ERISA: A QUARTER CENTURY OF PROVIDING WORKERS HEALTH INSURANCE
SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS
COMMITTEE ON EDUCATION AND
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
HEARING HELD IN WASHINGTON, DC, FEBRUARY 24, 1999
Serial No. 106-5
Printed for the use of the Committee on Education
and the Workforce
Table of Contents
OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *
OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *
STATEMENT OF WOODROW MYERS, JR., M.D., DIRECTOR, HEALTH CARE MANAGEMENT, FORD MOTOR COMPANY *
STATEMENT OF LESLIE KRAMERICH, DEPUTY ASSISTANT SECRETARY FOR POLICY, PENSION AND WELFARE BENEFITS ADMINISTRATION, U.S. DEPARTMENT OF LABOR *
STATEMENT OF PETER KELLY, ESQ., OGLETREE, DEAKINS, MURPHY, SMITH AND POLK, CHICAGO, IL, AND ON BEHALF OF THE US CHAMBER OF COMMERCE *
STATEMENT OF FRANK CUMMINGS, PARTNER, LE BOEUF, LAMB, GREENE & MAC RAE, L.L.P., WASHINGTON, DC *
STATEMENT OF RAND ROSENBLATT, PROFESSOR OF LAW AND ASSOCIATE DEAN FOR ACADEMIC AFFAIRS, RUTGERS UNIVERSITY LAW SCHOOL, CAMDEN, NJ *
APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *
APPENDIX B - WRITTEN OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *
APPENDIX C - WRITTEN TESTIMONY OF WOODROW A. MYERS, JR., MD, DIRECTOR, HEALTHCARE MANAGEMENT, FORD MOTOR COMPANY, AND ON BEHALF OF THE ASSOCIATION OF PRIVATE PENSION AND WELFARE PLANS *
APPENDIX D - WRITTEN TESTIMONY OF LESLIE B. KRAMERICH, DEPUTY ASSISTANT SECRETARY FOR POLICY, PENSION AND WELFARE BENEFITS ADMINISTRATION, US DEPARTMENT OF LABOR *
APPENDIX E - WRITTEN TESTIMONY OF PETER KELLY, ESQ., OGLETREE, DEAKINS, MURPHY, SMITH & POLK, CHICAGO, IL, AND ON BEHALF OF THE US CHAMBER OF COMMERCE *
ERISA: A QUARTER CENTURY OF PROVIDING
WORKERS HEALTH INSURANCE
WEDNESDAY, FEBRUARY 24, 1999
House of Representatives
Subcommittee on Employer-Employee Relations
Committee on Education and the Workforce
The Subcommittee met, pursuant to notice, at 1:32 p.m., in Room 2175, Rayburn House Office Building, Hon. John A. Boehner, [Chairman of the Subcommittee] presiding.
Present: Representatives Boehner, Fletcher, Petri, Roukema, McKeon, Salmon, Norwood, Andrews, Kildee, Romero-Barcelo, McCarthy, Wu, and Holt.
Staff present: Robert Borden, Professional Staff Member; David Frank, Professional Staff Member; Mark Rodgers, Workforce Policy Coordinator; Deborah Samantar, Office Manager; Jo-Marie St. Martin, General Counsel; Gail Weiss, Minority Staff Director; Cedric Hendrics, Minority Deputy Counsel; Peter Rutledge, Minority Senior Legislative Associate, and Shannon McNulty, Minority Staff Assistant.
Mr. Boehner. [presiding] The Subcommittee on Employer-Employee Relations will come to order. The Subcommittee is meeting today to hear testimony on ERISA: A Quarter Century of Providing Workers Health Insurance to workers across our country.
OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE
Under 12(b) of the Committee rules, any oral statements at the Hearings today are limited to the Chairman and the Ranking Member. This will allow us to hear from our witnesses sooner and to help Members keep their schedules. Therefore, if any Members have statements, they can be included in the record. Without objection, all Members' statements will be inserted into the Hearing record.
Today, as I Chair my first hearing of the Subcommittee on Employer-Employee Relations, we begin to look at our nation's health care system, where it is working well, and where it needs improvement. I look forward to working with our new Ranking Member, Mr. Rob Andrews, of New Jersey and all of the Members of the Committee.
Today's hearing focuses on the rules of the Employee Retirement Income Security Act of 1974, or, as we all in this room know it, ERISA, and what it's done to provide health care to millions of our nation's workers. This hearing is designed to help educate Members of the Subcommittee as we begin the task of deciding where and how to amend ERISA to improve health delivery to our fellow Americans. I anticipate additional hearings in the coming months to examine such topics as how to achieve greater health coverage for the uninsured and for employees of small businesses and how to afford greater protection for workers whose coverage comes from managed care.
ERISA, in the preemption of state law that it affords, has played a key role in providing health insurance to millions of Americans. Voluntary ERISA-based employer self-insured plans cover nearly 80 percent of all workers in the nation. ERISA allows employers and employees to agree on a package of benefits without government regulation that has driven up the cost of health care around the country. It is primarily among the small businesses that cannot afford to take advantage of ERISA and self insure that the bulk of over 40 million uninsured Americans are found.
I look forward to the witnesses' discussion of the role of ERISA in providing health coverage to millions of workers. I hope that the witnesses will also address the impact on the cost and availability of health insurance for workers considering some of the proposals to allow ERISA-covered plans to be sued for damages.
We must all understand that amendments to ERISA involve trade offs between cost and access. The greater the regulation, the higher the cost of insurance and the greater risk that employers will drop coverage for their workers. Thus, regulatory amendments must be made with great care.
This Committee and this Congress will move legislation early this session that will address the call for managed care reform by providing greater patient protections such as guaranteeing the patient's access to unrestricted medical advice, ensuring access to emergency care by applying the prudent layperson's standard of providing direct access to OB-GYNs, providing direct access to pediatricians, and requiring more disclosure of plan information. I look forward to being able to move legislation on these issues in partnership with all of the Members of our Subcommittee.
This Committee will build on and not tear apart the framework which has led to successful cost containment under private sector ERISA health plans. We must be responsive to serious shortcomings in the health care system, but we must also insist on workable solutions that do not erode coverage or make costs unaffordable. We need to expand access to more affordable health insurance and reduce the number of uninsured Americans.
We must also ensure that medical decisions are made in the examining room, not in the courtroom. I look forward to working in a bipartisan manner to address these issues and look forward to hearing what our witnesses today have to tell us.
WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE – SEE APPENDIX A
And with that, I'm pleased to yield to our Ranking Member, Mr. Andrews.
Mr. Andrews. Thank you, Mr. Chairman, and thank you, ladies and gentlemen. I want to begin by thanking you for your spirit of cooperation. Mr. Boehner and I met about ten days ago to talk about issues that will be before the subcommittee, and I commend him for his graciousness and initiative and look forward to continuing our good working relationship.
John and I arrived here on the same day in 1990, right after the 1990 elections. And I must say the place is considerably better as a result of that. We intend to make it even more so in the years to come. I want to thank my Democratic colleagues for affording me the opportunity to serve as ranking member of the Subcommittee, and we look forward to getting a lot done together in this Congress. As we meet this afternoon, there are several pressing health care issues. And Mr. Chairman, I have a written statement to submit, but I'd like to supplement it with some remarks.
OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE
There's several pressing health care issues facing Americans. As we meet this afternoon, 44 million Americans have no health insurance whatsoever which means that if this is the day that they unfortunately fall victim to an accident or a dread disease, it is also the day that they face certain financial peril.
That is an issue that's very much related to the discussion we're going to have this afternoon about the cost and quality of insurance for those who are insured. It is also true that many Americans who are insured, whether it's under Medicare or Medicaid or ERISA private plans or non-ERISA covered employer-sponsored plans, have some significant questions about the quality and accessibility of their care.
I agree with Mr. Boehner, the Chairman, that decisions should be made in the operating room and not the courtroom. Nor should they be made in the accountant's office, and many of us believe that there have been too many decisions in the insurance industry made with cost first and quality and access issues second. These are reflected in the anecdotal comments that so many of us here, when we return to our districts each weekend, or, in my case, each day, we hear about people who were denied referrals, people who tell us horror stories about problems getting access to specialists and on and on.
