Kaiser/Harvard National Survey of Americans’ Views on Managed Care-Massachusetts Toplines to National Sample

Note: This publication is not available on our website. However, the data from these surveys is still available through the Public Opinion and Media Research Group. Please email kaiserpolls@kff.org for more information.

Medicaid Expenditures and Beneficiaries: 1994 Update

October 1998

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Medicaid Expenditures and Beneficiaries:Policy Brief Tables Chart Pack

Managed Care Plan Liability: An Analysis Of Texas And Missouri Legislation

Patricia A. Butler, JD, DrPH

November 1997

Background

As increasing numbers of Americans receive health care coverage through managed care plans, public attention has been focused on some of the problems consumers have with such plans. Although most consumers report satisfaction with their plans, some express concern that plans’ financial incentives limit access to needed services. For example, some consumers are not referred to specialists, some needed specialists are not part of managed care plan networks, and some chronically ill people must seek a referral from a primary care physician even though a specialist is more appropriate to manage their care. The prevalence of these problems is unknown, but they are taken seriously by state and federal policy makers who see a solution in the courts. By allowing plan participants to sue their health plans, as they can currently sue their physicians, lawmakers hope managed care plans will become more responsive to consumers. Health plans, on the other hand, oppose such laws on the belief they will drive up costs. Two states, Texas and Missouri, recently passed legislation permitting managed care plan participants to sue plans when they are injured by a denial of health coverage.

Current Health Care Liability Laws and Proposals

Current laws in most states generally permit consumers to sue managed care plans for actions that injure them. However, in many states, managed care plans can effectively avoid such lawsuits under “corporate practice of medicine” laws, which prohibit organizations not owned by physicians from employing physicians. These laws have been interpreted by many courts as barring suits against HMOs and other health plans on the ground that HMOs and other corporations cannot be sued for medical malpractice if they are prohibited from “practicing medicine.”

The new Missouri and Texas laws both eliminate this defense to a suit against managed care plans, but Texas goes further in two important ways:

• First, the Texas law creates an explicit new legal claim that managed care plan participants may use as the basis of a lawsuit: the assertion that a plan failed to use “ordinary care” in denying or delaying payment for care recommended by a physician or other provider. The result of the Texas law is similar to court decisions in other states, but Texas is the first state to define a specific standard of liability for managed care plan decisions in legislation.
• Second, the Texas law creates “independent review organizations” to which managed care plan enrollees can appeal disputes over plan coverage.

Missouri’s new law removes the corporate practice of medicine defense to suits against health plans but does not create an explicit claim, leaving it to the state’s courts to decide what kinds of plan misconduct may result in liability.

Proposals to expand or clarify the liability of managed care plans have been considered in several other states, such as California and New York. Federal liability legislation has also been introduced, for example, in bills sponsored by Representative Norwood, Senator D’Amato, and Representative Stark.

Objectives of Texas and Missouri Laws

Both the Missouri and Texas managed care plan liability laws are part of comprehensive initiatives to regulate managed care plans, and both were developed through the work of bipartisan interim legislative committees. An alliance of state medical societies and consumer groups in each state supported the liability legislation to achieve several objectives:

• Health plan accountability. Sponsors and supporters in both states asserted that managed care plans’ decisions to deny or delay coverage influence physicians’ willingness to provide treatment. When these decisions injure plan participants, plans should be held accountable.
• Equitable treatment. Bill supporters saw no justification for treating managed care plans differently from other businesses, which can be held responsible for conduct that injures customers.
• Injury prevention as well as compensation. Supporters hope that the threat of litigation can encourage more appropriate managed care decisions about what is “medically necessary.” The new external review procedure in Texas was also intended to avoid litigation and provide quicker resolution of participant disputes with their plans.
• Consistency with tort reform. Legislators who had supported previous state tort reforms (e.g., limits on jury awards, attorneys’ fees, and time to file lawsuits) felt it appropriate to impose responsibility proportionate to the actual conduct of organizations and individuals. Consequently, they argued that health plans should be held responsible for decisions that affect physicians’ medical care decisions.

These bills were opposed in both states by health insurers and managed care plans, as well as some business representatives, who raised several concerns about liability expansion. For example, bill opponents argued that managed care plan premiums would increase substantially because the threat of liability would force plans to cover inappropriate care and because of the potential that juries might make large financial awards because they view managed care plans as having “deep pockets.” Without cost studies to support these estimates, however, this argument was not persuasive. Health plans in both states also asserted that plan participants can already sue under various legal theories, although court opinions in both states seemed to limit the rights of plan participants to sue their plans.

Despite the opposition of powerful insurance and business organizations, liability laws passed in Texas and Missouri due to an apparent combination of compelling public interest in the issue and political forces. The initiatives were bipartisan, sponsored by highly respected legislators, and supported by a unique coalition of provider and consumer groups. Perhaps most important, through hearings held by interim study committees and legislative committees in both states during the regular session, legislators learned the deep public frustration with managed care plans, which they believed required action.

