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 FREDERICK D. HUNT, JR., PRESIDENT, SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS, CHEVY CHASE, MD *

STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL, HUMAN RESOURCES, ALLIEDSIGNAL CORPORATION INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE, WASHINGTON, DC *

STATEMENT OF LARRY ATKINS, PRESIDENT, HEALTH POLICY ANALYSTS, INC., ON BEHALF OF THE CORPORATE HEALTH CARE COALITION, WASHINGTON, DC *

STATEMENT OF TIMOTHY T. FLAHERTY, MD, SECRETARY-TREASURER, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION *

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

APPENDIX B - WRITTEN STATEMENT OF FREDERICK D. HUNT, JR., PRESIDENT, SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS, CHEVY CHASE, MD *

APPENDIX C - WRITTEN STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL, HUMAN RESOURCES, ALLIEDSIGNAL, INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE, WASHINGTON, DC *

APPENDIX D - WRITTEN STATEMENT OF LARRY ATKINS, PRESIDENT, HEALTH POLICY ANALYSTS, INC., ON BEHALF OF THE CORPORATE HEALTH CARE COALITION, WASHINGTON, DC *

APPENDIX E - WRITTEN STATEMENT OF TIMOTHY T. FLAHERTY, MD, SECRETARY-TREASURER, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION *

APPENDIX F - WRITTEN STATEMENT SUBMITTED FOR THE RECORD, CAROLYN McCARTHY, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

Table of Indexes *

House of Representatives

Subcommittee on Employer-Employee Relations

Committee on Education and the Workforce

Washington, DC

The Subcommittee met, pursuant to notice, at 2:03 p.m., in Room 2175, Rayburn House Office Building, Hon. John A. Boehner, Chairman of the Subcommittee, presiding.

Present: Representatives Boehner, Talent, Ballenger, Salmon, Fletcher, DeMint, Andrews, Kildee, Payne, McCarthy, and Wu.

Staff Present: Robert Borden, Professional Staff Member; David Frank, Professional Staff Member; Rob Green, Professional Staff Member; Michel Reynard, Media Assistant; Mark Rodgers, Workforce Policy Coordinator; Deborah Samantar, Office Manager; Kevin Talley, Staff Director; David Connolly, Professional Staff Member; Chris Bowlin, Professional Staff Member; Cedric Hendricks, Minority Deputy Counsel, and Marjan Ghafourpour, Minority Staff Assistant/Labor.

Chairman Boehner. A quorum being present, the Subcommittee will come to order.

And I welcome our witnesses and our guests, and we appreciate all of you making an effort to be here today. Under rule 12 of the Committee rules, any oral opening statements are limited to the Chairman and the Ranking Member. Any Members who wish to submit statements are certainly welcome to do so, and without objection, all Member statements will be inserted in the record.

Welcome to our third in a series of Hearings we are holding to examine the different aspects of employer-sponsored health insurance in the United States. Today we will hear from a panel of witnesses who will discus employer health plan accountability and whether plan participants have adequate protections.

ERISA was designed to maximize the flexibility and plan design while ensuring that participants' rights were protected. Among the specific topics we will discuss today is whether plan participants have an adequate method for dispute resolution, and we will explore the various levels of accountability in health plans today.

ERISA health plan accountability is a major interest to and the primary jurisdiction of this Subcommittee. The media would have the public believe that accountability and other issues in managed care are failing, and failing badly. While there certainly may be room for improving the private health care system, the issues of accountability and participant protections must be fully understood. Many questions must be asked and answered before venturing into uncharted territory that could adversely affect employer-provided health coverage.

Health care should be accountable, accessible, and affordable for all Americans. If there is a way to enhance consumer confidence and trust in their health plans without adding for the 43 million Americans who don't have health insurance, I think we have the responsibility to find the solutions that can increase consumer confidence.

Today, as I said, over 140 million Americans have health coverage under private health plans sponsored by employers. ERISA was crafted in such a way as to provide employers the flexibility to design plans within certain guidelines and regulations, and to be free from individual state regulation in a multi-state operating environment. This was done to encourage private employers to voluntarily offer fringe benefits to employees at the lowest possible cost. Health law is a delicate balance between protections for plan participants and plan flexibility.

Employer-provided health benefit plans are evolving. Plans designed today are quite different than they were in the 1980's due to the different conditions in the medical market place and the changing nature of the labor pools. The strength of employer-provided health benefit plans is their ability to evolve in order to meet the needs of both employers and employees and to accommodate future market forces.

As I stated at our last Hearing, this Subcommittee, with its jurisdiction over ERISA, has the responsibility to carefully consider proposed legislation and regulatory changes to ERISA. Before we impose new binding rules on ERISA plans, we should review current standards and determine what problems, if any, need to be addressed with a federal solution. Our duty, as lawmakers, is to carefully evaluate the testimony and records before us to form a strategy that doesn't significantly increase the costs or the number of uninsured, protect patients not necessarily providers provides new affordable options for the uninsured, and provides care and not necessarily the courtroom. These four parameters should guide us in our efforts to make any improvements in the current health care system.

We are all aware that the Senate Health Committee has reported out legislation including a new external review structure. And I think we must understand how the benefits claims process works and judge the effectiveness of the current rules before we impose new federal rules on employer plans.

At the Subcommittee's first Hearing, I stated that we must all understand that amendments to ERISA involve tradeoffs 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 care. Congress should be cautious in crafting any new requirements under ERISA. If it is deemed necessary to implement any new mechanism for ERISA plans, it should be done only after careful consideration and thought. Proposed changes to ERISA must withstand the test of time in a rapidly changing marketplace.

I know that both parties are interested in helping to make America's healthcare delivery system as efficient, effective, and all-inclusive as possible. Improving the system with legislation starts with building consensus, and building consensus starts with listening. That is what these Hearings are all about.

WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE – SEE APPENDIX A

Chairman Boehner. At this time, I would like to ask the distinguished Ranking Member, Mr. Andrews from New Jersey, for his opening statement.

Mr. Andrews. Thank you, Mr. Chairman, and good afternoon, ladies and gentlemen.

I am looking forward to hearing what the witnesses have to say today, and I appreciate their very thorough preparation for this afternoon's session.

The title of the Hearing is ``Employer Health Plan Accountability: Do Plan Participants Have Adequate Protections?'' I would venture to say that most of my constituents and I think most Americans would answer that question, ``No.'' We do not. Whether that is a misperception or whether it is an accurate rendition of the state of affairs is one of the topics of this Hearing.

I would say this to you, though, that in American society, the conduct of businesses and institutions is regulated by some combination of regulation, competition, and litigation. In each of those three areas, this Committee has looked at the experience of managed care.

We had a very informative and interesting hearing on the question of association health plans which really focused on the possible use of that tool as a way of engendering more competition in the healthcare marketplace with all of its liabilities and assets.

Obviously one of the center pieces of debate is whether or not the litigation system, with its regulation, should extend through the managed care system. There are strongly held views on both sides. And despite the aggressive efforts of many courts across the country, it is still generally accepted law that ERISA plans are immune from the tort regulation of the litigation system. This leaves us with the third leg of regulatory control which is the leg of government regulatory statutes and administrative regulations.

Today, what we are going to hear about is whether or not the present regulatory structure that exists under ERISA and the voluntary system of accountability that is built on top of it by ERISA participants suffices to adequately protect consumers.

I do think it is necessary that we move from the anecdotal to the evidential. All of us, each of us, could relate stories of disgruntled consumers unhappy with what they perceive to be a lack of attention to their medical concerns.

I think that the anecdotal discussion really doesn't add much to our lawmaking function. I think the Chairman is right; the way to approach this problem is to hear from a variety of views about the assets and deficiencies of the present dispute resolution system, its costs and its benefits, and the cost in benefits of any changes to that system. Suffice it to say that although this Hearing does not start with a policy presumption, I think most Americans start with a policy presumption that there is a serious problem that exists right now in managed care where people do not get the attention to their claims and complaints that they feel they deserve, where there is an intrusion into the relationship between the provider and the patient, and where people feel that the health care for which they are paying is not necessarily being delivered in all cases and instances.