I think it's very important that we not demagogue or confuse either side of this debate. I think those who claim that managed care is a heartless undercutting of American medicine are exaggerating the case and are wrong, and they're failing to see the many benefits that managed care has brought us both medically and economically.
I also believe those who claim that any modification of the laws that govern managed care would drive costs beyond control are overstating their case as well. I think it's our mission and our responsibility to find prudent sensible bipartisan middle ground that can address the very valid concerns of the people that I spoke about a few minutes ago and write the very best kind of laws that we can.
I'm also not unmindful of the principle that colleagues like Mr. Norwood and others, like Dr. Ganske who served have learned in their education preceding their election to the Congress, and that is the principle of the Hippocratic Oath. I do understand that it is first our responsibility to do no harm, to take those who receive first rate medical care and attention and make sure that they continue to.
And I by no means would suggest that we are prepared to sacrifice the quality of their care on the alter of changes in the law. But I did want to start this discussion by remembering the 44 million people whose cares go very, very deep because they are not covered by insurance, and then to touch on the fact of those who feel that there are significant quality issues as well. I commend the Chairman for assembling a distinguished panel of witnesses whom I look forward to hearing from, and I thank him for making sure that the minority was given the opportunity to designate two of those witnesses.
WRITTEN OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE – SEE APPENDIX B
And with that, I yield back the balance of my time.
Mr. Boehner. Mr. Andrews, thank you for your statement, and it's time to introduce our witnesses and move ahead.
Our first witness today will be Dr. Woodrow Myers, Jr., the director of Health Care Management at the Ford Motor Company. He's testifying on behalf of the Association of Private Pension and Welfare Plans. Dr. Myers is the former Health Commissioner for the City of New York and the State of Indiana.
Our next witness will be Leslie Kramerich. Ms. Kramerich is the Deputy Assistant Secretary for Policy in the U.S. Department of Labor's Pension and Welfare Benefit Administration. She previously was an attorney with the Pension Benefit Guaranty Corporation and served on the staffs of Senators Durenberg and Heinz.
After that, we'll hear from Peter Kelly. Mr. Kelly is an attorney with the Chicago law firm of Ogletree, Deakins, Murphy, Smith & Polk. I'm glad there aren't any more names in that title. He's testifying on behalf of the U.S. Chamber of Commerce.
Following him will be Frank Cummings, an attorney at the Washington law firm of LeBoeuf, Lamb, Greene and MacRae. And Mr. Cummings helped draft ERISA in 1974 as counselor for then Senator Jacob Javits.
Our final witness will be Professor of Law Rand Rosenblatt. Dr. Rosenblatt teaches health law at Rutgers University in Camden, New Jersey. It wouldn't be in your district, Mr. Andrews, would it?
Let me remind the witnesses that under the Committee rules, they must limit their oral testimony to five minutes, but their entire statement will appear in the record. And we'll hear from all of the witnesses before the questioning by the Committee Members commences. And with that, let me ask Dr. Myers to begin.
STATEMENT OF WOODROW MYERS, JR., M.D., DIRECTOR, HEALTH CARE MANAGEMENT, FORD MOTOR COMPANY
Dr. Myers. Thank you very much, Mr. Chairman, Members of the Committee. I'm Dr. Woodrow Myers, Director of Health Care Management, The Ford Motor Company. I'm a physician with a specialty in internal medicine. I'm responsible for all aspects of Ford's health care programs including occupational health and safety, workers compensation, and health benefits for our employees, retirees and dependents around the world.
In the United States, Ford provides quality health care coverage for about 640,000 employees, retirees, and dependents located in all 50 states. In 1998, Ford's total health care cost was about $2 billion.
I'm appearing before you today on behalf of the Association of Private Pension and Welfare Plans, APPWP, the benefits association, and the national trade association of companies concerned about the employee benefits system. Collectively, APPWP's members sponsor and administer health and retirement plans covering more than 100 million Americans.
I appreciate the opportunity to provide Ford's perspective on the critical role ERISA plays in our efforts to provide high quality, comprehensive health care benefits. First, what do our people, our employees, retirees and their families want? They want comprehensive coverage from their benefits. They want choice of high quality health care plans. When medical services are needed, they want the right treatment at the right time. And where pre-authorization is required, they want the correct decision to be made in a timely manner.
Second, what does Ford's management want, and what do other APPWP companies want? A healthy, productive work force, satisfied employees and retirees, predictable health care costs not any greater than they need to be, flexibility and ease of administration of benefits, and a competitive advantage in the marketplace which is what all American businesses like to achieve.
How does ERISA help employers and their people realize these expectations? By shielding employer plans from conflicting and costly state regulations and mandates, and by shielding employer plans from excessive and unpredictable litigation expenses, allowing employers flexibility and efforts in the design and administration of benefit plans, including the ability to weed out inappropriate and unnecessary services.
Let me expand briefly on those points. Freedom from state mandates allows us to provide our people with the benefits they want. The unions that work with us and the individual employers are not shy by way of communicating their wants to us.
We are not forced to spend our valuable benefit dollars on mandated benefits for which our employees and our unions have not expressed a desire. Without ERISA preemption, these mandates would force changes in our plans.
Let me get to the heart of the matter and talk about what we want to do to make sure our people get prompt, appropriate treatment; the right treatment at the right time by a qualified provider.
First, my staff and, in our case, our major union, the United Auto Workers, carefully evaluate every health care plan we offer applying numerous quality measures, including the requirement that they are NCQA certified, the National Committee on Quality Assurance, as I think most of the committee is aware of.
Secondly, we evaluate the process used by each health plan for making coverage determinations, including those for medical necessity. As part of this evaluation, we ensure the adequacy of their appeals process for reviewing denials.
Third, at Ford, we provide a further avenue of appeal if our people or their physicians are not satisfied with the final decision of the health plan. The first stage of this process consists of discussions with Ford benefit experts. In addition to Ford decisions on experimental treatments, we provide for a review by an outside panel of experts, and we follow their recommendations.
As you can see, we focus our efforts on making sure that the right decision is made up front with adequate opportunities for review. This, in our view, is the right place to focus. We want our people to get the care they're entitled to, but we don't want them to be subjected to unnecessary ineffective care that can be both dangerous and wasteful. In our office, Mr. Chairman, the phrase is all the care you need, but only the care you need.
Study after study has shown wide variations in practice patterns among physicians and high levels of unnecessary services. ERISA grants deference to those who make these coverage decisions and does not subject them to liability in our state courts.
We must preserve this protection because these decisions must be made. We know we can't afford to return to the days where employers and purchasers unquestioningly paid for every service that every provider wanted to deliver. That's a prescription for bankruptcy, and it's not the way to encourage the best practices and the highest quality of medicine.
At Ford, health care quality is job one. We want all of our suppliers, including our health care suppliers, to share that commitment. My written statement discusses other quality improvement efforts that we are pursuing, and during the questioning time, I would love to provide more details for those.
Let me conclude my remarks by urging you in the strongest possible way to preserve the protections of ERISA that encourage employers to provide health benefits for their people. We absolutely need to have protections from litigation, state-mandated benefits, and the expense of unnecessary and inappropriate care. Thank you very much, Mr. Chairman.
WRITTEN TESTIMONY OF WOODROW A. MYERS, JR., MD, DIRECTOR, HEALTHCARE MANAGEMENT, FORD MOTOR COMPANY, AND ON BEHALF OF THE ASSOCIATION OF PRIVATE PENSION AND WELFARE PLANS –
SEE APPENDIX C
Mr. Boehner. Thank you, Dr. Myers. Ms. Kramerich.
STATEMENT OF LESLIE KRAMERICH, DEPUTY ASSISTANT SECRETARY FOR POLICY, PENSION AND WELFARE BENEFITS ADMINISTRATION, U.S. DEPARTMENT OF LABOR
Ms. Kramerich. Thank you, Mr. Chairman. Mr.Chairman, Representative Andrews, Members of the Subcommittee, thank you for inviting me to speak with you this afternoon about ERISA's role in health care coverage as well as issues relating to access to health care for the uninsured in the administration's ongoing efforts to expand access for those without coverage and to promote strong and enforceable patients' rights to safeguard those to whom coverage has been promised.
