Copyright 1999 Federal News Service, Inc.
Federal News Service
MAY 6, 1999, THURSDAY
SECTION: IN THE NEWS
HEADLINE: PREPARED TESTIMONY OF
NATIONAL COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANS
THE HOUSE EDUCATION AND THE WORKFORCE COMMITTEE
SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS
SUBJECT - THE IMPACT OF
EXTERNAL REVIEW ON HEALTH CARE QUALITY
Mr. Chairman and Members of the Subcommittee:
My name is James S.
Ray. On behalf of the National Coordinating Committee for Multiemployer Plans
(NCCMP) and its Chairman, Robert A. Georgine, I thank you for this opportunity
to participate in the Subcommittee's bipartisan hearings on health care reform
issues. We congratulate Chairman Boehner, Ranking Member Andrews, and all
Members of the Subcommittee on your efforts to examine these vitally important
Health care policy issues are a major concern of the NCCMP, as
reflected in Bob Georgine's service as a member of President Clinton's Advisory
Commission on Consumer Protection and Quality in the Health Care Industry.
We are particularly pleased to be invited to describe the essential role in
our Nation's health care system played by joint labor- management, multiemployer
health and welfare plans, commonly referred to as "Taft-Hartley funds." Tens of
millions of American workers, retirees and family members depend on
multiemployer health and welfare plans for health care coverage. But for these
plans, many, if not most, of these working families would lack health coverage
because of the transient employment patterns and small size of employers in
Multiemployer health and welfare plans are a success
story of the health care system largely because, over several decades, they have
been responsive and adaptable -- e.g., to the employment patterns and economics
of a particular industry, and to the particular needs and wants of the covered
workers. A key to this responsiveness and adaptability is the composition and
authority of a plan's joint labor management board of trustees, including the
essential role played by the board in resolving benefit claims disputes. That
dispute resolution process is particularly relevant to today's Subcommittee
hearing on external review of benefit claims disputes.
NCCMP is a nonpartisan, national, non-profit organization of multiemployer
pension, health and welfare plans and their labor- management sponsors. The
NCCMP was established in 1975, shortly after enactment of the Employee
Retirement Income Security Act (ERISA), to represent the interests of the
multiemployer plan community before Congress, the various Federal agencies that
regulate employee benefit plans, and the courts. The organization's primary
mission is to educate policymakers about the special nature and needs of
multiemployer plans so that employee benefits legislation and regulation can
reflect the best interests of the many millions of American workers and
dependents who support and benefit from these plans. As declared by Congress,
national policy recognizes that the retirement, health and income security of
millions of Americans depend on the continued existence and well-being of
multiemployer plans and encourages the creation, maintenance, and sound funding
of these plans.1 Care must be taken to protect and nurture multiemployer plans.
A well-intentioned legislative or regulatory change that might seem good policy
as applied to some portion of the health care system could have devastatingly
bad, uninhibited consequences for multiemployer plans and for their participants
The NCCMP's membership includes national, regional and
local benefit plans covering workers in industries such as building and
construction, service, transportation, clothing and textiles, food and
commercial, maritime, and entertainment.
THE SPECIAL NATURE OF MULTIEMPLOYER
HEALTH & WELFARE PLANS
Among the proudest achievements of collective
bargaining is the decades-old, nationwide system of joint labor-management,
multiemployer health and welfare plans that provide tens of millions of American
workers, retirees, and dependents with medical, hospital, sickness, disability,
death and related benefits.
Workers covered by multiemployer plans are
employed throughout the Nation in industries as diverse as building and
construction, retail, food, clothing and textiles, transportation, mining,
services, entertainment, longshoring, maritime, hotel and restaurant, and
manufacturing. But for multiemployer plans, many, if not most, of these millions
of Americans would lack employment-based health care coverage and would be
dependent upon government programs for their medical treatment or face financial
ruin in the event of accident or illness in the family. The intermittent and
mobile employment patterns of most of these industries would prevent the workers
from obtaining health benefit coverage absent a central pooled trust fund
through which portable coverage is provided to workers as they move from
employer to employer. Moreover, most employers in these industries are small and
would not maintain their own employee health plans, particularly for transient
workers. Workers' Trust Fund
The hallmark of a multiemployer plan is the
involvement of the worker's representatives in the creation and operation of the
plan. The mere fact that multiple employers create or contribute to a single
plan does not make the plan a multiemployer plan. For example, a "multiple
employer welfare arrangement" or "MEWA" is not a multiemployer plan.2 The
unifying force of a multiemployer plan is the labor union which sponsors the
plan and represents the covered workers.