This is a critical issue that I hear about from people who deliver mail and teach school and run businesses and do all kinds of work in our community. I think the Chairman is to be commended for assembling a panel of well-qualified, well-schooled people to address these questions, and I look forward to what they have to say.

Chairman Boehner. Thank you, Mr. Andrews. Our first witness is Mr. Fred Hunt, President, Society of Professional Benefit Administrators. Mr. Hunt's testimony will include a discussion of ERISA's internal appeals process. Our next witness will be Ms. Jane Greenman, Deputy General Counsel, AlliedSignal, on behalf of the ERISA Industry Committee. Ms. Greenman will address the effectiveness of ERISA's fiduciary rules and enforcement. Our next witness will be Mr. Larry Atkins, President, Health Policy Analysts, on behalf of Corporate Health Care Coalition. Mr. Atkins will address whether employer health plan participants have adequate protections under ERISA. And our final witness will be Dr. Timothy Flaherty, on behalf of the American Medical Association. Dr. Flaherty will likely address the areas of the law that could be improved, and any additional protections that are needed.

Let me remind witnesses that, under Committee rules, statements are limited to five minutes. We are not going to strictly enforce it if you don't get carried away.

[Laughter.]

With that, Mr. Hunt, you may begin.

 

Mr. Hunt. Thank you, Mr. Chairman. I wish I had had the good statements that you and Mr. Andrews said. You could have replaced us here.

[Laughter.]

There is a description of SPBA at the start of my testimony, because I think I wanted you to understand it is a unique situation, that suffice it to say our members are hired much like you hire tax preparation from outside experts. We have no vested interest in whether a claim for $1 million is paid or not paid. It doesn't give a penny more to us, so we can be unbiased in that. Also, we are unbiased in every size and shape of employment as well as every type of funding vehicle for our clients and for our member firms. So I am coming with a big picture on that.

One of the points I would like to touch on, and I think we could probably bring a whole lot of peace to the entire Congress on this, is to clarify a couple of what I call ``vocabulary goofs.'' And I was appreciative of Mr. Andrews touching on the issue.

One is what I call ``plan vs. plan.'' ``Plan'' to an ERISA person is very strictly defined in ERISA, and it is a trust and a reimbursement funding vehicle. Also, the word ``plan'' is being used nowadays for a variety of medical menu things, usually in an HMO-like setting, where the providers are actually providing the care. That is a very, very, very important difference. Be careful not to say ``plan'' when there are really two meanings.

The second one is ``managed care,'' and, again, Mr. Andrews touched on that. One of the things I would point out is ``managed care'' is an undefined term, and it is used for all kinds of things from prescription plans that help to keep you from having crossed prescriptions to HMO-like things. It is the HMO or provider plan portion that only about 28 percent of the employee benefit plans have. So, it is a subset of managed care. And, again, I guess I would say be careful not to pass on anything for managed care because you might be applying it where it doesn't belong.

My third one would be appeals and review. This is a fluid type of thing, and fortunately every one of you is an expert on that. Every one of your offices has a caseworker who helps people on Medicare, and you know that there are all kinds of things that can take weeks and months to get through. What was the name of the person with a social security number mix up? Was there a mix-up in the bill in the doctor's office? Was there all the different kinds of things that can go wrong? So you all know first hand from your caseworker staff how that kind of thing can go on.

[Laughter.]

I highlight in my testimony four or five different kinds of problem areas that arise in doctors' offices, and in preferred provider organizations which are a doctors' discount service. These kind of things that occur before the employer or the plan ever gets a hold of the thing. There are delays and mix-ups and problems.

[Laughter.]

Now, the good news is we did a survey of our members, and we found that once you get all the right information, the system works, and 99 percent of the claims are paid within seven days. Now, of that 1 percent, do the claims and appeals work? Yes. The payer plans which are the reimbursement plans. I am separating ERISA payer plans from those that provide medical care and I hope that in any legislation or considerations you would also do the same. But for the payer plans, which is 70 percent of the market, .06 of all the claims are appealed, and 24 percent of the appeals come out positively in the first review. So it shows it is certainly not a ``kangaroo court'' or anything like that. So what that means is for 70 percent of the market in the payer plans, what we are really talking about is that .045 percent of the claims are the trouble areas in the payer plans. Now that includes and these are the ones that are actually turned down and might be turned down in the appeals process.

Now, I love one of the examples that came up in Medicare a few years ago, and that was that Medicare got a claim for a pregnancy test, and eight days in the hospital to recover, for an 80-year-old man. Now that was turned down, I am glad to tell you. And I don't think it takes a medical panel to figure out that was not a medical decision to say that he was turned down.

As I noted earlier, the appeals and review are usually an ongoing process of collecting information. So when I asked my members how many levels of appeal they had for patients, it was as much as ten of them. But I think it is everybody trying to help again like your caseworkers. They are helping at various stages.

Now ERISA itself has multiple levels of appeal. First is the requirement for a formal internal review process. There is also a built-in external review because any patient can complain to the Department of Labor to be sure that the fiduciaries acted properly. The next step is the external process of going to federal court, so you really have two external processes already existing within the thing. The Department of Labor and/or the courts can bring civil and/or criminal jail time charges, so it is a very strong incentive. It is certainly more than a slap on the wrist.

Timing. Remember that I am talking about 70 percent of Americans in payer plans where it is a reimbursement thing, so we are not talking about cases in which the medical services have been long delivered. The person went to the doctor of their choice and got the medical service of their choice. There is no one bleeding to death in the waiting room, when I talk about the delays, in a payer plan. The medical service has been provided.

We have already described the human nature problems in my testimony. Is the bill right? Was it coded right? Was it delivered right? Did the doctor give the right tax ID number that the IRS requires, et cetera, et cetera, et cetera? Those are all problems that once again your caseworkers can testify to. ERISA gives 60 days for review decisions on initial claim denials, and claim determinations must be made within 90 days.

Now, there is big talk about penalties and Congress, and I am feeling very old. I happen to have been around in 1974 when ERISA was being put together and this was a hot issue at that time. Congress wisely prevented ERISA from being a self-destruct vehicle, because Congress wanted patients to get what they were due if there was a goof. But if a plan has to pay a zillion dollars in punitive damages, that is the money of other workers. Remember, plan money is worker money. It is the co-pay that people put in from their paychecks. It is COBRA payments that people put in, so they figured the money would be better spent on what it was intended for rather than for the others.

So, as you hear other testimony, please ask yourself and ask them if they are talking about employers payer plans or are they talking about HMO-like medical care. That is the important question. I think that will help you to decide throughout this process. It may well be that provider plans do need some medical external review mechanism. However, be careful not to apply something designed for one situation to a very different situation. As I said, last year there was a bill in the Senate that would have had employers responsible for the hours of operation of any medical clinic their employees went to, the location of the thing, and the demeanor of the staff. There is no way we know where our staff is going to the doctor; that is their choice. We can't control the demeanor of the staff.

[Laughter.]

Finally, I would point out that Congress has already passed one major reform in this area with HIPAA. There was the administrative simplification portion of that. It has not taken effect yet because HHS is in the process of trying to come up with the Regulations. But you have already prescribed one solution that should solve a number of the problems. In the meantime, the Department of Labor has also come out with some pretty strong claims regulations proposals which would solve a lot. I am not sure how and no one knows how that will all evolve. But I guess what I am saying is that you have already prescribed or the government has already prescribed two medications for any problem that might be out there. And I worry about prescribing a third on top of it, before the first two medications have a time to work.

[Laughter.]

 

Thank you, Mr. Chairman.

WRITTEN STATEMENT OF FREDERICK D. HUNT, JR., PRESIDENT, SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS, CHEVY CHASE, MD – SEE APPENDIX B

Chairman Boehner. Thank you, Mr. Hunt. Ms. Greenman.