Policy Issues Raised by Managed Care Liability Proposals

Imposing liability on managed care plans raises several challenging policy questions.

• The appropriateness of negligence remedies. A question underlying the debates over managed care plan liability is whether the process of seeking financial awards for negligence (misconduct) under American tort law is the best way to remedy participants’ disputes over plan coverage. Would other mechanisms like arbitration or the Texas external review procedure be quicker and more cost-effective?
• Cost impacts. The potential impact of expanded managed care plan liability on costs of medical care has not been evaluated and deserves further examination.
• ERISA. States face challenges to expanding consumer remedies for managed care plan decisions because of ERISA, the Employee Retirement Income Security Act of 1974. ERISA governs private sector health and other employee benefit plans. The Supreme Court has interpreted a provision in ERISA that preempts state laws affecting employee benefit plans to mean that health plan participants are prohibited from suing their plans in state court when they are injured by plan coverage denials or delays. ERISA provides very limited remedies for such injuries. Only Congress can change this interpretation of federal law.

The Missouri managed care plan liability law is unlikely in itself to draw an ERISA challenge because it merely removes a defense to lawsuits against managed care plans. By creating a new source of liability for negligent coverage denials and delays, however, the Texas law raises ERISA issues and has already been contested in federal court by Aetna.

Summary and Key Findings

Public and private health care purchasers are attracted to managed care because of its potential to avoid wasteful care, improve coordination of care, and hold an organization accountable for personal health status improvements. But managed care raises the dilemma of how to cut fat (inappropriate care) without cutting muscle (appropriate care). Purchasers need to appreciate the potential for managed care plans to harm consumers through care coverage denials as well as consumers’ fears that their doctors can no longer act in their patients’ best interests. On the other hand, consumers need to understand the costs they incur when higher health coverage premiums from marginally effective or excessive care reduce the money their employers have to pay wages.

To summarize, the report’s key findings are:

• The successful passage of these liability expansion proposals was due in large measure to the overwhelming tide of popular support for state policy makers to do something about managed care plan coverage denials that were seen as arbitrary and unfair.
• Currently, general legal (“common law”) theories provide state court remedies for managed care plan actions that injure consumers. But in many states, the “corporate practice of medicine” defense may bar suits against managed care plans. Such states at least would need to eliminate this immunity in order to allow plan participants to sue managed care plans, if these lawsuits are considered appropriate policy.
• So far, states have taken two approaches to increase managed care plan liability: 1) repealing the “corporate practice of medicine” defense, leaving to the state’s courts to define how liability can be imposed, and 2) creating an explicit statutory definition of managed care plan liability.
• ERISA, the federal pension law, limits the remedies available to consumers in private sector employee plans to suits to enforce plan terms or recover the cost of the denied benefits. Unlike other types of civil lawsuits against doctors or insurance companies, employee health plan participants cannot sue in state court for lost wages, pain and suffering or punitive damages. Consequently, ERISA may override newly enacted health plan liability laws, and only Congress can amend ERISA.
• In developing a fair way to redress disputes between consumers and their plans, policy makers must balance procedures through which consumers can obtain needed care or compensation for injuries against potential adverse effects of such remedies on the ability of managed care plans to reduce inappropriate care and contain costs.
• A procedure under which plan participants can appeal coverage denial decisions to a review organization outside the plan could offer several advantages. It could provide an appeal mechanism independent of the plan and avoid real and perceived conflicts of interest. It also could offer a way to resolve coverage disputes before harm occurs, averting the need for later lawsuits.

* * *A full copy of the report can be ordered by calling the Kaiser Family Foundation’s publication request line at (800) 656-4KFF and asking for document #1343. A report on The Impact of Managed Care Legislation: An Analysis of Five Legislative Proposals from California is avaialble separately. Return to top

Managed Care Plan Liability: An Analysis Of Texas And Missouri Legislation

The Impact of Managed Care Legislation: An Analysis of Five Legislative Proposals From California

This study analyzed five 1997 managed care consumer protection proposals currently or recently under consideration by the California state legislature: allowing consumers to sue their HMO (health maintenance organization) or managed care plan; expanding access to prescription drugs not approved by the health plan; expanded coverage of mental health services; direct access to obstetrical andgynecological services; and lengthened minimum hospital stays for mastectomy patients.

• Report: The Impact of Manged Care Legislation: An Analysis of Five Legislative Proposals from California
• Report: The Impact of Manged Care Legislation: An Analysis of Five Legislative Proposals from California

This report analyzes recently enacted laws in Texas and Missouri that expand consumers’ ability to sue their HMOs or other managed care plans for inappropriately denied care or similar problems.

• Report
• Report

A booklet to help health care consumers understand managed care.

