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Copyright 1999 Federal News Service, Inc.  
Federal News Service



LENGTH: 4439 words


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.
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.
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.
-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.
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.

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.
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.
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.

LOAD-DATE: February 26, 1999

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