Because a multiemployer plan is
co-sponsored by a labor union, the plan can accept employer contributions only
if it complies with the structural requirements of the Labor Management
Relations ("Taft- Hartley") Act of 1947 3, a federal statute that predated ERISA
by more than 25 years. That is why multiemployer plans are often referred to as
"Taft-Hartley plans" or "Taft-Hartley funds."4
The Taft-Hartley Act requires
that a multiemployer plan:
- be established and maintained in the form of a
trust fund, legally distinct from the sponsoring union and the contributing
employers, for the sole and exclusive benefit of the covered employees,
retirees, and their families;
- provide for equal representation of the
covered employees and the contributing employers in the trust fund's
administration (i.e., a joint board of labor and management trustees must govern
- not commingle pension and health plan assets in a single trust;
- be maintained pursuant to a detailed written agreement with the employers
specifying the basis for contributions;
- provide only certain types of
benefits (which include medical and other health care benefits);
for arbitration of disputes between labor and management trustees; and
undergo an annual financial audit and disclose the audit results to interested
These statutory mandates are enforceable under civil and
criminal provisions of the Taft-Hartley Act.6 Contributions to plans that do not
comply with these statutory requirements may constitute a federal crime and are
enjoinable by the federal district courts. 7
As a practical matter, a
multiemployer health plan is established normally by a labor union and employers
of the employees represented by the union agreeing to establish such a plan to
provide health benefits to the employees and their families. The union, the
employers, and individuals designated as labor and management trustees enter
into an "agreement and declaration of trust" or "trust indenture" which creates
the trust fund and defines the rights and responsibilities of the trustees with
regard to the management of the fund. The union and the employers also enter
into one or more collective bargaining agreements obligating the employers to
contribute to the plan for all employees in the bargaining unit at certain rates
for a set period of time (usually the term of the agreement, which may be one to
three years or longer).8
Over the years that follow the plan's founding, the
union and the original employers periodically renegotiate and enter into new
collective bargaining agreements requiring contributions to the plan. Additional
employers may be negotiated into the plan under the same or different collective
bargaining agreements. A single employer may be obligated to contribute to the
plan pursuant to multiple collective bargaining agreements (e.g., separate
agreements cover employees at different plants or project sites). An employer
may be permitted to obtain coverage under the plan for its nonbargaining unit
(i.e., not union-represented) employees as well as its unionrepresented
Some plans have grown to include hundreds of employers
contributing pursuant to hundreds of different collective bargaining agreements
on behalf of thousands of workers in multiple States. Some plans are national in
coverage. Some cover workers in multiple States in a region. Some are statewide.
Some cover the workers of relatively few employers in a local area.
cases, more than one union representing workers in the same industry will
jointly establish a multiemployer plan with a group of employers (e.g., various
building and construction trades unions in an area may form a multi-union,
multiemployer plan covering workers represented by all of those unions in the
Pooled Fund: Portability & Economies of Scale
All of the
collectively bargained employer contributions to the multiemployer health plan
are pooled and invested. It is from this pool that all of the plan's expenses of
operation are paid. It is also from this pool that benefits are paid to covered
workers, retirees and their dependents ("participants" and "beneficiaries," as
defined in ERISA 10) to the extent that the plan is self-funded, and from which
premiums are paid to the extent that the plan's benefits are insured through
contracts with insurance companies or (in the unusual case) benefits are
delivered through managed care organizations.
This pooling characteristic of
multiemployer plans provides workers with true portability of health coverage. A
covered worker who changes jobs from one contributing employer to another
maintains seamless coverage under the plan despite frequent changes in
employment. The plan continues to receive contributions for the worker, just
from a different employer.
This portability is essential for workers in
industries characterized by mobile and intermittent patterns of employment, such
as building and construction, entertainment, clothing, and longshoring. For
example, a building tradesman may be employed by a particular employer for only
a day, a week, a month, or a few months to work on a specific project, and then
move on to work on another employer's project for a time, and then another, etc.
Between jobs, the worker might be off work for a day, a week, a month, or
longer, depending on the availability of work. A building tradesman might work
for scores of different employers over his working life, with varying periods of
unemployment in between. In another industry, a longshoreman may work for
several employers in a single day.
Moreover, many multiemployer plan
industries are characterized by small employers 11 which would not maintain a
separate health plan for their employees, particularly transient workers,
because of the costs involved. Participation in a multiemployer health plan
enables these employers to provide benefit coverage for their workers by simply
making contributions and without the burdens of administering or designing a
For several decades, multiemployer plans have been accommodating
these employment patterns by providing a central fund through which portable
coverage is provided to workers as they move from one contributing employer to
another. In effect, all of the contributing employers -- scores, hundreds, or
even thousands of employers -- are treated as a single employer for purposes of
providing health and welfare benefits coverage to workers and their families.
