Patients' Rights Bills Expose Self-Insureds

Washington

For self-insured plans, the different patients bill of rights plans passed by the U.S. House and the Senate represent a choice between bad news and worse news.

“The Senate bill is particularly harmful to self-insured plans and third-party administrators,” according to George Pantos, Washington counsel for the Self-Insurance Institute of America.

While the House bill has tighter language and more liability protections than the Senate bill, Mr. Pantos said, it would still raise costs for self-insured plans. “Im not saying the House bill is a good bill,” he said. “It is less onerous than the Senate bill.”

That is the dilemma facing self-insured health plans as a House-Senate Conference Committee tries to work out differences between the two bills. As of this writing, the conferees had not yet been named.

Moreover, in the wake of the terrorist tragedy that struck the United States on Sept. 11, it was unclear when Congress would return to issues like a patients bill of rights after focusing on national security concerns.

But so far, this much is known: President George W. Bush has said he will veto a patients bill of rights that looks like Senate bill, S. 1052. He supports the House bill, H.R. 2563, which he worked out in a compromise with Rep. Charlie Norwood, R-Ga., but it is unclear whether that legislation can pass the Senate.

Whether the Conference Committee can reach a bipartisan compromise on an issue as politically controversial as a patients bill of rights is anyones guess at this point.

The two bills, S. 1052 and H.R. 2563, are similar in many respects in that they both establish new mandates on health plans and provide patients with new avenues to challenge adverse coverage decisions.

However, they differ significantly in terms of their liability provisions. For example, S. 1052 subjects health plans to unlimited liability under state law for medically-reviewable decisions.

For non-medically reviewable decisions, such as whether an individual is or is not a beneficiary of the plan, federal courts would have jurisdiction. However, plans could be hit with punitive damages of up to $5 million.

By contrast, H.R. 2563 provides a limited opportunity for plaintiffs to file lawsuits in state courts. A plaintiff can go to state court for medically-reviewable decisions only if an external review panel determines that benefits are payable and the plan refuses to comply.

But even then, the state court action would come under federal standards, including a $500,000 cap on non-economic and punitive damages.

For non-medically reviewable decisions involving self-insured plans, any action filed in state court is removable to federal court.

Looking first at S. 1052, Mr. Pantos said that while the intent of the legislation is to develop a mechanism that would shield employers from liability, the legislation as drafted does not accomplish that goal.

S. 1052 contains language which intended to say that if a health plan detaches itself from any decision-making by naming a “designated decision maker,” it would be protected from liability.

However, Mr. Pantos said, there are numerous problems with the Senates approach. For one thing, he said, due to a drafting glitch in S. 1052, there is no protection for non-medically reviewable claims.

Additionally, he said, the legislation exposes employers and third-party administrators to punitive damages. If the health plan names a designated decision-maker, the legislation mandates that the DDM have liability insurance, Mr. Pantos said.

About one-half of the states, however, prohibit insurance for punitive damages as being contrary to public policy.

But finally, Mr. Pantos said, even if a self-insured plan names a DDM, there is no guarantee that it will successfully transfer the liability.

Mark A. Behrens, an attorney in the Washington office of Shook, Hardy & Bacon, who represents employers on liability issues, agrees. Indeed, Mr. Behrens said, naming a DDM will not prevent an employer from being sued.

“There is a key difference between saying you have no liability and saying you cant be sued,” he said.

He said that if a health plan is sued, any good plaintiffs attorney will also bring the employer into the action, even if the employer named a DDM.

The plaintiffs attorney, he said, will justify bringing the employer into the action because of the need to determine whether the transfer of decision-making power was genuine or just a sham.

Thus, even employers who name a DDM, he said, will have to pay attorneys fees and undergo expensive discovery proceedings to prove that the transfer of decision-making was genuine.

Many employers, he said, will resort to settling these claims out-of-court for their nuisance value. In the aggregate, however, these claims could prove very expensive for employers, Mr. Behrens said.

Moreover, he added, costs to employers will likely increase substantially under S. 1052.

DDMs who will face open-ended liability in state courts for their decisions will not bear that risk for free, Mr. Behrens said. The new liability regime they face will be reflected in the price they charge for their services, he said.

Bob Munao, president of Woodbury, N.Y.-based Kaye Benefits Consulting, which acts as both a broker and a TPA, agreed.

He said both administrative costs and the price of stop-loss insurance coverage would increase under the legislation.

In summary, Mr. Pantos said, he does not believe S. 1052 provides any protection to self-insured plans and TPAs.

Both Mr. Pantos and Mr. Behrens agreed that H.R. 2563 does a better job of addressing employers concerns, but said it is far from perfect.

“Once you provide an opportunity to sue employers, people will bring actions for their nuisance value,” Mr. Behrens said.

Even under H.R. 2563, he said, employers face significant legal costs.

“An employer will determine that a lawsuit will cost X amount to defend,” Mr. Behrens said. “If a plaintiff agrees to settle a claim for less than that amount, many employers will make a business judgment to pay it in order to make the action go away.”

While the House bill is better than the Senate bill, Mr. Behrens said, employers will face increasing costs.

Mr. Munao said the worst thing that could happen from H.R. 2563 is that the benefits of managed care could be lost.

He noted that managed care emerged during a time of significantly increasing healthcare costs as a means of managing those costs.

If these benefits are lost, Mr. Munao said, and health insurance again becomes simply a pass-through mechanism which pays all claims, it will drive up costs dramatically.

It could lead to employers handling health insurance on a defined contribution basis, in which employees are given a certain amount of money and told to find their own health insurance coverage.

Indeed, Mr. Pantos said employers may react in two ways to the increase in costs. Some, he said, might decide to drop employer-provided insurance. Others, he said, are likely to demand more cost sharing from employees.

However, neither Mr. Pantos nor Mr. Munao expected to see a movement away from self-insured plans.

As long as whatever final bill emerges from the Conference Committee contains uniform national standards, Mr. Pantos said, there would not be a trend away from self-insurance.

Mr. Munao added that with the nation facing the second consecutive year of double-digit increases in health insurance costs, self-insurance still provides a useful tool to manage costs.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 1, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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