Ms. Greenman. Yes. Mr. Chairman, Members of the Subcommittee, I am Jane Greenman, Deputy General Counsel of Human Resources, at AlliedSignal, and I am testifying today on behalf of the ERISA Industry Committee, commonly known as ERIC.

With the Chairs permission, I have submitted a written statement for the record and will proceed to summarize it.

ERIC and its member companies believe that the existing scope of ERISA regulation is appropriate to the goals of protecting participant rights while promoting voluntary employer-sponsored health benefit programs.

ERISA reflects a regulatory structure that establishes appropriate ground rules, including strict fiduciary standards, and applies them on a uniform nationwide basis. To ensure participants and beneficiaries receive the benefits that are promised to them, ERISA requires plan administrators to act as fiduciaries that is like trustees and subjects them to the highest fiduciary standards known to the law.

ERISA requires plan administrators to disclose plan terms to participants, to administer the plan in accordance with its terms, to act solely and exclusively in the interest of participants, and to have a claims procedure that gives each and every participant and beneficiary the right to appeal any benefit claim that is denied. Administrators' decisions are subject to review under federal law in federal or state court, and the courts have broad powers to grant equitable relief, including the benefit denied, attorneys' fees, and, if appropriate, disqualification and removal of the fiduciary.

In order to encourage employers to establish and maintain plans, Congress rejected imposition of tort malpractice-type remedies such as consequential or punitive damages. Congress made a clear decision in favor of strict fiduciary rules and personal liability for the fair administration of these ERISA rules as opposed to tort-type damages in order to ensure that, in a voluntary employer-based system, participants receive the benefits that they have been promised.

It is hard to imagine, especially in today's business environment, any CEO or board of directors continuing a voluntary benefit program unrelated to a company's core business. That could lead to potentially catastrophic legal costs and damages. A plan fiduciary who reviews the claim for benefits must act solely on behalf of the claimant and other participants to resolve that claim in accordance with the terms of the plans.

And I think that it is important to remember that the terms of the plans in a voluntary system are what governs, what is covered and what is not covered. The benefits of all plan participants and beneficiaries depend upon adherence to this principle. If a fiduciary allows a plan to provide some participants with benefits that are not authorized by the plan, the plan is left with fewer dollars to pay benefits for others. And, as importantly, the fiduciary will have breached a fundamental duty to the plan's other participants, to administer the plan in a uniform and consistent fashion.

That is why ERISA requires plan fiduciaries to abide strictly by the terms of a plan document. That document reflects the design that has been determined by the sponsor employer. And fiduciaries have a duty to all participants, not just to those individual participants who submit sympathetic benefit claims. When fiduciaries decide benefit claims, plan fiduciaries must act dispassionately, consistently, and in the interest of all participants and beneficiaries. Dangling punitive or consequential damages over the heads of fiduciaries as they make their decisions can only undermine the objectivity of their consideration and lead to endless disputes and excessive litigation. Timely, effective claim and review processes are the best means to ensure that participants receive the benefits that have been promised by employer-sponsored plans.

Protracted litigation imposes potentially crushing financial burdens on employers while offering plaintiffs only cold comfort after the fact. With reasonable modifications, rules governing current ERISA claims procedures can and should be adapted to provide timely, responsive claims review processes, better appropriate to today's managed care environment, and that entails as Mr. Hunt described both pre-service determinations, as well as post-service determinations. ERISA's current claims review procedure regulation can easily be revised to ensure this timely review of claims in a manner that is consistent with a ERISA fiduciary duty to administer plans in accordance with the terms and conditions of those plans.

ERIC has submitted extensive written comments on the recently proposed claims procedure regulations that have been published by the Department of Labor and is working closely with the Department to ensure the final revised regulations are effective and workable. The current ERISA framework need not be abandoned in order to improve quality and protect consumer interests. ERIC is convinced that ERISA can be fine tuned to address such concerns without fundamental changes to the ERISA frame work. ERISA has struck the best balance between protecting consumer interests on the one hand and encouraging employers to offer coverage on the other.

Mr. Chairman, I think that you articulated many of the strengths of ERISA in looking at the balance between those protections and the need for employee coverage. ERISA provides a flexible combination of strict reporting and disclosure requirements, stringent fiduciary rules, and accessible judicial relief. The combination of reporting and disclosure, plan-sponsored duties, uniform rights and remedies has led to ERISA's tremendous success in fostering a robust private healthcare system that, in the vast majority of cases, really works remarkably well.

In conclusion, it is absolutely essential that ERISA's current fiduciary structure be preserved because it ensures that plans are administered solely in the interest of plan participants and beneficiaries while giving deference to the exercise of discretion by plan fiduciaries. Exposing plan fiduciaries' coverage decisions to liability comparable to medical malpractice or product liability will force employers to either terminate their health plans or redesign them for the sole purpose of avoiding liability, instead of for the sole purpose of providing the best high-quality, cost-effective benefits. Such plan terminations and redesigns will have a serious long-term detrimental impact on plan participants and beneficiaries.

Thank you for your attention. I would be pleased to respond to questions.

WRITTEN STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL, HUMAN RESOURCES, ALLIEDSIGNAL, INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE, WASHINGTON, DC – SEE APPENDIX C

Chairman Boehner. Ms. Greenman, thank you very much. Hello, Mr. Atkins, you may begin.

Mr. Atkins. Mr. Chairman, and Members of the Subcommittee, my name is Larry Atkins. I am president of Health Policy Analysts, a Washington-based consulting firm. I am testifying today in my capacity as Coordinator of the Corporate Health Care Coalition. I appreciate the opportunity to appear today to address this question of employer health plan accountability and the adequacy of ERISA.

Accountability at all levels of the healthcare system is what employer initiatives in quality measurement and purchasing are all about today. Employers rely on health plans to identify the best providers and practices and wean the system of outdated, unnecessary, and inappropriate medical care. And they use purchasing standards, comparative measures of performance, plan accreditation, and a variety of other methods to hold the health plans accountable for performance and patient outcomes.

ERISA is an important part of the accountability picture. ERISA's requirements for information disclosure, fiduciary duties and liability, claims procedures, and judicial remedies are substantial tools for participants to use in obtaining the benefits their employer plans provide. With that in mind, ERISA's claims review requirements have not kept pace with the changes in claims determination brought on by the growth of managed care. Coverage decisions are now often made before treatment is rendered. And with comprehensive benefits, more decisions are made on the basis of medical necessity than on the basis of overt plan coverage limitations.

Employer plans and their claims administrators today process claims more rapidly than ERISA requires, and they often provide independent external medical review of significant contested medical necessity denials. Employers have found that external review is an effective way to resolve significant coverage issues involving medical treatment questions. It can instill confidence in plan enrollees that the plan will cover the most effective treatment. It ensures that medical necessity decisions remain medical using expert medical judgment and medical evidence. It is independent of the plan and its financial incentives, and it renders the decision promptly when the participant can still benefit from treatment.

An external review process in ERISA would provide a mechanism for resolving differences in medical opinion on medical necessity. Any ERISA requirement should provide uniform Federal process that is consistent from State to State and preempts State processes, and it should be the last word on treatment. If the medical judgment is sound, there should be no value in second-guessing it in state courts before juries.

Some patient rights' bills include a statutory standard for medical necessity to serve as a touchstone for external review. A statutory standard for medical necessity is a very dangerous idea. The standard these bills use is borrowed from the defense that is used in medical malpractice cases. It is ``generally accepted'' medical practice. That is the lowest common-denominator of medical practice. You can't fault a physician who is only doing what everyone else does.But external review decisions should rely on the best medical knowledge. A statutory standard is useless in external review anyway. The reviewer would still have to decide what ``generally accepted'' medical practice was. External review, itself, provides the objective standard for medical necessity by referencing the best medical evidence.

Every plan, Medicare and Medicaid included, uses medical necessity determinations to avoid paying for outdated, unnecessary, and potentially harmful care, and to readily accommodate effective, new medical treatments. The patients' rights bills would prevent plans from overruling treating physicians who followed generally accepted practice. This would put all of the employers' quality initiatives at risk.