Beyond this internal plan portability, many multiemployer health plans have
reciprocal arrangements with other multiemployer plans sponsored by affiliates
of the same union(s). Reciprocal arrangements help workers who take employment
outside of the geographic area of one multiemployer plan to maintain health plan
coverage if their new jobs are with employers which contribute to another
multiemployer plan covering workers represented by affiliates of the same
union(s). So, for example, a laborer who participates in a Laborers Union health
fund covering the Northern California-Nevada area may maintain health plan
coverage even if he accepts a job in Albany, New York with an employer which
contributes to the Laborers' multiemployer plan that covers the Albany area,
depending on the terms of the reciprocal arrangement between the plans.
in the absence of a formal reciprocal agreement, arrangements are made by many
plans to accept contributions on behalf of participants working outside of the
plan's jurisdiction. Through these arrangements, "traveling" participants can
maintain coverage for themselves and their families under their "home plans."
Multiemployer plans also enjoy economies of scale in administration and
enhanced purchasing power with health care providers, insurers and managed care
organizations not available to individual employers, particularly small
employers. Multiemployer plans are prototype purchasing cooperatives.
Multiemployer plans are financed by the covered workers
through their labor; that is, through collectively-bargained contributions.
While the law considers these to be "employer contributions," the workplace
reality is that these collectively bargained contributions are substitute wages
for labor received. Instead of putting this money into the workers' paychecks,
the employer agrees to pay it into the multiemployer health plan to finance
coverage for the workers and their families.
The basis for the collectively
bargained contributions varies by industry according to the nature of employment
patterns, cash flow, and financial structures of the industry. In many
industries, like building and construction, the contribution is
dollars-and-cents per hour of work or pay. In other industries, the contribution
is based on units of production, weeks of covered work, or earnings. Who is
responsible for making these contributions (i.e., who is the "employer") is the
subject of special industry rules designed to maximize the collection of
contributions. For example, in building and construction, a general contractor
is often responsible for guaranteeing payment of plan contributions owed by
subcontractors. In the garment industry, manufacturers or jobbers, who have
greater financial stability, typically are required to make the contributions
even though separate firms (contractors) are the covered workers' direct
In a single employer plan setting, it is common to distinguish
between the employer's share and the employee's share of the health insurance or
plan premium. Cost-sharing and cost-shifting from employers to their employees
are matters of concern. In contrast, multiemployer plans normally do not think
in terms of employer's share versus employee's share. All of the contributions
are workers' money. Employers do not pay anymore than they would otherwise pay
Because they pay the full cost, the workers are well aware of the
cost of health care coverage. The nature of collective bargaining in most
multiemployer plan industries is that the union and the employers negotiate
total compensation package cost; a total per hour labor cost. The workers,
through their union, decide how to allocate the total monetary rate among cash
wages, pensions, health and welfare,apprenticeship and training, and other
There is an express tradeoff between cash and
benefits. Given the fixed compensation pie, an increase in the contribution rate
needed to finance the health plan means lower cash wages, or a reduction in the
pension plan contribution rate or in some other benefit.
mid-1980s to early 1990s, many workers did not receive increases in their cash
wages because health care cost inflation had driven health plans to demand
higher contribution rates to maintain benefits.
From the plan's perspective,
collectively bargained contributions are the lifeblood; plans cannot pay
benefits unless they receive contributions to finance the coverage.13 Financing
depends primarily on two factors: the amount of covered work that generates the
contributions and the contribution rate. A plan generally receives contributions
only for work that is covered by a collective bargaining agreement requiring
contributions to the plan. If the level of covered work declines, plan income
declines. So, for example, if union construction work in the area of a
carpenters health plan is slower than expected, the plan will receive less in
contributions because the covered carpenters will not be working as many hours
in covered employment.
On the expense side of a plan's budget are benefit
payments (e.g., hospital and doctor bills) for participants and beneficiaries,
or premium payments, and costs of administering the plan. These expenses are
affected by a variety of factors including health care costs, utilization of
plan benefits and regulatory costs.
Over the years, the labor-management
boards of trustees 14, with professional assistance 15, have designed health and
welfare programs that balance the benefit needs and wants of the covered workers
with the financing that can be provided by the collectively bargained
contributions. In so balancing the income and expense sides of the budget,
trustees have developed various eligibility rules, benefit packages, and
operational practices for the particular circumstances of the plan, its
participants, and the industry.
For example, plans have developed various
systems for benefit eligibility that are designed to maximize coverage given the
employment patterns in the industry and the financing needs of the plan. Some
systems require a worker to work a minimum number of hours in a period (e.g.,
month or quarter) to earn eligibility for the following period (e.g., the next
month or quarter). Some systems include "hours banks" arrangements under which a
worker's covered work hours in excess of a set level are "banked" and used to
obtain benefit eligibility during future periods of unemployment or
So, too, do the benefit packages vary from plan-to-plan
according to circumstances. Given that the plan is financed by the workers and
that one-half of the plan's board of trustees are labor representatives (usually
elected union officers), the tendency is for a board to adopt the most generous
benefit package that the plan can reasonably afford. The trustees are
accountable to the covered workers.
A number of plans offer multiple levels
of benefit packages at different contribution rates. These plans enable the
bargaining parties to select a specific benefit package at a cost that fits
their financial circumstances, and to obtain better benefits over time as they
are able to negotiate increases in contribution rates.