The issue of ERISA preemption is one that we're hearing a lot about, and I'm happy to share that with you. As you've heard and I'm sure you'll hear again, ERISA was passed 25 years ago to regulate benefit plans, pension plans, health plans and others offered by private sector employers to workers, retirees and their families.
When it comes to pension plans, ERISA's very specific. When it comes to health plans, ERISA's protections are much less specific. There are those who will tell you that that is the genius of ERISA, and that they rely on ERISA's preemption or elimination of certain state laws and the substitution of minimal federal protections as a form of simplicity and uniformity that was an intentional policy choice and a successful one.
Others will tell you that ERISA's tilt toward pension provisions had more to do with the pension crises that were facing the members of the 1974 Congress than it did with any thorough or comprehensive design for the health care environment of the next two and a half decades.
Quite simply, today, ERISA prevents many state laws from applying to ERISA plans, state laws which insurance regulators and health care consumers are turning to with growing frequency. This happens because ERISA's statutory language says that state laws which relate to employee benefit plans are preempted or prevented from applying.
The exception to this rule is state laws regulating the business of insurance. These laws are saved or allowed to apply. The state laws that are most commonly preempted are laws requiring that insurance policies sold in a state include such mandated benefits as coverage for a certain kind of service or a certain kind of illness or a certain kind of doctor.
A number of other kinds of state laws also have been caught up in ERISA preemption. For example, state medical malpractice laws. In some cases, patients have sued their HMO alleging that they were the victims of medical malpractice in the way they were given treatment or services by an HMO doctor. HMOs have argued that the traditional state law case alleging malpractice is preempted or wiped out by ERISA preemption because the HMO is serving employees covered under an employer's ERISA plan.
We at the Labor Department have argued that this is not what ERISA means, that cases brought by patients who did not receive the appropriate quality care are not cases which relate to the administration or design of employee benefit plans, but are instead within the scope of the state's traditional role to regulate medical care and are not preempted.
We've made progress on this issue, but there's still a long way to go. This confusion arises in other areas, too. For example, in our efforts to strengthen patients' rights to internal plan reviews when benefit claims are denied, and to set up external review mechanisms to review denials after the plan has reached a decision but before a patient is forced to go to court. Some states are increasingly trying to strengthen patient protections in both of these areas. Yet, ERISA, they tell us, is increasingly an obstacle to their efforts.
To the extent that their laws are not limited to entities which provide traditional forms of insurance, courts often find these laws to be preempted by ERISA. Even if the laws are directed toward insured plans and, therefore, might be saved, courts may still find that such laws are preempted. Many courts following the 1987 Supreme Court decision have concluded that ERISA, in permitting employees to sue to enforce the promises made by their plans, prohibits any other kind of action to redress a wrongful denial of benefit.
This theory says that since an employee in an ERISA plan is given the right to sue, if necessary, to get the benefit he or she was denied, he no longer has any access to state law action, the kind traditionally available under state insurance laws or tort laws or contract laws addressing unfair claims processing, laws which would typically provide not only the denied benefit, but also some redress for the harm caused by the wrong delay or denial or inappropriate handling of the claim.
In other words, ERISA is being interpreted not only to wipe out state laws holding insurers accountable for the harm caused by inappropriate delays and denials. It's also being interpreted to wipe out state laws setting up external review mechanisms which could help resolve a delay or denial without requiring an employee to resort to court.
This problem is growing more apparent and more troubling because the health care system has changed dramatically from fee-for-service to managed care arrangements with new commercial pressures.
Markets like this work when the parties involved are accountable for their actions. Many states are trying to add or restore that accountability. But without changes in ERISA, those efforts will continue to be frustrated.
And without changes in ERISA, those consumer protections cannot be extended to employees in self-insured plans. When ERISA was passed, roughly 5 percent of workers were in self-insured plans. Today, roughly 50 million people, more than one-third of all American workers, are in ERISA plans that are not insured.
These workers are not subject to the confusion and inconsistency that I've been talking about. For these people, there's not even the hope that they can turn to an independent appeal entity or some other insurance commission or mechanism if all else fails for redress or compensation. For these people, the federal law is all that applies, and it is silent.
The changing health care market place will work efficiently when there is accountability. In the rare cases when people are harmed, they need and deserve to be taken care of. These are fundamental American values, equal treatment under the law, accountability for harm provided through private rights of action that work together in virtually every other area of our society.
I have additional pages, Mr. Chairman, which I'd be happy to address in questions and answers that talk about other approaches the administration has taken to address the problem of the uninsured.
WRITTEN TESTIMONY OF LESLIE B. KRAMERICH, DEPUTY ASSISTANT SECRETARY FOR POLICY, PENSION AND WELFARE BENEFITS ADMINISTRATION, US DEPARTMENT OF LABOR – SEE APPENDIX D
Mr. Boehner. Thank you, Ms. Kramerich. Go ahead, Mr. Kelly.
STATEMENT OF PETER KELLY, ESQ., OGLETREE, DEAKINS, MURPHY, SMITH AND POLK, CHICAGO, IL, AND ON BEHALF OF THE US CHAMBER OF COMMERCE
Mr. Kelly. Thank you. I'm appearing on behalf of the U.S. Chamber of Commerce, and I've offered you in my written remarks a number of statistics and an analysis of preemption since the inquiry made it clear you had a particular interest in the development of preemption law. I direct your attention to that. But I will not take a lot of time in my remarks today other than to basically associate with the remarks of Dr. Myers that I found very interesting, and I believe we wholeheartedly support his approach.
Initially, I'd like to point out that it's particularly a treat to appear in this Committee because I think it's important to acknowledge that over the past 25 years, this Committee more than any other Committee in the Congress has been the protector of ERISA preemption. And it's our fervent hope that remains the case in the future.
Proponents of new state law rights of action against ERISA plans do great abuse to the English language and the level of public discourse when they urge the removal of what they call ERISA loopholes that they allege insulate ERISA plans and plan administrators from the efforts of aggrieved participants to enforce their rights.
In actuality, the insulation from state remedies is not at all a loophole for many of the reasons that I've gone through in my written remarks. And more importantly, it does not insulate plans and plan administrators from liability for wrongful denial of benefits.
Let me share a story with you that I think shows how misleading the criticism has been over the years. The efforts to carve out health plans from ERISA's preemption began with legislative proposals by then Senator Metzenbaum in reaction to the Supreme Court's Pilot Life decision. I appeared before Senator Metzenbaum's Committee hearings regarding that legislation on a panel that included the attorney who represented Pilot Life or who represented the plaintiff in Pilot Life.
That case held that the state remedies do not apply but has also been used over the years as evidence that ERISA does not provide protections. After the testimony in side bar conversation with this attorney, it became clear to me that the plaintiff in the Pilot Life case never even filed an ERISA claim, never pursued the claim's procedure and, therefore, never tested the availability of ERISA remedies.
In fact, ERISA provides established avenues for relief and many others are evolving in the district and appellate courts throughout the country. I'd like to direct your attention to a 101-page LEXIS printout that's a comprehensive ALR-fed compendium devoted to ERISA cases involving benefit claims under ERISA health plans.
Another source to consider is an 1998 article by a leading AARP attorney entitled ``Emerging Theories of ERISA Liabilities in Health Plans,'' which describes over 100 leading cases most decided in the last three years which suggest there are many more ERISA remedies than proponents of extending state remedies have ever admitted exist.
In fact, one of the best kept secrets in this town appears to be just how enormous the flood of ERISA cases has been out there. ERISA cases are being disposed of in the Federal District Courts throughout the country at the rate of approximately 1,000 cases per month.
The truth is that plan sponsors are swamped by such cases. Even where the plaintiff's claims are unfounded, plans and plan sponsors have been forced to incur tens of thousands of dollars in defense costs, and courts are reluctant to impose defense costs or attorneys fees on unsuccessful plaintiffs.
If you're inclined to do anything about ERISA remedies, I assure you we will have little trouble coming up with recommendations for you. Just for example, as we have class action rules that control the abuses in the security field, we ought to take a look at whether those class action abuse rules ought to be extended to ERISA cases.
We also have on paper an equal right to seek attorneys fees as a successful defendant. That paper right should be made more enforceable.