How do you reduce the 16 percent of hysterectomies the Institute of Medicine says are unnecessary? Or the 20 percent of inappropriate pace makers? If Medicare were required to pay for what all treating physicians ordered, how would the Secretary control costs and reduce fraud?

State tort liability for coverage decisions is another very dangerous idea. Sending a patient into litigation for three years does little to get him or her the treatment that he or she needs now. The only point of punitive damages is to create a hammer to scare plans and try to force changes in behavior. But recent punitive damage awards for example, the one a few weeks ago, or earlier this year, in California, for $116 million that involved State employee plans make it clear that liability for coverage decisions sends all the wrong signals to the health plans. In these cases, juries disregarded external reviews, consensus guidelines, and clear medical evidence in punishing the plans for denying what actually was an ineffective or an inappropriate treatment. The message liability sends to the plans is to approve everything, because only blanket approval can protect the plan from the wrath of a jury.

Some of the patients' rights bills try to exempt employers from liability. This is not possible. As long as the employer remains the plan sponsor, it can be reached in a variety of ways, including through negligent selection and negligent retention theories.

Let me also comment quickly on the cost of liability. The Texas Liability Law has been held up as an example of how liability really doesn't cost very much, but I don't believe that this is true. Cases under this law have only been going forward since October, and even so, some of the real costs are now starting to appear. A physician-owned plan in Temple, Texas, for example, recently announced a 15 percent increase in its premiums to employers and then notified them that half of this increase was due to a major increase in benefit approvals that was being driven by a reluctance of their medical directors to deny or delay requested care. And in the case of the Texas bill, there is a penalty for delay of care in rendering care, and there is no definition of what a ``delay'' is. And so the medical directors are just approving these to avoid liability.

Ironically, health plan liability will lead to a reduction in the accountability of health plans to employers. Employers who choose to still sponsor benefits will reduce their selection in plan comparison efforts and curtail their activities in reviewing or overturning health plan benefit denials. Employers are committed to achieving a high level of accountability throughout the healthcare system. This accountability will come with the development of evidence-based medicine and the ability for plans to rely on evidence-based judgments as a benchmark for good care.

We urge the Committee to adopt procedures such as external review that will support this effort and to reject those such as medical necessity standards and liability that will undercut it.

Thank you, Mr. Chairman.

WRITTEN STATEMENT OF LARRY ATKINS, PRESIDENT, HEALTH POLICY ANALYSTS, INC., ON BEHALF OF THE CORPORATE HEALTH CARE COALITION, WASHINGTON, DC – SEE APPENDIX D

Chairman Boehner. Thank you, Mr. Atkins. Dr. Flaherty.

Dr. Flaherty. Mr. Chairman, and Members of the Subcommittee, my name is Dr. Tim Flaherty. I am Secretary-Treasurer of the AMA Board of Trustees and a practicing, board-certified Radiologist from Neenah, Wisconsin. I want to thank you for inviting me to testify today in this health plan accountability and internal/external appeals process.

At the outset, let me emphasize that virtually all patient protections are interrelated. Whether we are discussing external appeals or healthcare accountability, other patient rights will be affected in some way. Consider, for instance, the external appeals in ERISA preemption. Congress could pass legislation to guarantee that all patients have access to independent external review. It could also prohibit plans from arbitrarily defining ``medical necessity.'' But if plans can still avoid responsibility for making negligent medical decisions that will injure or harm patients, patients will never be adequately protected.

The AMA believes that Congress must, therefore, address all patients' rights with a single, comprehensive patient protection package. Within this package, patient protections that ensure healthcare accountability are clearly among the most important. Patients are entitled to receive the benefits which they have paid and are rightfully owed. Plans and insurers must not be able to arbitrarily deny patients those health benefits. Consequently, patients must be guaranteed access to timely, meaningful, independent, and binding external appeals process when coverage has been denied.

To protect patients' rights within a meaningful external appeals, the following three elements must be present. First, patients must have adequate access to an external appeals process. Second, the process itself must be timely and fair. And third, the reviewers must be independently and properly qualified.

For access to the appeals process to be adequate, all patients must have the right to appeal any adverse decision. And if plans or insurers require that internal grievance procedures be exhausted before the patient can access the external review, the plans or insurers must also follow expedited procedures when the patients' health requires it.

The process, itself, must also be fair and equitable. The process must prevent plans or insurers from ``slow walking'' the patients or unnecessarily delaying the appeal process. Rather, appeals must be conducted in a timely manner, as the patient condition and health permits. And very important, the review entities' decision must be binding on the plan or insurer and enforceable.

Within the review process, the issues of who determines medical necessity and how it is decided really remains critically important. Currently, some plans are focusing primarily on cost criteria to define ``medical necessity'' and then unfairly denying medical care to patients. The AMA believes that the health plans should not be allowed to continue this practice. This practice is unacceptable and becomes even more repugnant when the plans' arbitrary definition of ``medical necessity'' has to be used by the external reviewer.

The AMA believes that medical necessity decisions are ultimately medical decisions and should continue to be treated as such. Medical necessity decisions must always be made in accordance with the generally accepted standards of medical practice that a prudent physician would follow when treating a patient. Legally and medically, this is an objective standard consistently relied upon by the courts and not subject to the abuses alleged by plans and insurers.

A third essential element for a meaningful external review is properly qualified reviewers. Independent medical reviewers must be just that external to, and independent from, the health plan insurer. They should have no conflict of interest with, or be beholden to the health plan or insurers. They also should have proper professional qualifications. External reviewers should, therefore, be licensed physicians of the same specialty and be actively practicing in the same state as the practitioner whose decisions are being reviewed. A decision based on ignorance will rarely be a good decision.

Stronger internal/external appeals rights will help prevent health plans from ultimately denying medically necessary care. But sometimes an ERISA plan's initial decision to delay or deny a covered benefit causes an irreparable harm. The media reports on an alarmingly frequent basis the disturbing results of patients who suffered unnecessarily because their health plans deny services promised under the plan. This is unconscionable.

We have several studies that show ERISA reform will not significantly raise premiums, and I have included the book with these studies within them for your interest.

We do not believe that employers should be liable unless they exercise discretionary authority to deny a covered benefit. While the federal courts are beginning to find ways to hold plans accountable under ERISA, they have specifically stated that only Congress can fully restore the rights of the ERISA patients to seek a remedy for negligent medical decisions. Until Congress acts and the federal courts notice, the answer to the question, ``Do plan participants have adequate protections?'' is a resounding, ``No.''

I appreciate the opportunity to testify today. Thank you.

WRITTEN STATEMENT OF TIMOTHY T. FLAHERTY, MD, SECRETARY-

TREASURER, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION – SEE APPENDIX E

Chairman Boehner. Well, thank all of the witnesses for their testimony. And I think we will begin with Dr. Flaherty's last comment, when he posed the question, ``Do plan participants have adequate protections today?'' and the answer is a resounding ``No.''

In Dr. Flaherty's written statement, and I will quote, ``Current federal law fails to require health plans to provide comprehensive internal and external grievance procedures for review of plan descriptions relating to coverage and access disputes.''

And what I would like to do is ask Mr. Hunt and Ms. Greenman and Mr. Atkins to respond to those two comments from Dr. Flaherty. Mr. Hunt.

Mr. Hunt. Well, first of all, as I was being thrown into my statement there are already the built-in ones.

[Laughter.]

I mean just going by the legal ones would indicate that there has to be a formal internal review process. ERISA requires that so that is already there. The second I guess an external and unbiased review. I might point out that no one has addressed who is going to pay for all of these expensive qualified doctors to sit on panels all the time and not be serving patients. But the Department of Labor is there. That is the police force. That is an external review process to make sure the whole process is done right.

