Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 24, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4439 words
HEADLINE: PREPARED TESTIMONY OF
LESLIE
B. KRAMERICH
DEPUTY ASSISTANT SECRETARY FOR POLICY
PENSION AND WELFARE
BENEFITS ADMINISTRATION
BEFORE THE HOUSE EDUCATION AND THE
WORKFORCE COMMITTEE
SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS
BODY:
INTRODUCTION
Chairman Boehner and members
of the Subcommittee, thank you for inviting me to speak with you this morning
about ERISA's role in our health insurance system, its preemption of State law,
and issues relating to access to health insurance for the uninsured. We
appreciate the leadership of the Chairman, Ranking Member, and other Committee
members in holding this hearing to gain a more complete understanding of this
often misunderstood law.
The Pension and Welfare Benefits Administration
(PWBA) administers the Employee Retirement Income Security Act (ERISA), the
primary federal statute governing employment-based health plans. Since its
passage almost a quarter century ago, ERISA has played an important role in
ensuring that American workers and their families have access to health
insurance. Although we are mindful of ERISA's successes, we believe ERISA can be
improved to be more responsive to the rapid changes in our health care system
since its enactment.
The Department of Labor is strongly committed to
regulatory and legislative changes that will update ERISA's provisions and allow
ERISA to continue to fulfill its mission of ensuring that workers and their
families will receive the benefits that they are promised. My testimony today
will provide an overview of ERISA and its interaction with State law, and will
discuss the Department's efforts to improve ERISA's provisions relating to
health plans. I will also discuss the Administration's efforts to address the
problem of the uninsured through initiatives that expand access to affordable
health insurance.
OVERVIEW OF ERISA
ERISA plans are either provided by
employers, or are jointly trusteed "Taft-Hartley" plans negotiated by unions
with groups of employers. In providing health benefits, employers and employees
can either contribute to the purchase of third party insurance or provide health
benefits directly themselves. Thus, "fully-insured plans" are plans that make a
payment to a third party to insure the health benefits offered to employees.
"Self-insured plans," also called "self- funded"plans, are ones in which the
plan sponsor bears the financial risk for providing promised health benefits to
employees. It is important to note that ERISA is premised on a voluntary system
and its requirements are only applicable to those plans that choose to establish
health benefit plans.
One of the reasons why ERISA's role in our health
insurance system is so important is because of the simple fact that most workers
and their families receive their health care through ERISA-covered plans. ERISA
covers over 2.6 million private sector health plans providing health benefits to
122 million people. In fact, ERISA-covered health plans are the predominant form
of coverage among the non-elderly population - 72% of the entire workforce and
63% of the non-elderly population receive their health coverage through ERISA
plans.
Another reason is the amount of money involved in ERISA health plans,
accounting for billions of dollars in health care spending each year. In the
year 2000, payments for benefits and other expenses by these plans will exceed
$280 billion. On average, these payments represent more than one-quarter of the
total U.S. health care spending annually.
In addition, ERISA has had a
significant impact on the health care system because of its unique regulatory
framework and its preemption of many State laws.
THE ERISA FRAMEWORK
It
is important to note at the outset that ERISA is premised on a voluntary system
and its requirements are only applicable to those employers that choose to
establish health benefit plans. ERISA's framework is premised on an appreciation
of the delicate balance that must be struck between protecting workers and
ensuring that they receive the benefits they are promised and avoiding overly
burdensome requirements that might discourage employers from offering, or
employees from enrolling in, health plans.
In order to understand ERISA's
framework, it may be helpful to briefly review the history of this legislation.
ERISA was enacted in 1974, primarily to address abuses in the U.S. pension
system in the 1960s and early 1970s. ERISA created a uniform system of federal
requirements that generally preempted State laws, but preserved State insurance
regulation. Because ERISA's passage was originally motivated by problems in the
pension system, the majority of ERISA's requirements are geared toward pension
plans. However, ERISA's original framework also includes a few basic standards
applicable to health plans which were designed to provide workers with more
information and to ensure that workers receive the benefits they are promised.