Back to the myth that participants are aggrieved because plans and plan administrators are improperly denying planned benefits they're entitled to. The proposed managed care bills would mandate the reimbursement of medical and health care expenses which are currently not covered because of entirely proper and quite common plan designed features. The fact is that the managed care debate is merely a smoke screen for new mandated benefits. This will all come at enormous cost.
The proposed new rules would call for new programs unlike today's conventional plans. The unstated assumption is employers will continue to pay despite the fact that new mandates would be imposed.
If we assume that no responsible legislator will propose that these new bills be funded through federal funds and if, as the statistics suggest, employers are hitting the wall in their ability to pay, then the question is isn't it appropriate for proponents of such changes to suggest that plan participants pay the cost. In other words, put up or shut up. We impose these new mandates. But if they're enacted, employers should be permitted to offer the new enhancements on employee pay-all basis, or they should be limited to employees who elect to pay them so they're not imposed on employees who are satisfied with current arrangements. Thank you very much.
WRITTEN TESTIMONY OF PETER KELLY, ESQ., OGLETREE, DEAKINS, MURPHY, SMITH & POLK, CHICAGO, IL, AND ON BEHALF OF THE US CHAMBER OF COMMERCE - SEE APPENDIX E
Mr. Boehner. Thank you, Mr. Kelly. Mr. Cummings.
STATEMENT OF FRANK CUMMINGS, PARTNER, LE BOEUF, LAMB, GREENE & MAC RAE, L.L.P., WASHINGTON, DC
Mr. Cummings. Mr. Chairman, it's an honor and privilege to be here.
Mr. Boehner. You could move the microphone over in front of you. It would help.
Mr. Cummings. Mr. Chairman, it's an honor and a privilege to be here, particularly since I appear only on behalf of just me. I am a lawyer in this field. I have been for 40 years. I am a draftsman of laws on occasion. I am a participant in a managed care. I'm a participant in Medicare; that's what happens if you practice law for 40 years.
I am an employer, I am a sponsor, and I'm an employee. How about that? I have the privilege also of being a participant in a health care system which is the envy of the entire world, and you can make it perhaps better. Yes, you can make it more responsive, yes. But first do no harm.
How do you do the right thing? One nice way to do it is to look around and see who is already doing the right thing like Ford Motor Company, for example. Look for the best, copy them. If you want to mandate something, at least you know you're mandating something that can be done.
When ERISA was enacted in 1974, Congress looked around to see what the best companies were doing, in investing and funding and in participation rules and so on, and they mandated that. At least they knew it would work.
You also need to look around and see what doesn't work. As a practicing lawyer, I can tell you what doesn't work, at least what doesn't work for anybody except practicing lawyers, and that is the state court managed punitive jury action. That's a good way to kill the system. It's a good way to get rich if you happen to be a plaintiff's trial attorney. Otherwise, it's awful.
So my proposal to you is keep the system federal. Assure quick and fair claims handling if you can. Keep the remedies federal. Keep them equitable. Keep them non-jury, and keep them non-punitive.
The dimensions of this problem are different now than they were in 1974. I give you some statistics on pages 3 and 4 of the paper I have submitted to you which show you the incredible growth of the cost and of the percentage of payroll that medical plans have experienced as a burden upon employers. There are limits to what you can do, and there is no free lunch. You want to mandate something? You can mandate it. It is not free.
There are also some structural changes that have taken place in medicine over the last 24 years. Not being a doctor, I always hesitate to tell you what's going on in medicine, but I'll take a stab at it, at least in medical insurance.
In 1974, the doctor didn't get his orders from the insurance company. Today, the linkage between the coverage decision and the treatment decision is much closer. You need to look at that because the old distinction says, well, if it's bad treatment, obviously it's malpractice, and let the trial lawyers have fun.
If it's a denial of coverage that's an ERISA plan interpretation, trial lawyers, please go home. Now it's a little fuzzier. Maybe you need to clarify that.
There are hard cases, very hard cases. The gentleman who's speaking after me devotes half of his paper to a hard case which, if it keeps happening, is going to make bad law. These hard cases always make bad law.
You will always find somebody who was hurt because a plan didn't provide the benefit they wanted. And you would like to sue the employer who didn't buy that benefit and say shame on you, employer. Your plan didn't provide the benefit. And the employer then says, listen, I bought what I bought. It didn't provide it.
And you turn around and say that's malpractice and empanel a jury. That's not malpractice. That's nuts. It seems to me what you really need to do, and I'll come back and end where I started, is to take a hard look at what's doable, and then do it under ERISA. Don't weaken preemption. It will just give the trial lawyers a field day, and you'll gut the system. Thank you, Mr. Chairman..
WRITTEN TESTIMONY OF FRANK CUMMINGS, PARTNER, LE BOEUF, LAMB, GREENE & MAC RAE, L.L.P., WASHINGTON, DC – SEE APPENDIX F
Mr. Boehner. Thank you, Mr. Cummings. Dr. Rosenblatt.
STATEMENT OF RAND ROSENBLATT, PROFESSOR OF LAW AND ASSOCIATE DEAN FOR ACADEMIC AFFAIRS, RUTGERS UNIVERSITY LAW SCHOOL, CAMDEN, NJ
Mr. Rosenblatt. Mr. Chairman, Congressman Andrews, thank you very much for the opportunity to testify here today. I'd appreciate it if I could have the opportunity to assert additional written remarks in the record.
I have six or seven points I'd like to try to fit into my five minutes. I'll try to talk fast and treat them in summary fashion.
First, in my view, the ERISA preemption was not a fairly debated policy choice, but was enacted through a major failure of the democratic process. ERISA was considered by Congress for about eight years prior to 1974. There were exhaustive hearings. There were a lot of bills, a lot of legislative activity.
When those bills finally passed the House and the Senate in 1974 and went to conference committee, they did not have the ERISA preemption provisions that we currently have. It was only ten days before the final vote of this massive piece of legislation that the conference committee added the two provisions that have established the very broad ERISA preemption that we now have today and distinguished between self-insured plans and fully insured plans.
Not surprisingly, there were no hearings on this major policy decision. There was no formal debate on it. The legislative history is extremely sparse. And while Mr. Cummings is right about the kinds of concerns that appear to have led to the insertion of those provisions, the provisions themselves were far, far broader than the concerns.
The preemption was not limited to national corporations or multi-state corporations, not limited to collective bargaining, not limited to self-insured plans. In other words, it swept far, far broader than even the policy rationale that was given at the time.
The second point I'd like to make is that there's been a steady erosion of explicit and implicit coverage for Americans working for private employers and a continued rise in the number of the uninsured even in a strong economy with relatively low unemployment.
There are many reasons for this. Some of them are independent of ERISA. But ERISA has heightened the effect of some of these forces because it's allowed employers to shift costs to employees in a variety of ways by reducing explicit coverage because the self-insured plans are not subject to any state regulation on benefits, and through a number of indirect implicit low visibility methods typical of managed care.
I mentioned a couple of dramatic cases in my written testimony. There's the McGann case from 1992 where an employee who developed AIDS started submitting claims, and the plan was changed to cap his lifetime benefits at $5,000. This was an employee who had been in the standard risk pool. When the risk materialized, he was de-selected in essence from the insurance.
If you let insurers do that, you've basically undermined the whole notion of insurance. If you let an insurer kick someone out after the covered risk has materialized, the whole insurance contract has been reduced to nothing.
The other big problem that ERISA has created in the insurance market is, of course, adverse selection. The reason for state mandates is that if you let employers and employees not take certain kinds of coverage, the only people who will seek that coverage are the people who disproportionately need it. That drives up the price further having relatively healthy groups drop out and creating a spiral where that coverage becomes unaffordable.
That's why the State of Massachusetts and other states have mandated mental health benefits. Indeed, Congress itself now has mandated mental health parity to some extent. So simply to call mandates a bad thing is very short sighted and leads to an erosion of essential health insurance.
The other big issue, of course, is the indirect low visibility erosion of coverage. And here, it would be nice if all plans were functioning like the Ford Motor Company. But unfortunately, that's not the case.
Indeed, the Andrews Clark case, which I mention in my written testimony, involved an explicit insurance contract calling for 30 days of in-patient treatment for alcoholism and other kinds of illnesses of that sort. A suicidal alcohol patient in this plan was certified by a court as needing this kind of treatment. The utilization review company simply refused to authorize the benefits.