I might remind everybody, while we are sitting here in this room worrying about the patient I have also sat in this room and had the Committee say, ``Remember that one of the important things about ERISA is to make sure that only the proper allowed payments may be made.'' In other words, I might really want to do something for that guy across the street. I am sorry; he is not in the plan. I don't care how sad it is, that is a breech of fiduciary duty. So, employers have to balance that part, so you have the Department of Labor on both sides to make sure someone is not spending too much or too little. And then you have, of course, the court system which is a final review.

One of the other problems that has arisen, and I was at the dentist this morning so I got an hour and a half discussion on this as well and I have been doing some research and preparation for this, is that there is no one right answer. We have all been going on the assumption that there is one right answer to every medical question. And I was told by one doctor who is a member of the House, that ``Well, there are as many as 100 protocols for every situation that you have.'' So I guess the problem is that when you have 100 different people on the panel or you have 100 panels there are going to be 100 right answers. It is not that there is one single answer that is right. That is a problem that I worry about with some of the panels.

This system yes, there is an internal system. It does work very well. It is astounding how well it works. The Department of Labor is sometimes overzealous, and sometimes I wish they were more zealous, but it works.

Chairman Boehner. Ms. Greenman?

Ms. Greenman. Yes. I think it is clear that the ERISA statutory structure provides adequate protection for the rights of participants and beneficiaries. There is a claims procedure that is mandated for all plans. There is reporting and disclosure that is designed to apprise the government as well as to inform participants as to their rights. There are means within a plan structure for participants to submit a claim and to obtain a full and fair review of any claim that is denied.

What is interesting to me is that what Dr. Flaherty is suggesting in terms of the standard of external review, is a lower standard than ERISA imposes on fiduciaries. ERISA fiduciaries standard of prudence is the standard of a prudent expert. That is a much higher standard than what did he call it? Licensed physicians practicing in the same state. Now we all know that there is significant variations in levels of practices, and to say that a plan bear in mind that ERISA fiduciary prudence rules require the prudent selection and retention. It is a fiduciary obligation. A fiduciary is beholden to the plan and can be removed if he/she doesn't follow these standards for retention and selection, so that we have got a prudent expert standard in the selection and retention of bad claims administrators. And a plan such as Dr. Flaherty is suggesting is a much lower level that is not designed to assure the highest quality of care. And then there are payment issues as well.

Chairman Boehner. Mr. Atkins?

Mr. Atkins. Let me just make one quick additional comment. As you know ERISA's requirements are contained in both statute and regulation. The regulation, through the Department of Labor, is quite explicit and is in the process of being revised.

But the ERISA process both in terms of internal review and access to the courts, is very similar to what is available to Medicare beneficiaries, what is available to Medicaid beneficiaries, what is available to federal employees under the Federal Employee Health Benefit Plan. In all cases, in the appeals end of things, the federal law preempts states rights of action.

And the other thing to recognize is the major difference with Medicare is that Medicare does provide an external review process. But other than that, those are all very similar processes.

Chairman Boehner. Dr. Flaherty, I am into fairness here.

Dr. Flaherty. Thank you. I appreciate that fairness, Mr. Chairman.

Chairman Boehner. You made the comments. I asked the other three panelists to comment on your statements. Now they have commented, so I am going to give you an opportunity to rebut them.

Dr. Flaherty. Thank you, Mr. Chairman. Well, I think we have to set the orientation correctly. The ERISA standards were written in a different time, before managed care was there, and I would agree that the payment issues that are under review are there. Even though it is a 90-day period and a 60-day period, the appeal period is going to be dragged out. It is a payment issue there. The concern is the coverage issue. It is the issue. Will you get the service because of the coverage? And the time frame that we have with the ERISA statutes right now are very long, and obviously the Labor Department has addressed that with some proposed rules to shorten those time frames.

But it is the coverage area. It is the question, would you have access to the specialist? Would you be able to have the procedure done or not? Not the question, will the bill be paid? We have all gone through the bill pain.

And the Medicare situation, which I don't think is a good analogy, is the only place that we really have some supervisory areas as far as coverage is in the managed care segment. Obviously, most of the Patients Bill of Rights resources have been applied to that group of recipients right now. But the Medicare area is just a payment issue again, regarding denial of payment after service has been rendered.

Chairman Boehner. Thank you. Mr. Andrews.

.Mr. Andrews. I think you did it right the first time.

[Laughter.]

Thank you, Mr. Chairman. Ms. Greenman, I want to apply the principles that you speak about to a set of facts. On page 7 of your testimony, the first full paragraph, you point out that ``administrator's decisions are subject to review under federal law in federal or state court, and the courts have broad powers to grant equitable relief, including the benefit denied, attorneys' fees, and removal of the administrator if that is appropriate.''

Recently, in New Jersey, an elderly man about 72 years old had a hip operation. He was also diagnosed as being in the early stages of dementia. He lived with his wife of similar age and no one else in their home. The hospital social worker recommended that his discharge from the hospital be delayed until a discharge plan was prepared that included a visiting nurse and some other mental health services for him.

His insurer, an HMO, closed-panel plan refused to retard the discharge and ordered that he be discharged from the hospital. He was discharged over the objection of his physician who refused to sign the discharge documents because the physician felt that it was not in the best interest of the patient.

One the second day home, this individual was left briefly alone by his wife, who went to go to the store. While he was left alone, he wandered out the front door of the house, wandered across a highway, was struck by a car and wound up in intensive care in the hospital.

If you assume for a moment, for the sake of this question, that the decision of the plan administrator was medically incorrect, I wonder if you could tell me what remedies exist for this individual under present ERISA law?

Ms. Greenman. First, what I would like to do without begging the question is to reiterate the distinction made earlier in our testimony here today between a payer plan or an ERISA employer-sponsored plan, and an HMO or a medical provider plan. Because the situation that you are referring to is really a decision made by a closed-panel HMO. And the example that you give really has to do with a situation in which the provider plan, the HMO, controls access to medical services.

Mr. Andrews. If I could.

Ms. Greenman. That is not the situation that applies in the case of fiduciary.

Mr. Andrews. If I could just correct one thing on the record too, I misspoke. He was 62 years of age. He is not on Medicare. So what

Ms. Greenman. I don't think that.

Mr. Andrews. So what are his remedies under ERISA?

Ms. Greenman. I think his remedies are that he has a malpractice action against the hospital or against the HMO.

Mr. Andrews. The HMO refused to pay the hospital. So are you telling me the hospital should see the person for free and should not discharge him and let him stay in the hospital for free?

Ms. Greenman. Well, if we are talking about an allocation of economic risk, then I think that is a valid point to raise.

Mr. Andrews. So if you were counsel to the hospital, you would advise them not to discharge the patient and have them stay in there for nothing?

Ms. Greenman. No, but the broader question that we are looking at is, how do we allocate economic risk? Should employer-sponsored plans and, therefore, the employers who pay for them, be mandated to pay for every kind of possible treatment, including potential malpractice liability for healthcare providers? Or, is there an allocation of this risk? Employer-sponsored plans determine the level of payment, the economic risk that they are prepared to accept. They have plans designed within certain cost parameters.

Mr. Andrews. No, but…

Ms. Greenman. But, again, that situation that you posited has to be distinguished. You have got to distinguish an ERISA plan from an HMO. The HMO here was delivering the services.

Mr. Andrews. But in the situation which I posited, the fact of the matter is that the only remedy that this plaintiff would have against the HMO would be, I assume, the cost of a day's stay in the hospital, right?

Ms. Greenman. No.

Mr. Andrews. What remedies would he have?

Ms. Greenman. The HMO is not an ERISA plan. The HMO is a healthcare provider. The HMO, especially a closed-panel HMO, is providing the services and controlling access. The employer plan is a payer.

Mr. Andrews. So it is your position that the consequential damages would lie against the HMO in that case?

Ms. Greenman. I think potentially, yes.

Mr. Andrews. Under what circumstances would liability best adhere?

Ms. Greenman. In the HMO?

Mr. Andrews. Yes.

Ms. Greenman. If the HMO, as a medical service provider, has been negligent…

Mr. Andrews. They are not.

