Who Wins Witherisa David pham #63540197 Writing 39C Proposal Paper 3 June 1999 Who Wins With ERISA? The system of managed care began in the United States in the early 1900s, in an effort to provide coordinated health care in a cost-effective way(Amer. Assoc. of Retired Persons). Until recently, managed care has emerged from the shadows to become the dominant form of health insurance and delivery, succeeding the older fee-for-service program (Zelman and Berenson 2). Today, about 160 million Americans are enrolled in some kind of managed care plan. Managed care has made health care more affordable andmore accessible for Americans.
But sometimes cost cutting can lead to lower standards (Clinton 1). Because managed care plans provide medical care to their members at a fixed rate, there is a substantial limit to the medical care each member can receive. Under this system of prepayment, managed care organizations (MCOs) can profit off every dollar of revenue that is not directly spent on patient care. This produces the problem of incentives, or temptations for MCOs not to provide sufficient medical care to their members, all too often resulting in tragedy (Fox, et al. 56).
This problem explicitly impacts the estimated 125 million Americans who receive health insurance through MCOs that are provided by their employers. A federal law known as the Employment Retirement Income Security Act of 1974 (ERISA) governs these self-insured plans. Under the Employment Retirement Income Security Act, ERISA-regulated MCOs are not legally held accountable for their actions. Until Congress passes The Patients Bill of Rights, MCOs will continually and wrongfully deny patients from quality care. Health costs have continually risen over the last decade. The average-income American family now spends an estimated $5,000 per year on health care alone, an amount that more than doubled from 1988-1996 (Maciejewski).
In an effort to relieve working Americans from this burden, Congress devised a federal tax law that would enable employees to obtain tax benefits for health insurance through their employers. Today, the vast majority of insured Americans acquire their health insurance through the workplace. ERISA governs the employer-based health system to protect employees from the potential abuses from their health plans (Amer. Psych. Assc.).
Although both the tax code and ERISA were concocted to help and protect employees, they play an indirect role in shaping the inefficiencies that envelop the employer-based system of health care. Subsequently, regulations imposed by managed care organizations (MCO) on physicians also contribute to the inefficiency. Under todays tax code, Americans can receive a discount on health insurance, granted that they attain it through an employer. The reason for this stems from a single provision of the Internal Revenue Code, which excludes employer premiums from the employees taxable income (Goodman). This means that health benefits provided by insurers are exempted from an individuals earnings, treating them as if they were expendable to the actual income. This tax alleviation can reduce the cost of health insurance by 30 percent or more for an average-income family (Goodman).
By calculation, an extra dollar of earnings can be used to buy a dollars worth of health insurance as an alternative to 70 cents of take-home pay (Goodman). In contrast, individuals who purchase their own health insurance receive no tax benefits; therefore, most employees choose to join their employer-based health plan coverage. Many employers want to ensure that their workers have good access to health care so that they are more likely to stay healthy. Despite having to provide health insurance for their employees, employers also have to worry about the competition in the market. Because of this added obstacle, employers will strive to push their employees into the least expensive insurance program in order to cut costs and remain competitive (Gervais).
Employers tend to favor managed care organizations because of their cost-cutting strategies. Doctor Robert P. Gervais, member and Board of Director of Physicians Who Care, explains MCOs cost-cutting approach: managed care instruments promise to rein in medical costs by paying doctors, hospitals, and nurses more money to do less for patientsWhen fewer health care services are provided, health care costs should go down. It is clear that patients lose under a managed care system (Gervais). Employees are also usually limited to the choice of one health planthat which their employer chooses to provide (The Center for Patient Advocacy). This is unfair to employees because they cannot shop around to find a health plan that would best suit their needs.
The whole medical system becomes inefficient. The tax code neglects that individual choice is ruled out in the employer-based health system. How could quality care be insured in the health care system if individual choice does not exist? Furthermore, the tax code fabricates health care as an invisible benefit, seemingly free to employees because costs are directly deducted from their paycheck (Maciejewski). As a resulting effect, employees become less cost-conscious, overpaying for unnecessary coverage and services that could have been purchased more efficiently out of pocket or might not have been purchased at all (Goodman). In sum thus far, Congress has inadvertently placed the health of working Americans in the hands of their employers, which in turn is overseen by the physicians of the managed care plan. Because of strict regulations and policies imposed by managed care plans on their physicians, they represent yet another factor in the inefficient system of managed care.
Physicians are attracted to Managed care plans under the premise that they would be guaranteed an abundant number of patients. Once enrolling, physicians are prompted to sign a contract. Provisions or gag clauses in physician contracts prevent them from giving patients information about treatment options that may not be covered by their health plans (Cooper). This is a clear violation of the informed consent requirement that Congress has dictated as law. Moreover, gag clauses may also limit physicians from referring patients to specialists outside their health plans. Some managed care organizations and insurance companies retaliate against doctors who send their patients to specialists too many times, or too soon, or order expensive tests that the doctor feel is necessary but the MCO does not.
They retaliate by firing doctors who do not follow their rules even if their rules may be dangerous to patients. The pre-determined budget or utilization target that MCOs establish and their physician payment system affix more problems. The system of capitation that physicians are paid accordingly to, provides physicians a fixed amount, not per service, but per enrollee on a monthly basis. Because physicians are given a utilization target that limits how much they could spend on patient care, they can be put in a financially insecure situation. If the utilization target is surpassed, the physician must pay for the extra services himself.
Therefore, instead physicians are tempted to provide less service to their patients. Providing fewer services can be detrimental to patients but can be rewarding for physicians. Bonuses are given to physicians from the unspent fund when services of their patients are lower than the utilization target. The expressed concern that MCO policies and regulations have in interfering with the doctor-patient relationship is keenly expressed by Dr. Bruce Rushbaum, who practices internal medicine: The plans have swung so far against what is good for the patient and what is fair for the physician that it has impacted most negatively on the quality of health care in this country (Bierbauer). If physicians are making negligent decisions that are jeopardizing the health care of patients, why dont they file a claim for damages against their physician or their health plan? Congress has passed patient protection acts that would allow patients to be compensated for damages caused to them, however, this does not apply to everyone. Those patients that are enrolled in employer-based health plans, governed by the Employment Retirement Income Security Act, dont have the same protections. ERISA, which was ratified by Congress in 1974, was intended to protect employees from potential abuses by their benefits plans.
However, with the evolution of the health care system from a fee-for-service to a managed care system, ERISA has evolved into a shield of immunity that protects MCOs from potential liability for their negligent denial of health benefits (Amer. Pysch. Assoc.). The main reason for ERISAs failure is its preemption clause. This loophole requires that federal law override state laws relating to employee pension and benefits plans. When applied to managed care health plans, the clause creates an incentive to deny care because it removes (preempts) state law protections for patients, while federal law offers them virtually no effective remedy (Hoffman and Hiepler A19).
This unfortunately puts workers and their families much at risk. In a Louisiana case, Corcoran v. United Healthcare, Inc., 965 F .2d 1321 (5th Cir. 1992), Florence Corcoran was insured through her employer which administered United Healthcare as the utilization reviewing agency. Mrs.
Corcoran was deemed to have …