Maybe they had a reason. But because of ERISA preemption, there's never been a trial. There's never been an investigation of what that reason or justification was. The Bedrick case involved a national company with systematic maladministration of its own contract and non-compliance with existing ERISA rules which underscores the importance of the regulations proposed by the Department of Labor.
I'd be happy to expand on these comments during the question period.
WRITTEN TESTIMONY OF RAND ROSENBLATT, PROFESSOR OF LAW AND ASSOCIATE DEAN F0R ACADEMIC AFFAIRS, RUTGERS UNIVERSITY LAW SCHOOL, CAMDEN, NJ – SEE APPENDIX G
Mr. Boehner. We thank all of the witnesses for their testimony. I think it was certainly helpful to the Committee and enlightening to the Members. I'm going to remind Members that each member will have five minutes to ask their questions.
Ms. Kramerich, in your written testimony, you refer extensively to the Presidential Commission on the Patients' Bill of Rights. And even in your testimony today, you referred to the administration's efforts at trying to move the Patients' Bill of Rights.
But there are some significant differences between the President's Patients' Bill of Rights and issues that we find in the Kennedy-Dingell Bill that we have on the Hill. Most notably in the area of liability under ERISA. And even in your testimony today, you call for remedies that include greater access to the courts. But from my reading of the activities of the Presidential Commission on the Patients' Bill of Rights, that commission almost unanimously recommended that we not open up the liability situation. They didn't even mandate, didn't even call for mandatory external reviews.
So I'm trying to find out, determine in my own mind, where the Administration really is on the issue of liability.
Ms. Kramerich. Mr. Chairman, yes, thank you. I'm happy to address that. My understanding of the Commission's recommendations is not that they rejected the idea of enhanced accountability in some form. But because it was a bipartisan group and because it was a group that involved federal representatives, private sector representatives, state and local government plans, union representatives, a broad perspective of interests.
They worked in a very diligent way to try to come up with consensus recommendations. And one area, at least one area, in which they did not achieve perfect consensus was on remedies, what they should be, if they should be improved and how exactly that should happen.
The president has gone beyond that and said that in order to impose a patients' bill of rights that embodies all of the principles that the Commission did achieve consensus on, it's necessary to find a way to make those protections strong and enforceable.
And he's commented on a lot of different legislative proposals that have approached that in different ways. And you're right. I've talked about the importance of those principles without being absolutely explicit as to how exactly one might achieve that, and there are at least three different ways that one could do it. And I'm happy to talk more about how those can be designed.
Mr. Boehner. Well, Ms. Kramerich, do you believe if we opened ERISA to remedies such as access to state courts that we would see increases in the cost of health care to employers and employees?
Ms. Kramerich. That's an interesting question. If we open ERISA to permit access to state courts, it is possible right now for someone in an ERISA plan to sue in state court to get the benefit that they feel that they've been wrongfully denied.
What we're hearing at the Labor Department is that what often will happen in a case like that is the participant will feel they've been denied. They often feel that the internal review process hasn't given them an answer that makes them trust the denial.
They bring an action in state court. The person or the entity that they're suing will remove to federal court. The participant has the perception that that makes the litigation much more expensive to pursue, much more time delayed. And then it's then impossible to get a review as to whether or not the benefit was denied wrongfully.
Instead, what happens is the review is was the denial arbitrary and capricious. If the denial is simply wrongful, that's not enough to overturn it. That's the testimony that we're hearing at the Department.
So the cost of litigation is already borne. The remedy is inadequate.
Mr. Boehner. Dr. Myers, if we opened up ERISA to allow for additional remedies on the liability front within ERISA, what effect would it have on Ford Motor Company and its ability to offer quality health care to their employees?
Dr. Myers. First of all, Ford Motor Company would continue to offer quality benefits, but it would hurt us in the sense that the costs that are associated will clearly go up. There's no way around that at all.
The ability to bring in a number of members of the legal profession who would then try to find ways to come at our benefit, to me, is absolutely the wrong thing that we want to----we don't want to encourage. The ability to have protracted costly litigation in a jury that doesn't necessarily get the opportunity to understand all the ramifications; it's not the right way, from our perspective, for us to go.
We think that the costs would certainly rise with respect to our HMOs across the country. They would rise in our PPOs, and that we would have to find a way to deal with those very difficult cost issues within our whole benefit structure. And I just would not want to predict how that would affect the kind of benefit that we offer.
I think that many other companies will have a great deal more trouble than Ford with that question because they're on a much different margin than are we.
Mr. Boehner. There's been a vote called on the floor of the House with and for Members. It is the last recorded vote of the day. And I would suggest that we go vote and resume the hearing at approximately 2:40, possibly 2:45. The Committee will stand in recess.
Mr. Boehner. The Subcommittee will come to order. The Chair recognizes the gentleman from New Jersey, the Ranking Member, Mr. Andrews.
Mr. Andrews. Thank you very much, Mr. Chairman. I want to thank all the witnesses, each of the witnesses for their testimony and their contribution today. I especially want to thank Dean Rosenblatt for joining us from New Jersey. It's an honor to represent the district in which he serves and has served our community and students with great distinction. It's just great to see him here.
With respect to Dr. Myers and Mr. Kelly, one of the points which we can deduce from your testimony is that you assume or conclude that the lifting of the tort preemption under ERISA would increase premiums to people who sponsor health plans. Is that a fair statement that you both assume that?
Mr. Kelly. That's correct.
Mr. Andrews. Could you tell us how much you think it would increase premiums by, either of you, or both.
Mr. Kelly. Well, I can't tell you how much because that's not my discipline. I'm a lawyer. I can, however, tell you that statistics from the U.S. courts indicate that jury trials and, in fact, ERISA cases that go to trial, excuse me, not even jury trials that go to trial which will happen much more often under the tort system, take about two years to be decided whereas a simple ordinary ERISA cases, the 99 percent of the cases where they don't go to trial are disposed of in little less than a year.
So we're going to have a lot more litigation cost involved in the tort system. So I can't quantify it.
Mr. Andrews. Okay. Dr. Myers, do you have an estimate for us?
Dr. Myers. I'm sorry to interrupt. We don't have an amount that we try to calculate or anything like that. I think the problem is that we know that premiums will have to go up, and we're worried that the companies that may be wanting to offer products will perhaps not do that, or the people that are already doing it now will not choose to do it in the future.
And then there's a huge public relations issue for a company when these kinds of lawsuits happen as well. It will cost you in a variety of ways. So there are a lot of issues associated with the liability. And I'm not a lawyer. Well, I am a physician. I'm not a lawyer. So I can't comment.
Mr. Andrews. Does anyone on the panel know or know where we could find the answer to whether there are any material differences in premiums for employees who are employed by state and local government versus private employers? Do they differ significantly to your knowledge?
Mr. Cummings. Mr. Andrews, there's very little doubt that if data is around, you can find it at the Employee Benefit Research Institute, EBRI. They seem to have a knack for collecting whatever it is.
Mr. Andrews. Mr. Cummings, would you answer the question, though?
Mr. Cummings. I have no idea what the answer is. But if it exists, they've got it.
Mr. Andrews. Okay. So you don't know the answer.
Mr. Cummings. Correct.
Mr. Andrews. Ms. Kramerich, do you know?
Ms. Kramerich. I'm familiar with one CBO estimate, I think, that was done last year, Congressman, on a bill that would have changed ERISA preemption which I believe estimated that premiums might increase by roughly 1 to 1.4 percent.
Mr. Andrews. Right. The point that I'm raising, though, is anyone aware of any significant or material difference between the cost of health insurance for private employers and for municipal and state government employers? Is there a difference.
Let me follow up, then, Mr. Kelly, with this line of questioning. It's correct, isn't it, that municipal and county and state government employers are not subject to the ERISA preemption, is that correct.
Mr. Kelly. That's my recollection.
Mr. Cummings. That's correct.
Mr. Andrews. That is correct. And there's about 50 million Americans who are covered in plans sponsored by state, county and local government meaning, of course, that those individuals are not subjected to the tort preemption that ERISA plan individuals are.
Mr. Cummings. Yes.
Mr. Andrews. Is anyone aware of any evidence that the premiums are significantly greater for state, county and municipal governments as a result of no claims being preempted?