ERISA's original requirements include provisions relating to the reporting
and disclosure of information, outlining how plans must process health benefit
claims, fiduciary requirements, and a remedial scheme providing individuals with
a federal right of action for a violation of ERISA or of the terms of the
plan.Except for the passage of COBRA in 1986, ERISA's substantive health plan
requirements remained virtually unchanged for the first two decades after its
passage. COBRA amended ERISA to require employers to allow certain employees and
their dependents who lose coverage under their employer- sponsored plan to buy
continued coverage under the plan for a period of as much as three years.
However, during the last three years, ERISA's health plan requirements have
been amended several times in response to policy concerns regarding coverage of
certain benefits, portability of coverage from job to job, and discrimination in
insurance coverage. In 1996, with the Administration's support, Congress passed
the Health Insurance Portability and Accountability Act (HIPAA), the Newborns'
and Mothers' Health Protection Act (NMHPA) and the Mental Health Parity Act
(MHPA). HIPAA amended ERISA's group health plan disclosure provisions, modified
COBRA's requirements, and added new federal requirements regarding portability,
renewability, nondiscrimination, and coverage of mental health and maternity
care. Last year, the Women's Health and Cancer Rights Act (WHCRA) provisions
passed as part of the Omnibus Appropriations Act added new federal requirements
relating to coverage of breast reconstructive surgery.
PREEMPTION
-Another central and difficult element of ERISA is its interaction with
State law. ERISA's preemption of State law was intended to create a uniform
system of regulation that would encourage employers operating in multiple States
to offer health insurance without fear of conflicting State regulations.
The
technical rules of ERISA preemption are complex and have continued to evolve as
the federal courts have interpreted ERISA. The basic rules preempt State laws
that "relate to" ERISA plans, but save from preemption most State laws that
apply to health insurance policies that an employer purchases from an insurance
company.
However, such State laws do not apply where an employer elects
to "self-insure," or pays all of the costs of the plan directly. In addition,
ERISA has been interpreted to preempt State law suits brought by individuals
seeking compensation for an injury caused by a plans' wrongful denial or delay
of benefits.
ERISA's uniformity was intended to foster greater employer
involvement in the health care system. Employers' involvement as voluntaoviders
of health insurance for their employees has had several beneficial outcomes for
the health care system overall. First and foremost, employers' purchasing of
insurance allows for a pooling of risk which makes insurance far more affordable
than it would be if purchased individually, thereby providing access to
affordable health insurance for millions of working Americans. Next, employers
have been leaders in the movement towards purchasing for quality health care and
keeping costs down through innovations in managed care and purchasing
arrangements, thereby spurring innovation. In addition, employer purchasing
groups have served the health care needs of their communities by focusing
resources towards the development of purchasing cooperatives that provide
greater access to affordable health insurance for small employers and their
employees who might otherwise not be able to afford coverage.
However, as
the health care system has evolved in the decades since ERISA was passed, its
preemption of State law has had some unintended consequences which sometimes
undercut its goal of protecting workers. The proportion of workers subject to
State laws has diminished as more employers have chosen to offer "self-insured"
plans. Shortly after ERISA passed in 1976, about 5% or less of workers enrolled
in ERISA plans were covered under self-insured plans. Today, more than a third
of all workers covered by ERISA are in self-insured plans, which are exempt from
all State regulation.
In addition, the dramatic increase in managed care
enrollment among employer plans in the past decade has raised concerns about the
need for greater regulation at the federal level to prevent abuses, and to
provide protections when such abuses occur. Enrollment in managed care among
ERISA-covered employers with 100 or more employees grew from 27% in 1989 to 73%
in 1997. Of the 122 million individuals enrolled in ERISA-covered plans, roughly
3 out of 4, almost 90 million, are in managed care plans.
Managed care plans
raise questions that were not anticipated when ERISA was enacted in 1974. Unlike
the traditional fee-for-service environment where treatment is provided up-front
with few restrictions on access to physicians or providers and payment issues
are dealt with later, most managed care arrangements require coverage decisions
to be made before most medical services are provided. Today, a denial of a claim
for benefits is a denial of care for those who cannot afford to pay for care out
of pocket. This makes the timeliness and accuracy of these decisions more
critical and the availability of adequate procedural protections and remedies
even more important. The restrictions imposed by managed care arrangements are
made even more problematic by the fact that nearly half of employees enrolled in
these plans do not have a choice of plans in which to enroll.