The trustees' budget
balancing may be upset by unexpected declines in contribution income or
increases in cost. At times, a plan may experience both; for example, an
economic recession in the industry may cause a reduction in covered work and,
therefore, contribution income, and may also cause an increase in benefits
utilization by the idled workers. Plans normally take steps to protect against
economic adversity, such as maintaining reserves, obtaining stop-loss insurance,
or insuring some or all of the plan's benefits.
However, these protective
devices may not be appropriate or sufficient in some circumstances such as
hyper-inflation of health care costs or prolonged economic recession. Trustees
have traditionally relied upon other tools to maintain the plan's viability in
times of economic adversity. These tools include adjusting eligibility rules
(e.g., requiring more covered employment for benefit eligibility), reducing
benefit levels, increasing out-of-pocket charges, and eliminating types of
Trustees may also request the bargaining parties to negotiate an
increase in the collectively bargained contribution rate. It may take months or
even years to effectuate such an increase, particularly where the contribution
rate is fixed for the term of the collective bargaining agreement and where the
plan receives contributions pursuant to many collective bargaining agreements
with differing expiration dates and terms. Some bargaining agreements provide
for mid-term adjustments in the allocation of the compensation package so that
the union and employer(s) may agree to reallocate a portion of the wage rate to
increase the rate of contribution to the health plan. Or, they may agree to
reduce the rate of contributions to the pension plan and redirect the amount of
the reduction to the health plan. Or, they may agree that a scheduled wage
increase will be foregone in favor of an increase in the health plan
In short, unlike a single employer corporate-type plan, a
multiemployer plan cannot simply dip into the corporate treasury when funding
falls short of, or expenses exceed, expectations. The trustees need flexibility
to use a combination of tools to innovatively adapt to changing circumstances
and maintain the plan's financial soundness. Multiemployer plans have been
successfully doing so for decades.
Delivery of Benefits
A plan's board
of trustees, typically, is authorized by the plan's trust agreement to decide
all questions regarding the types and levels of benefits that the plan will
provide, how the plan will provide the benefits, and the eligibility
requirements for benefits. And, as noted, these decisions are based on the
balance between available funding and the needs and wants of the covered workers
and their families.
Among these decisions is whether the plan will
"self-fund" some or all of the benefits, will insure all or some of the
benefits, or will contract with a managed care organization (e.g., health
maintenance organization) to provide all or some of the benefits.
multiemployer plans, and virtually all large plans, are "self- funded" in whole
or in part. That is, the benefits -- e.g., payment of hospital and doctor bills
-- are paid directly from the plan's assets in the trust fund, whether paid to
the provider or reimbursed to the participant or beneficiary. Some plans are
fully insured; that is, the trustees purchase policies of insurance from
insurers which pay the benefits due under the policies to or for the plan's
participants and beneficiaries. The cost of the insurance policies (the premium)
is paid by the plan from its trust fund. Some plans self-fund part of their
benefits and contract with insurers to provide other benefits (particularly
"welfare" benefits like life and disability insurance. And, some plans may
contract with managed care organizations to provide some or all of their health
Whatever the arrangement for providing the benefits, the plan is
the trust fund entity governed by the board of trustees. An insurer or managed
care organization with which the plan contracts are merely means by which the
plan delivers its benefits to participants and beneficiaries.
provided by a plan are set forth in plan documents adopted by the board of
trustees and distributed to participants. To the extent that a plan insures
benefits, the contract or policy issued to the plan by the insurer will reflect
the terms of the plan documents and may be incorporated into those documents. To
the extent that a plan contracts with a managed care organization, the contract
will reflect the terms of the plan. The terms of these contracts and policies
with insurers and managed care organizations are subject to renegotiation by the
board of trustees. For example, if the board wishes to make improvements in the
insured benefits, it so advises the insurer and negotiates with the insurer over
the amount, if any, that the improvement will increase the plan's premium cost.
For the insurer's part, it may negotiate with the board to increase premiums for
the current benefit levels if the claims payment experience has been worse than
Self-funded plans often control the risk of unexpected benefit
claims experience by purchasing "stop-loss" insurance for the plan. Such
coverage typically requires the insurer to compensate the plan if the benefit
claims submitted to the plan in a particular period of time exceed a certain
amount, or if a particular claim exceeds a certain amount. The stop-loss carrier
has no obligation to pay benefits to participants and beneficiaries; rather, its
obligation is to reimburse the plan upon certain events. Accordingly, it is not
considered "health insurance.
" The cost of this stop-loss coverage is
paid by the plan.