Mr. Cummings. Yes. I had the impression that the business of suing a public body such as the government of the State of Maryland, for example, or any other state you have in mind for punitive damages is a very tough road to hoe not because of ERISA, but because of constitutional----.
Mr. Andrews. You're not suggesting that the doctrine of sovereign immunity blocks those claims, are you, because it doesn't. Sovereign immunity would only block the claim if the state is acting in its sovereign capacity, but not if it's acting in proprietary capacity.
Mr. Cummings. If it's acting as a plan administrator, I have no idea.
Mr. Andrews. So your answer is you don't know. Dr. Rosenblatt, do you have any views on this?
Mr. Rosenblatt. Well, I would just say on the legal issue that, of course, the great majority of governmental employees, state and local governmental employees are covered by private insurers under contract to the governmental entity, as indeed I as an employee of the State University of New Jersey. I'm covered by Blue Cross/Blue Shield.
Mr. Andrews. And I'm expecting and assuming that if you had a claim against Blue Cross/Blue Shield that you would not have your claim preempted by ERISA, is that correct?
Mr. Rosenblatt. That's correct. And, indeed, there have been some famous cases with high punitive damage judgments against HMOs who've been covering the governmental employees.
Mr. Andrews. And I will conclude in a second, Mr. Chairman, that we've heard a lot of rather sweeping and conclusive statements about the impact on premiums. I would invite any member of the panel to submit for the record any research they have that would point out a differential in premiums between state, municipal and county employees and private employees that would tend to bear credence to that conclusion. Thank you.
Mr. Boehner. Well, the chair would point out to my good friend from New Jersey that in my real life before I came here, I owned a small business that had an ERISA health care plan. And I can assure you directly without any equivocation that if ERISA were opened up to allow for a plan liability for the insurer or to the business owner, my employees are no longer going to get health care, point blank, because I as an employer am not going to subject myself to any more litigation than I'm already liable for as the owner of a small business.
Mr. Andrews. If I could just respond briefly that I wonder if the more relevant question isn't whether you paid higher premiums or lower premiums than the State of Ohio for its employees because that would be the relevant question.
Mr. Boehner. My point is regardless of the cost between the two plans, I as an employer would no longer offer it to my employees. The chair would recognize the gentleman from Georgia because he has another commitment that he has to attend.
Mr. Norwood. Well, unanimous consent to speak out just for a second.
Mr. Boehner. The gentleman is recognized.
Mr. Norwood. Thank you, Mr. Chairman. What I'd really like is about an hour and a half to question the panel.
Mr. Boehner. I'm sure the gentleman would.
Mr. Norwood. But I don't have that, and I simply would like your permission to be able to question this panel in writing, though I am not a Member of the Subcommittee. But I am a Member of the full Committee, and I do have lots and lots of questions, particularly for Mr. Kelly.
And I wanted to point out to you how good it is of you to have this hearing. And it's about patients, it's about health care, and perhaps we can have another one and have four doctors rather than four lawyers on the panel and look at the --
Mr. Boehner. Well, the gentleman's time is expired. The Chair would note that the gentleman from Georgia is always welcome to sit in on our Subcommittee meetings. The Chair would recognize the gentleman from Kentucky, Mr. Fletcher.
Mr. Fletcher. Thank you, Mr. Chairman. I come from Kentucky where we had a great deal of health care reform that has taken place over the last six or seven years, and it was well intentioned. I wanted to make sure we covered more individuals, that we got more individuals that previously were having trouble, allowed them to get into the health care industry as far as getting insurance and getting coverage that they needed.
And we passed a health care bill in 1994. At that time, we were a state of about 3.7 million. We had about 400,000 uninsured. And even though this was very well intentioned, by a Galen Institute study by the end of about a year ago, we had another 107,500 people that were uninsured because of the rising cost and decreased accessibility.
So it concerns me greatly when we've got some very good intentions, that we do things that may affect affordability and accessibility which has been stated as our largest problem. We've got 43 to 44 million. We'll have 60 million in the next ten years uninsured. And that to me is a tremendous problem that we're facing. And I would like to work to make sure that we get more people insured and better coverage.
And Dr. Myers, let me ask a question of you; Ford Motor Company, we have a plant in Louisville, Kentucky.
Dr. Myers. Yes sir.
Mr. Fletcher. You know, we passed this health care legislation. It's interesting, the Herald Leader, the paper in my city, was just pushing it, pushing it, pushing it. They were exempt from everything that we did.
And I wondered what effect it would have if you look as if you're complying with all different state regulations and you're multi-state operating. How would that affect your coverage of individuals, costs, administrative costs and everything if we just totally eliminated the ERISA?
Dr. Myers. One of the major advantages that we have as a multi-state employer with respect to health care benefits is that we don't have to tailor our benefits to the specific requirements that each state today imposes with respect to state-regulated plans. And it offers us a tremendous administrative advantage, and it offers our unions an opportunity in their collective bargaining to provide equal benefits throughout the country where they have members. It makes it much easier, much simpler, and it reduces certainly our administrative costs to be able to do that.
So it's clear that the multi-state preemption provision is one that we absolutely feel very strongly about. And I misspoke, sir. We have two plants in Louisville as opposed to just one, the Louisville assembly plant as well the Kentucky truck plant.
Mr. Fletcher. Thank you. Now, the other concern I've got about it is that there are, and let's face it, you know, there are some bad players out there. And there are some insurance companies that are not as good as what you're doing at Ford Motor Company.
And do you think there are some other things that we could do instead of just maybe sweeping this with a broad brush and eliminating some of the incentives we've got for companies to provide the insurance. Are there some things that maybe you do at Ford Motor Company that we could do regarding quality and reporting of the quality of care and things that may help us identify some of these without rising the cost or increasing the cost on everyone.
Dr. Myers. I think there's a lot of room there, Congressman. We are working very aggressively to help educate our employees as good health care consumers. We have a variety of programs that allow us to do that.
We, first of all, have a call center, a 1-800 number for all the employees to use if they have specific benefit or health questions, they can call in. We make extensive use at Ford Motor Company of the Intranet, our Internet within the Company where all of our employees have access, and that's an increasing number every day. We're shooting for, of course, 100 percent that can go to our health care website where we have information on a variety of disease processes. We publish a newsletter that comes out every month where we feature a health care issue.
We provide extensive information in our documentation for the annual employees plan selection effort so that they can make good choices. We give the NCQA ratings for different plans. We are ranking the hospitals in southeast Michigan, and now we're working with the American Hospital Association to provide consumer information for hospitals in six different communities across the United States, and we hope to expand it even further in future years.
We've created the Ford Health Care Quality Consortium. That, today, consists of the best health services research group in our local area, Henry Ford Health Systems, University of Michigan Medical Center, Wayne State Detroit Medical Center. But we're now talking with the Rand Corporation, Harvard University, Johns-Hopkins to join our consortium as well where our data can be analyzed by these researchers for us to find where the good quality is and, of course, to publish that information in ways that help those who haven't yet achieved those levels to get there.
There are a whole variety of things that we are focusing on to optimize quality as well as to eliminate inappropriate health care costs. And I would love to have had more of an opportunity to talk about them.
Mr. Fletcher. Well, thank you, Dr. Myers.
Mr. Boehner. Mr. Kildee.
Mr. Kildee. Thank you, Mr. Chairman. First of all, I've been in Congress since 1977. I've served on this Committee for two years. And I remember when I first came aboard, Frank Thompson from New Jersey was Chairman of the Committee. And he told me one day, he said, ``Kildee, there are only two people in this town who understand ERISA. That's John Ehrlenborn and Phyllis Borzi who's now teaching law school.'' You probably know Phyllis real well.
It's a complicated area of law. Let me ask you this question. It's really an extension of the question that Rob asked. Maybe all of you can try to answer from different perspectives.
In what ways does ERISA limit the cost of employer-sponsored health insurance? We can start with you, Doctor. In what ways does it limit your cost of employer-sponsored health insurance?
Dr. Myers. In what ways is the cost limited?
Mr. Kildee. Yes. In what ways does the ERISA preemption limit the cost of your --
Dr. Myers. Well, because we are able to construct a uniform benefit, clearly the administrative costs are substantially lower as a result of that. And we very much want to continue to be able to keep those costs low so that we can concentrate our costs on those areas that provide the most benefit directly to the patient.