Many States
have responded to these changes in recent years by implementing managed
care reforms that provide basic protections to ensure that consumers
receive the benefits they are promised and are provided with fair procedures to
dispute a managed care entity's adverse benefit determination. The need for
reforms was also recognized by the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry in their Consumer Bill of
Rights recommendations and embraced by the President as an appropriate vehicle
for change. At this time, seventeen States have enacted at least five of the
patient protections recommended by the President's Commission and most of the
States have enacted laws implementing at least one. The impact of these State
laws on ERISA covered plans, of course, is limited by ERISA's preemption clause.
Changes to ERISA are needed to respond to these developments since its
enactment. The Department of Labor has been working to promote changes that will
make ERISA more equitable and efficient in the current health care environment.
However, legislative changes are also needed to ensure that ERISA can continue
to fulfill its purpose of protecting consumers.
DOL EFFORTS
The
Department has undertaken significant efforts to change ERISA for the better in
recent years, both through our regulatory work and through our participation in
an amicus curiae program through our solicitor's office.
Last year, the
President directed the Department to take all steps within our regulatory
authority to implement the Advisory Commission's Consumers' Bill of Rights. In
response to that directive, the Department has proposed three patient rights
regulations designed to update ERISA's regulatory requirements and to provide
greater protections to consumers within the bounds of what is permitted under
current law. When finalized, these regulations will enhance efficiency and
equity in the employment-based health system.
The first of these patient
rights proposals would update ERISA's requirements relating to procedures that
plans must follow to provide workers with full and fair review of benefit claims
disputes. Under the proposal, new processes must be established that will give
claimants faster responses about whether a benefit is covered, more information
about why a claim was denied and their rights of appeal, a fairer and more
independent process for reviewing a dispute, and greater protections of other
legal rights beyond the claims process. Our goal is to respond to the myriad of
changes that have occurred since the regulation was adopted in 1977 in order to
assure that workers will be provided with timely, appropriate, and equitable
review of their benefit claims.
The second patient rights proposal would
amend the health plan information that plans are required to disclose to workers
to require more detailed information, with special focus on issues of interest
to managed care plan enrollees. The proposal clarifies that the plan's summary
of plan information (the "summary plan description") must include clear and
understandable information regarding cost-sharing, caps on benefits, protocols
and policies regarding limits on coverage including network rules, and rules
relating to access to providers. These changes will improve efficiencies by
providing consumers with more information with which to compare health plans and
make informed choices about their health care.
The third patient rights
proposal would enable plan administrators to perform plan administration
functions and communicate these to plan participants electronically and would
create standards for the electronic maintenance and storage of employee benefit
plan information. This regulation allows employers and other plan administrators
to take advantage of the efficiencies and speed of electronic communications.
This proposal will also undoubtedly benefit consumers by making communications
speedier and more accessible, while providing some safeguards.In addition to our
regulatory projects, the Department has also worked to clarify the boundaries of
ERISA preemption through amicus briefs filed with courts to assure that States'
ability to meaningfully regulate insurance and health care is preserved, as
ERISA originally intended. Our amicus program has served to clarify that State
laws governing the solvency of insurers or mandating that health insurance
policies cover certain types of care are not preempted with respect to insured
ERiSA-covered plans. In cases where Health Maintenance Organizations (HMOs) have
attempted to use ERISA preemption to protect against liability for medical
malpractice, the Department has successfully argued in a number of amicus briefs
that State laws holding physicians and those that contract for their services
liable for medical malpractice in connection with treatment decisions are not
preempted, even if the physician provides services to ERISA plan participants.
In doing so, we have distinguished between medical malpractice claims, which are
not preempted even if they involve ERISA-covered plans, and acts relating to
plan administration, which are preempted under the Supreme Court's
interpretation of ERISA. Most recently, we suggested in a case now pending
before the Supreme Court, Ward v. Unum, that state insurance regulations should
always be preserved with respect to their application to insurers of
ERISA-covered insured plans, unless they specifically conflict with ERISA's
provisions or regulations. These efforts benefit consumers and increase ERISA's
equity by preserving States' traditional role as the primary regulator of
insurance and medical care.