As noted above, all multiemployer plans
are governed by labor- management boards of trustees.16 The individuals who
serve as labor trustees and management trustees on these boards are typically
unpaid volunteers.17 Yet, the performance of their plan-related duties is
subject to the standards of fiduciary conduct set by ERISA, which are among the
highest standards known to the law. Violations of these standards may subject
the offending trustees to personal liability for any losses to the plan, as well
as to the removal from his plan position, among other penalties. Indeed, a plan
trustee can be held personally liable for plan losses caused by another trustee
or plan fiduciary under certain circumstances (e.g., failure to take reasonable
steps to correct a breach of fiduciary duty by another trustee).18
prohibits plans from indemnifying trustees against personal liability for
breaches of fiduciary duty.19 Plans are permitted to purchase errors and
omissions liability insurance for the trustees, provided that the insurer has
recourse against any trustee for whom it pays a claim.20 However, insurance
policies available on the market provide limited coverage in terms of their
liability limits and their exclusions of certain types of liability.
Attracting and retaining responsible, competent individuals to serve as
trustees, particularly employer representatives, has become more difficult in
the fact of increased regulatory burdens and legal responsibility. Many are
concerned about good faith judgments resulting in personal liability based on
retrospective application of vague legal standards. Yet, multiemployer plans
cannot legally exist without management as well as labor trustees. If
responsible employer representatives are no longer willing to volunteer was plan
trustees, the plans will die.
While the board of trustees is ultimately
responsibility for the plan's management, the plans hire administrators to
conduct the plan's day-to-day operations. Some plans, particularly large plans,
establish their own administrative offices and hire a staff (which arrangement
is referred to as in-house administration or self-administration). Other plans
contract with administrative services companies which perform the plan's
day-to-day administrative functions through the company's (or insurer's) offices
(which arrangements are referred to as third-party administration). And, there
are variations and combinations of these two general types of administrative
Whatever the administrative arrangements, the administrator is
required to perform its functions in accordance with the plan's governing
documents and with the rules and policies set by the board of trustees. The
administrator is responsible to and overseen by the board. Typically, the board
meets periodically to receive and review reports from the administrator (and the
plan's other professional service providers) concerning the plan's operations.
The reports include matters such as contributions received, delinquent
contributions, reserves, investments, benefit payments, benefit denials, and
appeals from benefit denials.
In the case of a plan whose health benefits
are insured, a representative of the insurer will report to the board of
trustees on the benefit claims received, paid, and denied by the insurer. So,
too, where the plan contracts with a managed care organization to provide some
or all of the health benefits, a representative of that organization will report
to the plan's board of trustees on care provided and care denied, among other
matters regarding implementation of their contract with the plan.
claims are submitted to the plan's administrative office, as are eligibility
questions. To the extent that the plan is self-funded and self-administered,
claims and questions are handled in the first instance (and, often, for
reconsideration) by the administrative staff. Appeals from the administrative
staff's decisions are taken to the board of trustees in accordance with
procedures set forth in the plan documents. The board may, as appropriate, use
medical advisors when considering appeals based on medical issues rather than
issues of plan interpretation or application.
To the extent that a plan is
insured, it may rely on the insurer to make the initial decision on benefit
claims and eligibility, or the plan's administrative staff and the insurer may
jointly make the initial determinations. So, too, the managed care organization
with which the plan has contracted may make the initial determination on a
questions of eligibility or a benefit claim, or may make the determination
jointly with the plan's administrative staff. But, generally, appeals from these
determinations are made to the labor- management board of trustees. Even where a
managed care organization may have an internal appeals or grievance procedure,
the multiemployer plan's board of trustees retains authority to review the
These "internal" claims and appeals procedures are
described in more detail below.
plans provide health benefits coverage for workers and retire from covered
employment, particularly if the retiree is receiving retirement benefits from a
multiemployer pension plan sponsored by the same union and group of employers.
This retiree coverage reflects a philosophy on the part of plan trustees and the
bargaining parties that the workers have earned a secure retirement without fear
of financial ruin if they become sick or injured without health benefits
Retiree coverage is particularly important for workers who retire
before the Medicare eligibility age of 65 years. In several multiemployer plan
industries, preMedicare eligibility age retirements are the norm. Many covered
workers are engaged in heavy physical labor that wears down their bodies and
drives them from the workforce earlier than the average worker. But for their
multiemployer plan coverage, these workers would be without health care coverage
for 5, 10, or even more years before becoming eligible for Medicare.
plans require the retirees to pay for plan coverage, but the charge is typically
less than the plan's true cost of providing the coverage. In other words, the
plans subsidize the retirees' coverage from the contribution income generated by
the labor of the active workers covered by the plan.
Accordingly, a plan's
ability to provide affordable retiree coverage is affected by fluctuations in
the covered work that generates the collectively bargained contributions.
Retiree coverage is also dependent upon the continued willingness of the active
workers to allow a portion of the contributions they generate to be used to
subsidize the retirees.
Health care for retirees is generally more costly.
The cost pressures on the plan are increased by various factors including
earlier retirements, longer life expectancy, and cost-shifting by the Medicare
program to private sector plans.