Mr. Kildee. And Ms. Kramerich?
Ms. Kramerich. Congressman, I think that one way that ERISA probably does help keep costs down is, as the doctor has testified, is it lets employers escape from certain state-mandated benefit laws and designing uniform benefit package.
I think, though, another factor to consider is I don't think that that is the biggest way in which they save costs. A large employer that's operating in a lot of states has got a lot of purchasing power, and they're able to negotiate good rates with insurers and providers.
And I think that is often the biggest source of the savings they achieve. Another way that ERISA doesn't help control costs, but I would think increases them for employers and employees, is the fact that it is so unspecific. It does not clarify. So many things that have been challenged now for more than two decades that employers are having to defend and deal with the thousand a month cases that Mr. Kelly was talking about.
And I bet I could get Phyllis to agree that we could submit one of her papers for the record because she is somebody who's done a lot of research on the confusion that is out there about is this a law that relates to employee benefits and is preempted. Is this one that regulates insurance and is saved.
Employers are out there bearing the costs of all that uncertainty. And one of the ways that ERISA can be changed is to make things certain in the federal law rather than to subject employers to 50 state interpretations on these things.
One of the comments that was made was employees on the cost increases have to put up or shut up. They've put up. They're bearing a bigger percentage of the costs than they used to. They're also having to shut up. They're not getting the access to accountability that they need.
Mr. Kildee. Mr. Kelly.
Mr. Kelly. Well, I would second the notion that uniformity is one of the key sources of cost control. I would say that there is also the systematized method for determining disputes where you can't go immediately to court. Instead, you've got to utilize the claims procedure under ERISA as a great cost saver and not just costs. It brings people together. They get a full airing in a much less costly administrative forum within the company, an opportunity to present their case, to hear both sides, make a decision. Forcing that intermediate step is an enormous cost saver.
Mr. Kildee. Mr. Cummings?
Mr. Cummings. I agree completely with what Peter Kelly just said.
Mr. Kildee. Okay. And Dr. Rosenblatt?
Mr. Rosenblatt. Well, first I just want to second your appreciation of Phyllis Borzi and note that she's in the room here. She dropped into the hearing.
Well, I have to respectfully disagree with Mr. Kelly. I think that while some companies may well have good dispute resolution systems, many others do not. For example, in the Bedrick case, the Fourth Circuit exhaustively detailed how the Travelers Insurance Company, which is certainly a major company, violated both its own procedures and rules and ERISA's existing procedures. In the recent Fisher case in Alaska, there was an exhaustive investigation of Aetna's claim processing for disability insurance which Aetna itself admitted had been very unreasonable in a particular case and had systematic problems which they then started to remedy because they were subject to a jury trial and punitive damages.
So as shocking as it may seem, to answer Mr. Fletcher's question, one of the ways to find bad problems is actually the sentinel event, so to speak, of punitive damages. The much maligned punitive damages is one of the best signals for finding out where the real problems lie. And companies do listen to it.
Mr. Boehner. The chair would like to welcome Ms. Borzi to our hearing today. We're glad that you're here. And while we're at it, the former Chairman of this Subcommittee, just retired, has joined us today, stopped by, Harris Fawell. Harris, nice to see you.
Mr. Andrews. Mr. Chairman, I have the feeling that he thinks we need supervision.
Mr. Boehner. Well, he might be right. The Chair would recognize the gentleman from California, Mr. McKeon.
Mr. McKeon. Thank you, Mr. Chairman. I want to thank the panel for being here today and for your expertise in this area. I think it's been a good hearing, and I think we've been able to hear several different things.
One of the things that I kind of focused in on was the Chairman's comments from when he was in the real world before he came here that if this had been changed, and they lost the preemption, that he would no longer be able to offer insurance to his employees.
I'm concerned about that because what we're trying to do is broaden coverage, and I would like to hear from each of you what you think the impact would be on the number of employers that offered health coverage to their workers if the liability scheme along the line of the Democrats' Patients' Bill of Rights were adopted. What do you think, what impact would that have on an employer's being able to offer insurance to their employees. I'd like to hear from each of you.
Dr. Myers. Well, it clearly would have an impact. And we are aware of a study that was done for the American Association of Health Plans that found that for every one percent increase in health care costs, 200,000 Americans lose health coverage. And that's some individual researcher's estimate carefully thought through. So you don't know if that's actually the case. But it's certainly a scary number.
One percent of our health care bill, sir, is $20 million. So we are obviously quite concerned about that as well. So it clearly is of major concern to all businesses. And what you can't guess is how many businesses that might have wanted to do it won't do it. And when businesses stop doing it, was it because of that liability question.
Those are some numbers that would be hard to get.
Mr. McKeon. So sometimes when we use percentage and we say one or one and a half percent, it doesn't sound like much. But when changed into dollars, $20 million, that's a pretty good sized number even here in Washington.
Dr. Myers. We pay attention at those levels. That's a good number for us.
Ms. Kramerich. Congressman, we do, too. And the cost of changes in the regulations and the law is something that we've been working on very closely at the Labor Department. And I would be happy to add for the record just about every source we can find and share on what the cost impact might be.
I think one thing that's important for us to recognize is all of the people that are suggesting that remedies need to be made more meaningful, more appropriate, more timely. The systems need to be made more accountable.
All of those proponents are also saying that it is necessary to add other protections that come first and that hopefully make that remedy unnecessary. Reference was made to the current claims procedure that ERISA already provides. That's something that we at the Department are trying right now to get a lot of comment from the private sector on, find out more about successes that companies are having, particularly the companies that do it well and that have earned the trust of their employees.
We're trying to figure out how can we replicate in another employers those good stories, what that process ought to be. How can we make sure that if there's a denial internally that people understand why the claim was denied and what they need to show and how to get the appropriate medical consultation involved in reviewing the denial.
Hopefully, if they understand, sometimes they'll trust the answer they get. If they don't believe that, if they think that more information is appropriate, then how do we make the appeal that they go to meaningful. Is there a way to do that inside the plan. Is there a way to do that externally in an independent way.
And then, ultimately, if a court remedy is necessary, how do we make that appropriate, but, hopefully, very rarely needed. We're working on all three of the pieces.
Mr. McKeon. My question was do you have any idea what impact it would be, and how many employers would perhaps not be able to offer coverage, and how many employees that would affect.
Ms. Kramerich. Well, I'm aware of the study that Dr. Myers cited as well as the CBO estimate that takes a much lower percentage. I'm also aware that percentages mean real dollars.
Again, I'll share with you everything I have. I think what we believe and what we're willing to work with you on is to try and design a system that minimizes the cost as best it can and provides an accountability that makes the system worth employers and employees trusting and being willing to pay for.
Mr. Kelly. The U.S. Chamber is primarily composed of small businesses. Although we represent businesses, our members are all sizes. We're particularly concerned about the impact on small businesses.
In my materials, I cite a survey in which 82 percent of the small employers responding to a recent survey of the Chamber who failed to sponsor health plans said they would be likely to sponsor them if they were more affordable.
By the same token, 81 percent of the respondents said that the cost of health care insurance was their biggest single concern. There's a survey in today's Washington Post that's been reported on that shows that the percentage of employees covered by health plans in small firms has declined from 1996 to 1998 from 52 percent to 47 percent, tracking an increasing cost that's been fairly dramatic during that time period.
So it's more than simply anecdotal evidence. There is solid reason to believe that cost is affecting coverage.
Mr. Cummings. Are we not stopped by the red light at this point? The notion that you can have $130 million in punitive damages in one case in California or $16 million in another punitive damage case in New York, recent newspaper stories, and that somehow or rather that has no cost, it seems to me, refutes itself. But I have no data to supply to support what I've just said.
Mr. Rosenblatt. I'd just make a few comments. First, as I understand the liability proposals, they would not fall on the employer. They would fall on the entity that was actually involved in making the health care decision which would typically be, if not just the physician and the hospital, it might be the HMO or the insurer who is managing the care.
Mr. McKeon. Would that not, then, drive up the cost of coverage?
Mr. Rosenblatt. I'll get to that in a minute, sir. I just wanted to respond to the Chairman's concern earlier. Indeed, Representative Norwood, I think, had a special bill in last Congress that made it very clear that the employer would not be held liable unless the employer had intervened directly in clinical decision making.