Ms. Greenman. …has engaged in malpractice.

Mr. Andrews. But oh, no, they are not a medical service provider.

Ms. Greenman. Sure they are. The hospital is discharging the patient. The hospital is denying services.

Mr. Andrews. The doctor refused to discharge the patient. The hospital decided not to provide the services because they were told in advance they wouldn't be paid for it.

Ms. Greenman. But you are talking about a closed-panel system where access is controlled.

Mr. Andrews. So you are telling me, under those circumstances, if a state law tort suit were filed against the HMO, it would not be preempted under ERISA?

Mr. Atkins. It would depend who the employee was an employee of. If they are an employee of a state plan, no. If they are purchasing as an individual it would not be preempted by ERISA. If they are in an employer plan, it would be preempted by ERISA.

Mr. Andrews. This is a person who was in an employer plan, so it…

Mr. Atkins. Yes.

Mr. Andrews. …would be preempted by ERISA?

Mr. Atkins. Yes, it would be preempted by ERISA.

Mr. Andrews. So, therefore, the only remedy this person would have would be the cost of a day's stay in the hospital?

Mr. Atkins. Can I comment on this, because I think that the question also would be if the plan specifically said, ``We provide seven days of hospitalization'' or a specific procedure which the plan can do. Old indemnity plans used to do this.

Mr. Andrews. This one didn't.

Mr. Atkins. Then there is no basis for a lawsuit under any statute.

Mr. Andrews. You care to offer an opinion about the fairness of that result?

Mr. Atkins. Well I am not sure whether it is a fair result or not. I mean if you look at Medicare, it is ripe with limitations on coverage for very specific things. And a lot of medical necessity decisions are made by carriers operating under contract with Medicare. Those decisions are very similar to those kinds of decisions you are talking about. And you know the federal government has decided that there should be no liability for those decisions either. So if you are trying to control the health plan, you have a limited number of tools you can use to control the cost of a health plan. Medical necessity is really the fairest way to do it, because it enables you to approach things comprehensively. But if you don't allow medical necessity and if you create liability for making medical necessity judgments, then you go back to drawing very strict coverage lines.

Mr. Andrews. The Chairman has been very generous with his time. Let me just conclude with just one

Mr. Atkins. Sure.

Mr. Andrews. Under the existing law, tell me what his remedy is.

Mr. Atkins. Under the existing law if it is considered to be a coverage decision, because the courts are looking at these decisions, they are looking at them as medical treatment decisions that were made by the practitioner. If you were going to sue on a medical malpractice basis, ERISA would not preempt. And some courts are looking at these as coverage decisions where the plan, for example, said you can't have another day in the hospital, you have to be discharged in which case, his remedies would be under law.

Mr. Andrews. I assume you would favor a codification of that definition of coverage decision?

Mr. Atkins. Well, I don't favor a codification of it but I think that is where the courts are at this point.

Mr. Andrews. Thank you.

Chairman Boehner. Mr. DeMint.

Mr. DeMint. Thank you, Mr. Chairman. While we have the experts here today, just a slight departure. Employers are often caught in this need for protection because they have no choice of plans. We have the choice of deciding whether to regulate these plans to protect them or to facilitate more choice in these plans.

As to my question I will speak to you first, Ms. Greenman. In my opinion, the best external review would be between the patient and the physician. In the current situation, I would just like to ask you if employers would be willing, in your opinion, under the ERISA plans to offer employees individually-owned plans to help to facilitate that process in the current insurance market? Because we are either going to move towards telling employers what they have to do, creating more liability for them within a voluntary system, or employers are going to get out of it as quickly as they can. I am convinced.

Is there a way that we can help patients through the competition side rather than through more regulation and litigation as has been mentioned today? Is this even being discussed, as to how employers could facilitate individually-owned insurance plans?

Ms. Greenman. There certainly has been discussion of this. I think the sense that employers have from a paternalistic perspective is that individually owned employee programs would forego many protections that are built into employer-sponsored plans such as economies of scale, purchasing power and prudent selection and retention. Right now, employers often act as ombudsmen by providing a level of scrutiny. They can bring economic pressure to bear on insurance companies and other service providers because it is imperative to the employer that the employees for whom they provide benefits are getting the level of benefits that they want and believe that they are entitled to.

Mr. DeMint. That is why I asked the question, because employers could, in effect, bring all of that to bear on behalf of an employee-owned plan, rather than an employer-owned plan.

Mr. Hunt, if you would like to answer.

Mr. Hunt. Mr. DeMint, I would agree with everything that Jane said, as well as to point out two things. One, we always like to think everybody would be very responsible and there is already an example of this kind of system in our automobile insurance system. I saw a statistic the other day, in Washington, DC. Everybody is supposed to have car insurance, and I saw that 40 percent of the people have it. So, that means you and I have to buy uninsured motorists insurance. So one of the problems that happens is, I hate to say it, we don't want to put money out until we already see the crisis in front our face. You would have to create another law to say, ``Everybody, you must do it,'' like you must have Medicare and you must pay into social security. That may sound paternalistic, but I think the car insurance example around the country has been pretty indicative.

The other point is, and I know she represents a major, big company, a lot of the clients from my members are mom and pop and every size in between. One of the problems that you run into is a risk selection situation. You are going to have to juggle the numbers actuarially, because the 75-year-old couple who both have cancer are not going to be a real hot product on the market. They are going to have a hard time finding it, and meanwhile, you are going to have the young 23 year olds. Now, are you going to tell the young 23 year olds, ``I don't give a damn, you are going to pay enough to subsidize grandma and grandpa up here.'' That raises more problems with this whole thing of who is going to buy it? What is the fair price, et cetera?

So, obviously, in all of this, there is no easy answer. But don't underestimate the number of good things that the employers were able to do, that I don't think they could do if they were scattered around different plants. We even see it when large employers hire our members because they have branch offices and plants around the country. They are finding even that is a little bit chaotic, to be able to bring in the core of the coordination. Frankly, it is quality issues and how fast things get processed because they are all hither and thither.

Mr. DeMint. Yes, sir?

Dr. Flaherty. Just a comment on that. Obviously, this is a proposal that has come out of defined contribution by having the individual be more responsible for the options that they take, as far as their purchasing power.

And we have a model for that in the upper-Midwest. In Minneapolis-St. Paul the Business Buying Group now has 16 or 17 plans that are at issue with the large employers and small employers grouping together to give that option to their employees, where there is a basic benefit plan and add-ons. The experiment has been going on now for a couple of years. There certainly seems to be some acceptability as far as the employees are concerned, because there are some changes on the quality issues and also satisfaction issues in those pools. So I think that is a real option.

I would just like a moment to take about this fairness issue. We talked about the 62-year-old New Jersey man that was in one situation where he was in an ERISA-covered plan, as if he would have been in an HMO. And I think the distinction was made that there certainly isn’t a level playing field. If he was in the HMO, which is a state approved plan, he had the option for recourse against the HMO. If he was in the ERISA plan, even though it may be the same medical director from BlueCross doing the TPA situation, he wouldn't have that option. So I think it is a fairness issue.

Mr. DeMint. Thank you.

Ms. Greenman. May I just respond to one point Dr. Flaherty made? I think that the distinction between an employer plan, an ERISA plan and an HMO is a distinction that has been somewhat incorrectly characterized.

The ERISA plan is really the employer-sponsored plan that provides certain levels of coverage and payment for those defined levels of coverage. An HMO is a health provider, and that plan is making medical treatment decisions.

I think it is important to bear those distinctions in mind so leveling the playing field may be correct, but let's talk about the same players.

Chairman Boehner. Mr. Hunt?

Mr. Hunt. Just as a follow-up I think in fairness to Mr. Andrews, because you are trying to ask where the blame goes? I think that you were trying to ask where is the employer in the scenario you were talking about? The employer may have hired the HMO, and then is saying, ``Mr. HMO, you are responsible for the medical care decisions. This is yours.'' And so that is the product of the HMO and the doctors and all within that process.

