurance to a particular group of
employers. While the primary purpose of MEWAs is to enjoy the economies of scale of
banding together, a secondary purpose, for those groups with below-average risk, is to buy
lower-priced coverage reflecting their lower risk.
AHPs. The House-passed bill establishes AHPs as certified group health plans
sponsored by associations. The primary differences between AHPs and existing MEWAs
is that AHPs would not be subject to most state insurance laws including benefit mandates
(except that they must comply with any federal or state laws that require coverage of specific
diseases, maternal and newborn hospitalization, and mental health), solvency standards, and
pricing rules. Those AHPs with at least one self-insured offering would be required to meet
the bill’s reserve requirements and provisions for solvency.
Other major requirements include the following:
! AHPs must offer at least one insured health coverage option unless the self-
insured plan existed on the date of enactment of the Bipartisan Patient
Protection Act, or it does not restrict membership to one or more trades but
whose eligible participating employers represent a broad cross section of
trades and businesses or industries, or the plan covers eligible participating
employees in one or more high risk trades that are listed in the bill.
! The association sponsoring the plan must have been in existence for at least
3 years and must be operated by a board of trustees with complete fiscal
control and responsibility for all operations.
! Self-insured AHPs must meet reserve requirements and provisions for
solvency, they must have at least 1,000 participants and beneficiaries, and
have offered coverage on the date of enactment or represent a broad cross-
section of trades, or represent one or more trades with average or above
average health insurance risk.
! All employers who are members must be eligible to enroll, all
geographically available coverage options must be made available upon
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request to eligible employers, and eligible individuals cannot be excluded
because of health status.
! Premiums for any particular small employer are prohibited from being based
on the health status or claims experience of its plan participants or on the
type of business or industry in which the employer is engaged.
The bill also establishes an “Association Health Plan Fund” from which the Secretary
of Labor (or applicable authority) would make (or authorize to the Secretary of Labor)
payments to ensure continued benefits on behalf of AHPs in distress. The AHPF would be
funded by annual payments made by AHPs. In addition, the Secretary of Labor would be
required to report to Congress no later than January 1, 2006, on the effect of AHPs on
reducing the number of uninsured individuals.
Advocates of purchasing groups look to them as a mechanism to extend coverage
among the working uninsured by reducing the barriers that small employers face in providing
coverage for their employees. AHP proponents argue that state consumer protections,
benefits mandates, and solvency standards raise the price of health insurance and that the
resulting inflated cost of insurance is a major barrier that prevents small employers from
sponsoring health benefits. Under current law, large employers that self-insure their
employees are exempt from such state laws while small employers are not. The advocates
say that by exempting association-sponsored plans from state laws, the playing field will be
made more level between small and large employers.
Opponents of the AHP provisions as they appear in the House bill, on the other hand,
raise the concern that the provisions create increased opportunities for risk segmentation -
that AHPs will be able to offer plans to healthy groups at better prices leaving relatively more
unhealthy people in the insured market and subject to states’ laws. Opponents in the
insurance industry as well as those representing consumers, are concerned that the additional
risk segmentation could actually increase the number of uninsured by undermining the
traditional insurance industry while substituting a market without the many protections that
states have put into place over the last several decades. Some health policy analysts have
staked out a middle ground arguing that association health plans are not likely to have a
significant the impact on the number of uninsured, but raise fears that establishing
association plans as entities exempt from state consumer protections will bring back the
fraudulent health insurance schemes and insecure entities that have plagued association
sponsored plans in the past.
HBPCs. Qualified HBPCs are defined as private not-for-profit corporations that sell
3 or more (where feasible) unaffiliated health plans through licensed insurers to small
employers in the service area. The bill sets composition requirements for the boards of
HBPCs, requires HBPCs to accept all eligible small employers, and prohibits HBPCs from
assuming financial risk for plans. The bill would pre-empt state laws that impede the
establishment and operation of a HBPC and that prohibit health insurance issuers from
reducing premiums to reflect administrative savings for health insurance sold through
HBPCs. Finally, it would provide tax advantaged status for funds provided by private
foundations to HBPCs.
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LEGISLATION
The following bills to establish comprehensive patient protections have been introduced
during the 107th Congress.
S. 6 (Daschle)
Patients’ Bill of Rights Act. Introduced January 22, 2001. Referred to Senate
Committee on Health, Education, Labor, and Pensions.
S. 283 (McCain, Kennedy and Edwards)
Bipartisan Patient Protection Act of 2001. Introduced February 7, 2001. Referred to
Senate Committee on Senate Health, Education, Labor, and Pensions.
H.R. 526 (Ganske)
Bipartisan Patient Protection Act of 2001. Introduced February 8, 2001. Referred to
House Committees on Education and the Workforce and Energy and Commerce.
S. 872 (McCain, Kennedy and Edwards)
Bipartisan Patient Protection Act. Introduced May 14, 2001 and placed on Senate
Legislative Calendar under General Orders on May 15, 2001.
S. 889 (Frist, Breaux and Jeffords)
Bipartisan Patients’ Bill of Rights Act of 2001. Introduced May 15, 2001. Referred to
Senate Committee on Health, Education, Labor, and Pensions.
H.R. 2563 (Ganske)
Bipartisan Patient Protection Act. Introduced July 19, 2001. Referred to House
Committees on Education and the Workforce, Energy and Commerce, and Ways and Means
Passed House August 2, 2001.
S. 1052 (McCain, Kennedy and Edwards)
Bipartisan Patient Protection Act. Introduced June 14, 2001. Referred to Senate
Committee on Senate Health, Education, Labor, and Pensions. Passed Senate June 29, 2001.
H.R. 2315 (Fletcher)
Patients’ Bill of Rights Act of 2001. Introduced on June 26, 2001.
FOR ADDITIONAL READING
CRS Report RL30978, Patient Protection During the 107th Congress: Side by Side
Comparison of House and Senate Bills
CRS Report RS20868, Employer Liability Provisions in Selected Patient Protection Bills
CRS Report RL30144, Side by Side Comparison of Selected Patient Protection Bills in the
106th Congress
CRS Report RS20315, ERISA Regulation of Health Plans
CRS Report RS20258, Patient Protection and Mandatory External Review: Amending
ERISA’s Claims Procedure
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CRS Report RL30077, Managed Care: Recent Proposals for New Grievance and Appeals
Procedures
CRS Issue Brief IB98037, Tax Benefits for Health Insurance
CRS Report 97-643, Medical Savings Accounts
CRS Report 98-286, ERISAs Impact on Medical Malpractice and Negligence Claims
CRS Series on Managed Health Care:
CRS Report 97-913, A Primer
CRS Report 97-938, Federal and State Regulation
CRS Report 98-117, Cost and Quality Control Strategies
CRS Report 97-482, The Use of Financial Incentives
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