• A Consumer’s Guide: Understanding Managed Care

• Report: A Comparison of the Medicaid Provisions in the Balanced Budget Act of 1997 (P.L. 105-33) w-Prior Law

The September/October 1997 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health stories covered by news media, including questions about AIDS, Condoms in Schools and Tobacco Companies. The survey was based on a national random sample of 1,007 Americans conducted October 17-21, 1997 which measures public knowledge of health stories covered in the news media the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.

Background

Health care benefits had been offered to active employees for a long period of time before health coverage became a retiree benefit offered by employers. The key event that made employer-sponsored retiree health care a possible benefit for retirees was the enactment of Medicare in 1965. It was then felt possible to provide a widely desired benefit at a relatively low cost, since the Medicare program would pay the majority of the costs.

Millions of Retirees Have Employer-Sponsored Coverage

Based on the 1995 Medicare Current Beneficiary Survey⁵ analysis by Physician Payment Review Commission (PPRC), about 12 million individuals (37 percent of Medicare aged and disabled beneficiaries) have employer-provided supplemental coverage, including about 2 million with employer-provided coverage and Medigap.

Retiree Health Is a Highly Valued Medicare Supplement

As with other matters related to retirement, the appreciation of retiree health benefits increases with age. For example, based on a Hewitt database of employee surveys, there is a twelve-fold increase in value assigned to retiree health care benefits for employees age 55 and over compared to the group age 25 to 34.⁶

The availability of employer-provided coverage is more critical for the pre-65 retirees because they will generally not have access to other insurance or it will be very expensive for them to purchase, if it is available at all. Post-65 retirees at least have Medicare if they have no other health insurance.

Even Medicare, however, provides a relatively low level of benefit when compared to the typical employer plan for active employees. Comparing the Medicare level of benefits to 250 large employers participating in the 1996 Hewitt Health Value Initiative^TM who offer indemnity type benefits, the Medicare design falls in the lowest quartile measured by plan value (18th percentile). That is, 82 percent of the indemnity plans offered by large employers to active employees provide richer or better benefit levels than traditional Medicare. Most of the employers participating in the 1996 Hewitt Health Value Initiative have more than 5,000 employees. Employers with fewer employees will tend to provide a lower level of benefit.

Assuming that the typical employer medical plan considers about 65 percent of total health care costs as a cost covered by the medical plan (excluded costs include items such as over-the-counter drugs, dental care and eye glasses)⁷, and that the average indemnity medical plan reimburses about 83 percent of covered costs⁸, the typical employer plan will pay 54 percent (0.83

State Reforms of Small Group Health Insurance

Between 1989 and 1995, 45 states enacted laws to make health insurance more accessible and attractive to small businesses. The small group market was targeted for reform because about half of all uninsured workers are either self-employed or working in firms with fewer than 25 employees (EBRI, 1996).

The problem is that only about half of all small firms offer health insurance (Figure 1). In 1995, 53% of small businesses (<50 employees) offered health benefits, and while this is up from 1989 when only 41% offered coverage, it is still much lower than health coverage among larger firms.

Many insurers are willing to sell coverage to small firms, but some insurer practices in the small group market have drawn concern. Some companies refused to sell policies to businesses in specific “high-risk” industries for example, or to firms with fewer than 10 employees. Also, because insurers tended to base premiums for small groups on the medical histories of prospective enrollees, some small businesses have reported that the poor health of their employees or employees’ dependents resulted in their inability to qualify for coverage.

Although these problems exist, they are not widespread. Most small firms say that they can get coverage if they want it. More than three-quarters (of both insured and uninsured small firms) say that they have been solicited to buy health insurance in the last six months, and more than a third indicate that they have received at least six or more inquires.

Three General Types of Small Group Reform

“Bare-bones” policies.

These laws allow insurers to sell “bare-bones” insurance to certain classes of small firms, typically those newly entering the group coverage market. The policies are dubbed “bare-bones” because they are usually exempt from most mandated benefit laws and premium taxes, which allows small firms to purchase basic coverage at lower premiums.

Premium regulations.

Premium rating bands or requirements that insurers follow community rating are two examples of such regulations. These rules are intended to narrow the range in premiums, so that coverage will be more affordable for higher-risk firms.

Standards for underwriting and contracting practices.

These are designed to make coverage both more attractive and available to employers. Included under this category are laws which:

• limit the non-issue of policies to certain types of firms,
• guarantee the renewability of employer coverage,
• allow insured persons to move between plans without having to satisfy new pre-existing condition clauses, and
• limit initial waiting periods that workers must satisfy for coverage of their pre-existing conditions.

The most common reforms are listed in Figure 2 with the number of states that have enacted them. In many cases, the state enacted a small package of measures in 1991 or 1992 and then adopted additional reforms a couple of years later. By 1995, most states had enacted all of the reforms listed here.

Figure 2Small Group Reforms at the State Level Number of States with the Measure as of: Type of State Legislative Reform: ’89 ’91 ’93 ’95 Bare-Bones Insurance Plans Can be Sold 1 9 31 43