CONCERNS OF THE MULTIEMPLOYER HEALTH PLAN
Multiemployer health and welfare plans are models of collective
selfdetermination by workers who responsibly choose to provide for their
families' health care needs. Multiemployer plan participants and beneficiaries
like their plans, which are custom-designed for the particular circumstances of
the covered group and responsive to their concerns.
The multiemployer plan
community's core concerns about the current health care system and any proposals
for change in the regulatory scheme are three-fold: first, the cost of health
care and plan administration; second, maintaining trustee flexibility with
regard to plan design and operations to address changes in circumstances; and
third, attracting and retaining responsible, qualified labor and management
representatives to serve as plan trustees. Policymakers must be mindful that the
Nation's employment-based health plans are a voluntary system. Employers are not
required by law to establish or maintain employee health plans. In the
multiemployer plan universe, plans depend for their existence on collective
bargaining, which is also a voluntary system. At some point, costs, including
regulatory costs, discourage the creation and maintenance of plans. As recalled
by the Supreme Court on several occasions, ERISA reflects a policy balance
struck by Congress between protecting the rights of plan participants and
beneficiaries on the one hand, and encouraging the voluntary creation and
maintenance of plans on the other.
As observed by the Court:
unless an employer contractually cedes its freedom, it is "generally free under
ERISA, for any reason at any time, to adopt, modify,or terminate (its) welfare
plan." The flexibility an employer enjoys to amend or eliminate its welfare plan
is not an accident; Congress recognized that "requiring the vesting of these
ancillary benefits would seriously complicate the administration and increase
the cost of plans." Giving employers this flexibility also encourages them to
offer more generous benefits at the outset, since they are free to reduce
benefits should economic conditions sour. If employers were locked into the
plans they initially offered, "they would err initially on the side of
Importance of an Exclusive, Uniform Federal Regulatory Scheme
The multiemployer plan community strongly supports the uniform, federal
regulatory scheme for all employee benefit plans that Congress intended in
enacting ERISA in 1974. The regulation of multiemployer plans must be the
exclusive province of federal law. State regulation of multiemployer plans would
impose unbearable costs and unworkable administrative burdens on plans that have
been successfully providing health care coverage to millions of Americans for
decades. Moreover, adding State regulation to the already extensive federal
regulatory scheme would crush multiemployer plans.
Many multiemployer plans
cover workers, retirees and dependents in multiple States; some on a regional
basis, some on a national basis. And, the workers covered by multiemployer plans
tend to be highly mobile, crossing State borders to follow the covered
employment opportunities. Even plans that primarily cover local areas have
participants and beneficiaries who work and/or live in other States (e.g.,
workers who live across the border from a State where the plan is administered,
college students who go to school in another State, retirees who move to
Florida). As recently observed by U.S. Senator Bob Bennett in explaining his new
health records privacy proposal, Federal regulation of employee health plans is
a must because 50% of Americans live on or near State lines and States have
varying, often conflicting law.22
How could these plans comply with the
varying, conflicting laws, regulations, and regulatory agency demands of
multiple States? And, what would be the cost of trying to comply? Beyond the
additional administrative and professional costs, plans would be required to
conform to State mandates regarding the benefit packages and other features of
plans. Such State mandates burden plans with unwanted, additional benefit costs.
They also deprive plan trustees of flexibility to meet the benefit needs of the
participants and beneficiaries and the financial needs of the plan. State
regulation substitutes the whim of State legislators and provider group
lobbyists for the needs and wants of plan participants and beneficiaries.
And, then there is the added cost of State taxation of plans, directly or
indirectly. States tax insurers, and they want to tax multiemployer health
The added, unnecessary cost of State regulation is the main
reason why multiemployer plans, like many single employer plans, have dropped
their insurance and become self-funded over the past 10-15 years.23 In 1985, the
Supreme Court opened a loophole in the federal regulatory scheme by interpreting
ERISA's State law preemption provisions as allowing States to control the
content of insurance policies sold to ERiSA-covered health plans.24 As a
consequence, plans that purchase policies are burdened by a wide range of
benefits and other content mandated by the States 25, as well as by the premium
taxes and other charges imposed by States on insurance products. Only by
self-funding can plans avoid these State-imposed costs because self-funded
employee health plans remain protected by ERISA's preemption provisions.
Unfortunately, the Supreme Court has opened another loophole in ERISA's
scheme that enables States to, in effect, tax even self-funded multiemployer
health plans by taxing the health care provided to plan participants and
beneficiaries by hospitals and other providers; costs that get added to the
bills paid by plans.26
Such State taxes inflate the cost of creating and
operating a multiemployer health plan. And, in so doing, discourage health plan
coverage. Taxing those, and only those, who have health plan coverage is
counterproductive if our Nation's goal is universal health plan coverage.
The 1974 Congress that designed ERISA's federal regulatory scheme for
employee benefit plans was quite conscious of and concerned about the
counterproductive burden of State regulation and taxation. As observed by the
Supreme Court about Congress' intent:
"(T)he basic thrust of (ERISA)
preemption clause, then, was to avoid a multiplicity of regulation in order to
permit the nationally uniform administration of employee benefit plans.