We firmly believe that all of these efforts now
underway are needed and will benefit consumers. However, it is clear that
further protections are needed which are beyond our power to implement and
require Congressional action.
LEGISLATIVE INITIATIVES
The Department
acknowledges the current lack of adequate consumer protections in ERiSA and
supports well-crafted reforms that would amend ERISA to secure all elements of
the President's Advisory Commission's Consumer Bill of Rights. Legislative
proposals implementing reform should include the full range of consumer
protections, including provisions guaranteeing access to specialists, coverage
of emergency room care, restrictions on provider financial incentives,
continuity of care, choice of plans and providers, free and open communications
between doctor and patient, fair and timely claims and appeals procedures
including independent external review, and meaningful legal remedies.
American workers need and deserve a strong and enforceable Patients' Bill of
Rights. Because the Department lacks the authority under current law to do more
than reform the standards applicable to internal benefit claims processing,
however, reform measures must come through legislation. In this regard, as I
have already stated, we strongly support the Health Care Commission's
recommendations for an external review of plan decisions. The absence of any
independent, de novo review for claims determinations is a serious weakness in
the protections offered by the existing statutory scheme. We believe that any
legislative proposal establishing an external review process must, at a minimum:
- Ensure that the reviewing person or entity is independent of the party who
decided the appealed claim and is not operating under any conflict of interest
(including an objective procedure for selecting the reviewer);
- Ensure that
the reviewing person or entity possesses the medical or other expertise
necessary to perform the required review;
- Establish a certification and
oversight process to ensure independence and qualifications of reviewers;
-
Provide that external reviews will be de novo, i.e., reviews that afford
nodeference to original decisions and permit the claimant to submit new evidence
pertinent to his or her claim; - Establish specific time-frames within which
routine and "urgent care" claims must be determined, providing expedited review
of claims involving urgent care; and
- Provide for decisions on review to be
binding on the plan.
However, improved claims and appeals procedures are not
enough to address the inequities under current law.
In our view, stronger
legal remedies are needed to assure compliance with the enhanced procedural
protections. Enrollees who have been injured due to a plan's wrongful delay or
denial of a benefit can only seek a remedy under ERISA that consists of the
benefit that should have been provided - they cannot be compensated for their
injuries or any medical costs, missed workdays, or other losses that arise from
the injury.
There is a very real human face to the problems created by the
absence of meaningful remedies under ERISA. When individuals are denied coverage
for potentially life-saving treatments for catastrophic illnesses, they often
cannot afford the cost of the treatment. Without treatment, these individuals
often face certain death. At that moment, when they are weak with disease, sick
with anxiety, and least able to deal with the intricacies of complex plan
documents and ERISA law, they have been forced to find a lawyer to help them
assert their rights in court. And, even if they ultimately prevail in court,
their only remedy is the treatment that should have been provided in the first
place, which may come too late to save their lives.
Under the current
system, plan administrators or insurers can arbitrarily deny or delay benefits
without consequences. Even if the claimant dies as a result, the plan will most
often suffer no adverse consequences. In fact, the current system creates an
incentive for plans to deny care, because they ultimately save money for every
denial they make and often will not even have to pay the legal costs of
defending a suit because most enrollees will not bring a claim.
Because
ERISA's remedial scheme and its preemption of State law are part of the law
itself and its interpretation by the courts, these problems can only be
addressed through the passage of new legislation that provides more equitable
remedies. Without more meaningful remedies, ERISA is failing to live up to its
promise.
ADMINISTRATION'S INITIATIVES TO EXPAND ACCESS TO CARE
This
Administration is aware of the growing numbers of uninsured in this country and
remains strongly committed to the expansion of access to health insurance
coverage for the uninsured. Within the employment- based system, we understand
that there are two components with respect to uninsurance: the rate of
employers' offer of insurance and the rate at which employees sign up for
coverage. With respect to the latter component, we are aware that a growing
number of employees are refusing insurance coverage for a variety of reasons.