I think when you are saying, ``Well, why can't we sue the employer?'' It would be as if the employer bought Ford cars for the company, and then there is a manufacturer's defect and the wheel falls off and somebody is killed. Do you sue the Ford Company, or do you sue the employer? And that is the thing. The employer hired the HMO and I think this is what Jane was saying, ``Hey, we hired you because we assumed that you were in this business and you knew what you were doing.'' Since HMO's are regulated by the states, hopefully, the States will take a larger role in enforcing that which they already have the power to do. I think they have been slack on this sometimes.

Chairman Boehner. Mr. Payne.

Mr. Payne. Thank you very much, Mr. Chairman. Unfortunately, as you know, I missed all of the testimony, but I may have a couple of general questions about the coverage since you all are experts.

As you know, there has been very little done in healthcare reform in the past four or five years. There was an attempt, as you know, four or five or six years ago, and it become complicated. There was a lot of opposition to the notion of the federal government running health insurance and so the whole thing was dropped. Since then, there has been very little done, except for the Kennedy-Kassenbaum Portability Act.

Could anybody inform me how effective you think the notion that people could take their preconditions to another carrier is? Has that been effective since that has been the only minimal reform we have seen?

Mr. Atkins. If I can answer that Congressman, to an extent. What HIPAA did is it provided the requirement that the plan has to offer coverage. It did not have an effect on the price at all, or the fact that people who had very high levels of risk were coming and going into individual plans in the market.

The individual market may be able to provide a product for coverage that is not affordable to the individual. The states that have tried to tackle pooling and other kinds of insurance reforms in the individual market have had a very difficult time. All but, I believe, one of the insurers in Kentucky in the individual market has left the state. I believe there may only be one individual market insurer in New York, because it has been very difficult to do anything to pool risk in the individual market.

Mr. Payne. Yes?

Mr. Hunt. Mr. Payne, I am glad you mentioned it because I had mentioned it earlier in my testimony. There is another part to HIPAA besides that which is the administrative simplification. In my testimony I probably went overboard in telling all the funny stories about the ways that information get screwed up before it ever gets to the claims processor

and administrative certification. We are still finding out what you do, and we are waiting for the Department of Health and Human Services to give us their guidance. I think that will probably streamline and help some of the things.

So one piece of healthcare legislation which you did do is already working. I don't agree with everything and how they are doing it, but the Department of Labor, as Larry mentioned, is also trying to figure out some ways.

You have heard all four of us say, as well as some of you, that we need to make a separation and to define what are we talking about because too often we are talking about apples and oranges; the payer and the provider plan. And if we are talking about the situation where the employer or the plan is in a banking function it is just paying for it and nobody is sitting bleeding in the waiting room. It is after the medical service has been provided that it is a very different situation. The remedies are very different and as Jane and all of us say, the system works phenomenally well.

[Laughter.]

As the system has grown, there needs to be some new situations like Mr. Andrews is saying to separate it. I frankly think sometimes too many people are wrapped up in the ERISA flag in the courthouse, and then when I talk to some of them on the phone and say, ``Well, now what about the ERISA fiduciary duty?'' and it is kind of, ``Huh, what are you talking about?'' I think that the courts need a little bit of education on this, too. But I think you are very right. There is some progress underway right now.

Mr. Payne. Yes?

Mr. Atkins. Can I make one more comment on HIPAA that I think is important for this Subcommittee?

Mr. Payne. Sure.

Mr. Atkins. One of the things that HIPAA could not quite figure out was how to regulate, through the federal government, state insurance regulation activities. HIPAA tried to set a uniform set of rules that applied across the board to everyone. And what it did is essentially set up a procedure in which the states are required in a period of time to adopt the rules that the federal government has enacted. And if they fail to do that or don't want to do that, then they can essentially turn over the regulation of the insurance industry for that function in their state to the Department of Health and Human Services.

That process has not worked very well, and there are a lot of problems with it. I believe GAO has reported on it. So I would urge the Committee as you get into this issue of how to regulate health plans across the board, to look carefully at the HIPAA experience on that.

Mr. Payne. I know she is not here, but Congresswoman Roukema has been dealing with ERISA and has some questions about federal coverage over state coverage. Some states, for example New Jersey, have legislated that you can not discharge a mother and newborn baby in less than 24 hours. We are giving them 48 hours. We are very liberal. Federally you know you can discharge them in 24 hours.

Now, if the federal government had the jurisdiction over states then the 24-hour situation would therefore, have to apply to New Jersey. So there are some questions about states that have more progressive laws protecting the patient than what is done on the federal level. I see that light kind of switched on prematurely.

[Laughter.]

I just have another quick question and this may not deal directly with ERISA but it is really short. Some labor organizations provide health coverage for their employees although it may be paid by the company or shared by the company and the labor union. In order to keep premiums down it would be beneficial for that organization to deny some charges.

Has there been any discussion about that? Yes?

Mr. Hunt. Well, our members do about two-thirds of what are called Taft-Hartley or ``multi-employer'' union management plans. And it is one of my favorite examples. This is not a setup, sir.

[Laughter.]

These multi-employer or Taft-Hartley plans are the ultimate example of democracy. They are working phenomenally well because the trustees who are making the decisions, both appeal decisions and everything else, are half management and half labor. So actually, it is your fellow worker who tends to be tougher, but it is because sometimes you are tougher on your colleagues than you are in general. The trustees must do things properly especially since that is an elected position to be a trustee and if they didn’t they wouldn't be a trustee long.

[Laughter.]

And plus you have all the other labor pressures and interactions going on. So that is one of the shining stars of how well the system works.

Mr. Payne. Well, great.

Ms. Greenman. I would…

Mr. Atkins. Can I comment. I am sorry, go ahead.

Ms. Greenman. Yes. To further answer that question, I think what you are positing is a very good example of where the existing ERISA statutory structure works very well. ERISA fiduciary responsibility imposes on the plan trustees, both the employer representatives and the labor representatives, a fiduciary obligation that goes beyond the obligation to their members and constituencies, to act for the benefit of all participants and beneficiaries, without considering the potential conflicting interests of the labor organization or the employer. They have got to put their trustee hat on and act exclusively as a plan fiduciary.

Mr. Atkins. And this is a classic case where the fiduciary dilemma is the clearest, because these funds have a fixed amount of money, and they have to be able to allocate that out to their population for medical procedures. If they have one claim that exhausts the entire amount of what they have to pay out, then all of the other beneficiaries are harmed by that. So the fiduciary has to look at claims adjudication from the standpoint of allocating out the resources in the most uniformly fair and consistent manner under the plan.

Dr. Flaherty. What you have heard, Congressman Payne, is a checks and balances system. You have two people, a checks and balances system, which is very, very important.

Mr. Payne. Thank you very much, gentlemen.

Chairman Boehner. Dr. Fletcher.

Mr. Fletcher. Thank you, Mr. Chairman.

Certainly, as we look at this issue in healthcare reform that is taking place from state to state, we see that it is a very complicated issue. Probably all of us have the same goals in mind, and that is we want excellent care for patients, and we don't want to increase the number of uninsured. We want to get as many folks and eventually everybody covered with some sort of healthcare. And I personally think that would be better done on a market basis rather than a single payer system, given what is occurring in some other nations.

So I think it is very prudent to be very careful as we regulate things, and look at long-term goals and what we want to accomplish. Some short-term things may help some anecdotal things but not in the long term, allow us to get to a goal that would include coverage of more folks.

Let me ask the entire panel and just get each comments if you can do it. I have other questions, so if you can answer as briefly as possible, it will help me keep within the Chairman's time limits here.

Is there any data or studies that look at both sets of ERISA plans, the ones that are administered and the ones that are HMO, and the non-ERISA plans regarding quality of care, outcomes, patient satisfaction, or cost benefit analysis to show that the ERISA plans because of their lack of liability are providing or that they are not? Is there some difference there?

Mr. Hunt. I see hundreds of studies every year, and sometimes HIPRA uses me for some things. And the one thing I have discovered is that statistics are in the eye of the beholder and all.