(Congress intended) to ensure that plans and plan sponsors would be subject
to a uniform body of benefits law; the goal was to minimize the administrative
and financial burden of complying with conflicting directives among States or
between States and the Federal Government to prevent the potential for conflict
in substantive law requiring the tailoring of plans and employee conduct to the
peculiarities of the law of each jurisdiction..."27
To require plan
providers to design their programs in an environment of differing state
regulations would complicate the administration of nationwide plans, providing
inefficiencies that employers might offset with decreased benefits.28
Statements by ERISA's sponsors in the House and Senate clearly disclose the
problem that the pre-emption provision was intended to address. In the House,
Representative Dent stated that "with the preemption of the field (of employee
benefit plans), we round out the protection afforded participants by eliminating
the threat of conflicting and inconsistent State and local regulation."
Similarly, Senator Williams declared: "It should be stressed that with the
narrow exceptions specified in the bill, the substantive and enforcement
provisions of the conference substitute are intended to preempt the field for
Federal regulations, thus eliminating the threat of conflicting or inconsistent
State and local regulations of employee benefit plans."
reflect recognition of the administrative realities of employee benefit plans.
An employer that makes a commitment systematically to pay certain benefits
undertakes a host of obligations, such as determining the eligibility of
claimants, calculating benefit levels, making disbursements, monitoring the
availability of funds for benefit payments, and keeping appropriate records in
order to comply with applicable reporting requirements. The most efficient way
to meet these responsibilities is to establish a uniform administrative scheme,
which provides a set of standard procedures to guide processing of claims and
disbursement of benefits. Such a system is difficult to achieve, however, if a
benefit plan is subject to differing regulatory requirements in differing
States. A plan would be required to keep certain records in some States but not
in others; to make certain benefits available in some States but not in others;
to process claims in a certain way in some States but not in others; and to
comply with certain fiduciary standards in some States but not in others.29
Plainly, the product of the 1974 Congress contained more detailed
regulations of the content of pension plans than it did for health and welfare
plans. For example, ERISA's participation, vesting, benefit accrual, and funding
standards apply only to pension plans.30 However, many other, important
protections in ERISA were made applicable to health and welfare, as well as
pension, plans, including the reporting and disclosure, fiduciary standards,
prohibited transactions provisions, bonding requirements, and enforcement
provisions. And, in ERISA, Congress created a federal statutory vehicle through
which additional regulation of all employee health plans -whether insured or
self-funded 31 -- could be imposed if and when Congress deemed necessary or
appropriate, as the health legislation passed by Congress since ERISA's
enactment, including the Consolidated Omnibus Budget Reconciliation Act of 1986
(COBRA, PUBLIC LAW No. 99-272), the Health Insurance Portability and
Accountability Act of 1996 (HIPPA, PUBLIC LAW NO. 104-191 ), the Mental Health
Parity Act of 1996 (PUBLIC LAW NO. 104-204), and the Newborns' and Mothers'
Health Protection Act of 1996 (PUBLIC LAW NO. 104-204). Critics who discount
ERISA's substantive regulation of employee health plans do not understand the
If additional regulation of employee health plans is necessary or
appropriate, ERISA, and not State law, is the proper vehicle. It ensures
application to all employee health plans on a nationally uniform basis.
Cost Shifting Concerns
Multiemployer plans are concerned about
cost because, it is the covered workers who pay these costs and it can be very
difficult for plans to increase their incomes, particularly on short notice.
Boards of trustees have been compelled by cost pressures to cutback benefits,
tighten eligibility rules, and introduce or increase out-ofpocket payments by
participants, among other actions.
Regulatory costs are particularly
controversial because every dollar spent on compliance and administration is a
dollar not available to pay benefits to participants and beneficiaries.
Importantly, increases in plan costs also exacerbate a vicious cycle of
unfair competition against union employers and workers who support the plans. In
most multiemployer plan industries, the competition among employers is tight.
Non-union employers whose not maintain employee health plans gain a significant
labor cost advantage over employers which the collective bargaining agreements
require contributions to multiemployer health plans.
This unfair competitive
advantage is multiplied by the shifting to multiemployer plans of the
uncompensated cost of health care provided to uninsured workers and their
families. This cost-shifting is accomplished through higher hospital and doctor
bills for multiemployer plan participants, as well as through State
uncompensated care taxes and assessments. In effect, multiemployer plan
participants are compelled by the system to pay twice for health care: once for
themselves and their families, and a second time for the uninsured non-union
workers who compete for their jobs.
Imposing additional costs on
multiemployer plans worsens the competitive situation of those workers and
employers who are responsible enough to maintain multiemployer health plans.
And, this causes the loss of covered jobs, which causes a reduction in the
collectively bargained contributions that are the life-blood of multiemployer
plans. This can cause a downward spiral of health plan coverage.