Mr. McKeon. I wasn't asking about his bill. I was asking about the other bill.
Mr. Rosenblatt. Yes.
Mr. McKeon. That does not preclude that.
Mr. Rosenblatt. Well, as to your question, I would be happy to look at that bill carefully. On your question about the premium, it's quite possible there might be some increase. But it's also possible there might be some decreases if this kind of liability improved claims processing, made it more careful, improved management of care. It might well end up having a neutral effect or possibly even lower costs.
In fact, if it's true that the vast majority of the managed care industry is doing a good job and this kind of liability would really apply to the bad apples, I would think the industry itself would be interested in supporting, you know, incentives to get them to clean up their act so that the industry would have the reputation it deserves.
Mr. McKeon. Thank you.
Mr. Boehner. The gentle lady from New Jersey.
Ms. Roukema. I don't quite know where to begin here. He's laughing. You know my background. You know my history on this.
I have been for a long time ranking Republican on the Subcommittee that dealt with ERISA. But I have come to the conclusion that I think ERISA preemption is an anachronism and certainly as it is understood and interpreted in the modern day under these circumstances.
I don't quite know how we deal with it except maybe one of these bills. If not Norwood, then I think Mr. McKeon was referring to Mr. Ganske's bill, Congressman Ganske, with whom I'm working, and he is dealing with some of the critical questions regarding the incentives for punitive damages and heavy litigation. And I believe all of you should be working to understand that bill because I think it directly, and I'm glad that Ms. Kramerich , did I pronounce it correctly, brought out the point that there are other ways of dealing with the protections, not just the preemption issue, but the protections such as the appeals process, the external review process, and the fact that there would be no punitive damages if there is a proper external review process.
That's what we're getting at in both the Norwood, the Ganske, the new Ganske bill, and hopefully, the Chafee-Graham bill on the Senate side. And I think that's the direction that we have to go in.
I've got to say, and maybe Mr. Andrews and I and maybe Professor Rosenblatt should give you the experience of the State of New Jersey because we were far out in front on standard reforms and requirements in the State. I don't think there has been any explosion such as you've intimated, any explosion of huge costs even particularly for small intrastate businesses that you've been alluding to. But we'll have to do our homework on that.
But I have seen no fall off in these many years of health care coverage in the State of New Jersey. So I guess what I want to say is that surely there is a way for all of us that is not suitable for any of us. We want to get the benefits of this private system. But at the same time, again, not having the medical decisions in the hands of HMO bureaucrats.
And I guess in that regard I want to join Mr. Norwood in saying where are the health care professionals that could be giving some testimony here. Now I guess I should give you an opportunity to respond.
Mr. Boehner. If the gentle lady would yield.
Ms. Roukema. Yes.
Mr. Boehner. I'm sure we'll have that opportunity.
Ms. Roukema. For the health care professionals, fine, but perhaps I have not heard anything. Knowing now my focus and position of thought on this, is there anything that you want to say to defend that ERISA preemption aside from what you've been saying about the inflation cost factors, because I haven't heard a word that has applied under your justification, your rationalization of ERISA preemption that will apply to the problems that I see with our constituents and the quality of care.
After all, when you're out in Billings, Montana, as we were a few years ago, and people; Phyllis Borzi is laughing because she remembers this experience. When at that time we were going from 48 hours for mothers to 24 hours for new mothers and new babies, and I was beginning to ask the question on that score when somebody on the panel interrupted me and started bragging about how much better they were doing, that they were really releasing new mothers and babies after 12 hours, at which point I was so shocked. That's the first time I had ever heard that.
We thought we only had to deal with 24 hour problems. At which point I had the right thing to say in an instant. I usually don't have the thing to say in an instant. I think of it two hours later.
I said, well, now wait a minute. If all you want to do is save money, I have a better way of doing it. Why don't you let the woman have the baby out in the rice fields, and then she can turn around and pick rice. You'll save a lot of money, but I don't recommend it as a medical procedure.
And that broke the whole place up, and we got on to another subject. But really I understand the need for an economy. I wish we could direct our procedures to the appeals process, the litigation question and the external and internal review processes as a way of dealing with this and not rationing care.
Mr. Kelly. The only thing I would add, and I'm not sure whether it's a response or a comment, is that plan sponsors and plans are in the business of paying benefits, not denying benefits. That's their main function. And when they deny a benefit that is not covered by the plan design, they are protecting not simply the employer but the other employees who are contributing towards it. It's a fiduciary act.
And I think it's very important that we preserve that notion of responsible decision making and what is a coverage decision versus a medical decision.
Ms. Roukema. Responsible decision making by professionals or by bureaucrats?
Mr. Kelly. It depends. Are we talking about what's covered, or are we talking about what's medical treatment.
Ms. Roukema. That's the point.
Mr. Kelly. Those are whole different issues. There's a whole different answer when it comes to the preemption outcome whether it's a medical decision or it's a coverage decision based on plan design. Two different answers.
Ms. Roukema. I hope you will look at the new legislation as it's being redefined. Dr. Myers, I don't know if I have another minute or so.
Dr. Myers. One of the other areas we particularly appreciate is our ability to innovate, our ability to use different designs. We don't think that the best design has been offered yet with respect to how to offer health care benefits.
I don't believe that the old indemnity fee for service system is right, nor a fully capitated system is right because in both you have incentives that will be taken advantage of by very few providers. In one system, there will be incentive economically to do too much. In the other system, there's incentive economically to do too little.
So we need that freedom and that flexibility. And the ERISA law, as I understand it, continues to give us that. For instance, in Michigan, we are creating a new way of looking at health care benefits in a program that we call Partnership Health with the University of Michigan. The faculty there told us on more than one occasion that some of the issues with respect to how plans must be designed and so on are issues that they don't find to be reasonable.
So we have said, all right, the University of Michigan has a great medical school faculty. Do you want to figure out a different mouse trap here to take care of our patients, we'll allow you to do that. And we structured a plan that gives them freedom without a lot of the regulatory efforts that go into some of the other plans to do it.
And we're evaluating it now to see what happens. And we want to continue to innovate with those types of providers that will look to the future. We've got an interesting dilemma coming because you have helped, by your appropriations, the National Institutes for Health to create the human genome project that's going to open all kinds of new doors for us in a very short period of time. You know, five years will be here tomorrow, and we will be able to offer new treatments, new medications for old diseases and have lots more opportunity to take care of our patients.
So the costs for that are going to go even higher. We've got to constrain those unnecessary, inappropriate costs. We've got to get rid of those design flaws today that cause us to spend more than we need to make room for the changes that are coming as a result of this Congress' decisions in the past to provide for that kind of funding that allows us now to take advantage of new knowledge.
So we're very concerned that we are able to continue to innovate, that we don't have to pay for things that we shouldn't have to pay for. We're very worried about lawyers seeing us and coming after us for things that they shouldn't see us and come after us for.
So we want to spend the money where the money will do the most good, and that's with the best physicians and the best hospitals for the patients who have the disease.
Ms. Roukema. Well, all right. Mr. Cummings, please.
Mr. Cummings. Mrs. Roukema, once again, everything you have to say is utterly correct and utterly correctable by such amendments to ERISA as you think and the Congress thinks are appropriate. But they don't raise the preemption question.
If you need a penalty, well then, just enact a penalty. But that's not a reason to turn the thing into 50 state laws. It's a reason to look at ERISA, and if you find it wanting, fix it. And every comment that you made upon defects of the system is certainly a valid comment.
Ms. Roukema. Well, thank you. We'll have to work together on this because, again, let me repeat, I see a backlash out there that may result in something that none of us wanted to see. Thank you very much.
Mr. Boehner. I want to thank our panel of witnesses today for coming down and providing the committee with valuable testimony. As I mentioned before, this being the first health care Subcommittee meeting of the year for this Committee and others, I'm sure that we'll be scheduling additional hearings exploring not only ERISA, but the whole question of cost versus access and what to do about the growing number of uninsured.
If there's no further business before the Committee, the Chairman again thanks the Members of the Committee, and the Subcommittee stands adjourned.
[Whereupon, at 3:23 p.m., the Subcommittee was adjourned.]