[Laughter.]

No, I mean normally it is better because as she said, there is a more paternalistic situation, especially in the self-funded plans and most of the ERISA ones are self-funded. Because in that situation, if your secretary or your assistant is getting a raw deal you can't say, ``Oh, it is that big, bad insurance company.'' Or, ``It is that big, bad HMO.'' The responsibility, literally and figuratively, rests with you.

Normally what we find, if anything, is there is a temptation by employers to be too generous and to include something that is not in the letter of the law.

[Laughter.]

So we also have to be careful and tell the employer don't go in that direction, your contract does not allow that. Just like a doctor in Medicare, if he wants to give prescriptions, sorry, he can't do it. It is not in the contract. So that is where that ends.

Jane?

Ms. Greenman. Yes, it has been my understanding that outcomes data is not generally available and where it is available it is pretty deficient. It is something that I think health providers and health plans are working on but I don't think there is adequate outcomes data out there today.

Mr. Atkins. Congressman, was your question really with regard to the access to liability and the impact on the difference between?

Mr. Fletcher. ERISA, from the liability standpoint and other issues regarding State mandates. I just wondered if we have any actual data showing differences in quality of care, and if they are worse or whatever?

Mr. Atkins. No, there aren't any that I am aware of. I not aware of any data, but I think it is important to bear in mind that when you are talking about the ERISA universe, you should include Medicare, Medicaid and the Federal Employee Health Benefit Plan, because many of the procedures particularly with regard to liability are in the same universe. So if you wanted to compare two groups that are treated very differently, I would look at state employee plans and individual plans versus the rest of the world and see what the impact of different procedures and different liability has been.

Very often the decision making about coverage is being executed by the same organization whether the employee is in the ERISA plan or the employee is in a state plan, because they are contracting with the same organizations. So it is not always that easy to separate those groups out and really see what the impact is.

Mr. Fletcher. Dr. Flaherty.

Dr. Flaherty. Yes, I am a splitter rather than a lumper.

[Laughter.]

I would not lump the Federal Employee Benefit Program in because that is a multiple-choice plan. The issue that you get into with the ERISA plans is the one choice for the employee base without having the other options. And that is the issue of satisfaction. If you do the surveys there isn’t anything on quality that really is definite and definable. The exception is the Minneapolis group which I think is about half or maybe at three-quarters satisfaction, a quarter quality, and by some sort of gross quality measure HEDIS and things like this.

But if you achieve the satisfaction area, then the significant areas are the lack of choice and the lack of access to the provider base that they want to be accessed to.

Chairman Boehner. If the gentleman would yield. All of you represent employers of some sort. How many employers in the hundreds of thousands that offer ERISA plans only offer their employee one healthcare option?

Ms. Greenman. When I think of large employers I can't think of any that only offer one option. We, using AlliedSignal as an example, are constantly adding choice and looking at ways to better satisfy employees. When you have multi-state employers, they are likely to have HMO's or providers in different states. You know, when you think about the individual purchase of insurance, if that were the route that employers were to go, it would be very easy and far more cost effective for employers to say, ``We are going to write a check to every employee in the amount of ``X'' dollars. You go out, fend for yourselves, and buy whatever insurance that will buy.'' The employers' liability is limited, but the one who is really going to end up on the short end of that stick is the employee.

Mr. Hunt. My members represent everything from mom and pop up to the lower end of her size. So obviously in a small employer you just don't have it. If you have three employees you can't afford to have three plans. Years ago I worked for the American Academy of Actuaries and there is the concept of spreading the risk and all the actuarial concepts are very important to know. That is why I worry when everybody says, ``Oh, well, we will just spread it out.'' Because you are going to have the sick people take the sick plan and the well people will take the low-risk plan, and then you have a spiral going down and not up. So it is important to think of the actuarial side of this.

Dr. Flaherty. I don't have a number, Mr. Chairman, but it is a significant number that only has one option. I serve on a advisory commission for the National Business Coalition of Health, which is the smaller coalition that provides for about 35 million people. Generally these small employers will only offer one plan. Now they may have an option. They may have a point-of-service option that is an add-on, but it really is a one-plan offering. And I think it is about 60 percent, if you go across the country, from employers that only offer one plan. It may have an option of some sort.

Chairman Boehner. Excuse me I am sorry, Dr. Flaherty. I will grant you your time that you had, back You may continue.

[Laughter.]

Dr. Flaherty. Well, thank you. I just want to make sure that we are talking about making some major reforms. It seems as if there is a paucity of data to indicate where some of the problems are. Clearly, there are some problems. I have talked to my colleagues, the physicians, and there are significant amounts of problems and dissatisfaction. The same with patients I will say. Some patients given the option will choose some plans that are very managed because of cost benefits. And so I think it would be helpful if we could look and try to get some data on that information.

Also, sometimes we don't think outside the box. I mean we think, ``Well, it is liability or not liability.'' I personally think that decisions ought to be made by physicians and patients and practitioners, not by insurance companies and not by courts and attorneys. I don't think physicians need to be making decisions on what we do in the judicial system and I don't think that that is the best place for a medical decision to be made. And so I would certainly encourage any other ideas that you have that would be outside the box in making sure that we address this problem of limited choice, based on the fact that there are some decisions that seemingly are made by clerks. You call up on the phone and they say, ``No, you can't do this.'' Or a patient that has gotten a call in the hospital and they are told, ``You need to leave; your time is up.'' That has happened.

Mr. Hunt. Well, fortunately I had some good conversations with your excellent staff and this very issue came up. I made the example of the Medicare claim for a pregnancy test and eight day hospital stay for an 80-year-old man. Now, somebody made the decision that that was not a legitimate claim and that I don't think it needed a panel of doctors for that decision.

The discussion we got into is that in most of the payer plans that I am talking about, it is just like Medicare and it is just like the Canadian Health System. You have got this little chart, the contract. This is what is covered. And so using the Medicare example, a doctor might say to my mother Mrs. Hunt that the greatest thing would be this new prescription. But sorry, you all had made the medical decision not to offer it under this contract of Medicare. That is the same kind of decision that the plan has. This is what is allowed.

Oregon, of course, is famous for having a very clear list of items that are covered. Something on that list may be wonderful, but I'm sorry, it is not on the menu today. And so I think we should be careful to understand what is a true medical decision?

It appears that there is no one right decision within the medical community. Then, what is simply interpreting a contract? And that is what Medicare does and that is what Canada does and that is what most of us on the administrative side of a payer plan do. Is this allowed to be paid, under the contract? And so, I think one option that will cut out a lot of the complaints and the problem areas is if we better define all of these pieces.

Mr. Fletcher. Dr. Flaherty, I would like to hear your side of it, but I am out of time.

Dr. Flaherty. Yes, I think the issue is a complex one, and this is probably not outside the box; it is probably inside the box. There certainly has to be clarity as to what you are purchasing or what is being purchased for you, so that you know what your choices really are and where your levels are.

Now, I don't look for a long list of things that are covered, but I think there should be some exceptions, things that aren't covered in contracts, so there is not any concern about it. When you have a soft definition of ``medical necessity'' and things are medically necessary, that is where the problems come in because the expectation is there, but the realization in not. And, consequently people become very, very irritable about it. And physicians become very irritated for the same reason. I see over-promise, under-fund situations that we are all very familiar with. So I think that the package is very important.

I think there has to be clarity, as far as the contract is concerned. There has to be prohibitions against conversations that you have with your patients, the gag clause issues, things like this. So you have to know what the real therapeutic menu can be and should be, and then the reality testing as far as economics go.

In the managed care areas I would like to say, if you have seen one managed care plan, you have seen one managed care plan. And that really is so true, because we are demographically different in this country and how we approach areas. But we can take the best of some areas where there has been more consumer choice, put it into the program and try to apply that across the board. I think it would be very important.

Mr. Hunt. Fortunately, Jane oh, I am sorry.

Ms. Greenman. Go ahead.

Mr. Hunt