One important factor in employees' unwillingness to invest in insurance may be
their lack of confidence in the health care system because of concerns about the
lack of adequate information about health care plans and the lack of
accountability for wrongful denials of care. We are hopeful that our regulatory
efforts to expand information disclosure and increase plan accountability will
have a positive impact on employee's trust in the health care system, and
thereby encourage more eligible individuals to take up coverage and decrease the
ranks of the uninsured.
In addition to these initiatives, the President has
announced a series of initiatives included in his FY 2000 budget proposal that
are designed to expand access to health insurance and treatment for the
uninsured. These initiatives include:
- Small Employer Tax Incentive: The
President has proposed $44 million initiative that would provide a tax credit
for small employers (employers with 50 or fewer workers) that join voluntary
coalitions for purchasing health insurance coverage for their workers and would
create a tax incentive to encourage foundations to fund the start-up costs to
create the coalitions. Nearly half of the uninsured private sector workers in
this country work for employers with 25 or fewer employees. This proposal would
encourage small employers to offer insurance and provide them with assistance in
purchasing more affordable products through participation in a larger purchasing
group.
- Medicare/COBRA Buy-In: This proposal would allow certain uninsured
individuals aged 55 to 65 to purchase into Medicare or COBRA. Americans age 62
to 65 could buy into Medicare through a mechanism that preserves the Medicare
trust fund. Displaced workers age 55 and over who have involuntarily lost their
jobs and health care would have a similar Medicare buy-in option. American
workers whose employers broke their promise to them by canceling retiree health
benefits would have the option of buying into the employer's healthplan through
COBRA. These three provisions increase access to affordable insurance for
certain older individuals at a time when they are most likely to need the
security of health insurance.
- Public Health Initiative: This initiative
invests $1 billion over five years in local communities to integrate providers
that traditionally treat the uninsured, including public hospitals and clinics,
into networks that will render a comprehensive range of services. This
initiative will help support the safety net of public health service providers
that currently serve the uninsured and provide the uninsured with more
comprehensive care.
- Disabled Workers: The budget fully funds the health
provisions of the Jeffords-Kennedy bill at a total cost of approximately $900
million over five years. This proposal provides new Medicare and Medicaid
options to encourage people with disabilities to return to work. - Legal
Immigrants: The budget proposal restores Medicaid eligibility to three
vulnerable groups of legal immigrants who might otherwise be uninsured:children,
pregnant women, and disabled immigrants.
- Long Term Care: The
Administration's budget also allows a taxpayer to claim a $1,000 tax credit if
he or she has long-term care needs. The credit is also available to a taxpayer
with respect to a spouse or each qualifying dependent who has long-term health
care needs. This tax credit is an equitable and efficient way of recognizing the
costs of providing long-term care.
We are hopeful that these initiatives
will provide a useful starting point in a debate about appropriate initiatives
to expand access to health insurance.
While the Administration is strongly
supportive of Congress' efforts to expand access to health insurance for the
uninsured, we must be careful not to adopt initiatives that might ultimately
serve to segment State insurance markets, further undermine necessary State
insurance regulations, or weaken needed consumer protections. We believe that
any new initiatives in this area should be pursued so as to actually decrease
the number of uninsured and that they will not create more disruption than is
necessary to help those in need. We offer our assistance to work with you to
assure that any proposals that expand coverage through amendments to ERISA are
sound, both technically and from a policy perspective.
CONCLUSION
In
closing, I would like to reiterate that the employment-based system as it has
evolved under ERISA provides a good foundation for our health care system.
However, important changes are needed to ensure that ERISA's promises to
American workers of fairness and security can be fulfilled. We at the Department
of Labor are doing our part to ensure that ERISA adjusts to the changes in our
health care system.
We want to work with you on these important issues as we
move forward with these and other changes to ERISA. We recognize that some have
expressed concerns about our activity in this area, but would caution that a
failure to act given all of the fast-moving changes in our health care system
would be a dereliction on our part. We need to act as quickly as possible to
ensure that our efforts will help as many ERISA-covered individuals as possible.
However, I want to reiterate that our process is open, both to you and the
regulated community, as we go forward.
Thank you for the opportunity to
testify today. I look forward to answering any questions you might have.
END
LOAD-DATE: February 26, 1999 