Government, too, plays a major role in health care cost- shifting, particularly
through the Medicare and Medicaid programs. Congress has a record of achieving
cost savings in these public programs by shifting a portion of their costs to
employment-based health plans. Reductions in payment rates for Medicare and
Medicaid providers tend to be recouped by the providers from their privately
"insured"patients. The Medicare Secondary Payor program shifts costs by
requiring employment-based health plans, including multiemployer plans, to
provide primary coverage for Medicare eligible workers.
cost-shifting, like unnecessary plan regulation, taxes only those who have
health plan coverage and drives more people into the ranks of the uninsured
whose health care costs are shifted to the shrinking pool of those with health
plan coverage. Given that our Nation's system of employment-based health care
plans is voluntary, a balance needs to be struck between protections and cost.
Managed Care Reforms
All legislative proposals relating
to health plans trigger the concerns of the multiemployer plan community. Would
the proposal, if enacted into law, increase the benefit or administrative cost
of plans? Would it restrict trustee flexibility that is essential to adapt a
plan to changing economic circumstances? Would it discourage responsible,
competent labor and management representatives from serving as plan trustees?
Would it interfere with the uniform federal regulatory scheme for multiemployer
Proposals to expand the regulation of managed care raise these same
The threshold point, that is essential to understanding
multiemployer plan concerns regarding managed care reform
proposals, is the difference between a multiemployer health plan and a managed
care organization. The terminology is critical, but is often confused by
HMOs and other managed care organizations are commonly
referred to as "health plans." Whatever the appropriateness of this
characterization in other contexts, it causes confusion in the multiemployer
plan context. As described above, a multiemployer plan is distinct from a
managed care organization. The plan is the trust fund governed by the board of
trustees which decides what benefit programs will be provided and how.32
Traditional fee-for-service, indemnity plans and discounted fee preferred
provider networks still predominate in the multiemployer plan community. It is
unusual to see HMOs as the sole or primary coverage format for a multiemployer
plan. However, a plan's trustees may decide to provide benefits to its
participants and beneficiaries through an HMO, a PPO, or some other managed care
organization. To do so, the trustees would normally follow a prudent
decision-making process involving the development of specifications, the
solicitation of candidates, and the selection of the most appropriate
organization. The plan negotiates and enters into a contract with the selected
organization to provide care to the plan's participants and beneficiaries in
accordance with the benefit design and other terms of the plan set by the
In shod, the multiemployer plan is a purchaser of the managed care
As a purchaser, a plan's board of trustees is
concerned about the cost of the managed care organization's services -- to the
plan and to its participants and beneficiaries. It is also concerned about a
variety of other issues, such as ability to service the plan's participants and
beneficiaries (e.g., number and location of providers, including specialists);
access to care (e,g., gatekeeper functions); reporting and communications
capabilities; and financial responsibility (e.g., stability of the organization
and arrangements with providers).
If the participants and beneficiaries of a
multiemployer plan are unhappy with the care, other services, or operations of a
managed care organization selected by the plan's trustees, the trustees will be
well aware of this dissatisfaction -- particularly the labor trustees who may be
held responsible at the ballot box for union officer elections.
purchaser's perspective, regulation of managed care organizations to correct
abuses or to make those organizations more responsible and responsive to their
customers (multiemployer plans and their participants and beneficiaries) can be
appropriate and helpful. This is why the NCCMP has expressed support for the
Patients' Bill of Rights as recommended by the President's Advisory Commission
on Consumer Protection and Quality in the Health Care Industry. The rights
described therein are rights that multiemployer plan trustees want, and already
voluntarily provide in large measure, for the participants and beneficiaries of
But, policymakers should not confuse multiemployer plans with
HMOs and other managed care organizations.
stories of mistreatment that have driven the campaign for patients' rights
legislation do not involve multiemployer health and welfare plans. The workers,
retirees and family members covered by multiemployer plans are generally very
satisfied with their coverage. Multiemployer plans experience very few benefit
disputes, and most of the disputes that do arise relate to a claimant's
eligibility for coverage by the plan and not to medical issues.
are responsive and accountable to their participants and beneficiaries for the
structural reasons described above. This responsiveness and accountability is
reflected in the procedures used by the plans to handle benefit claims and
In the case of the typical self-funded multiemployer
health and welfare plan, claims for benefits are received from participants or
their health care providers by the plan's administrator. The administrator may
be a staff employee of the plan or a thirdparty administrator (TPA) under
contract to the plan. The benefit claim is examined to determine under the terms
of the plan's benefit program whether the patient is eligible for coverage,
whether the service or treatment received by the patient is covered by the plan,
and how much is payable to the participant or provider. The administer may
consult with a medical consultant retained by the plan or, in the case of
third-party administration, the TPA may consult with its medical consultant, as
appropriate for the particular claim.
Payments determined to be due are
made. If the claim is denied in whole or in part, a notice of benefit denial
(complying with ERISA's claims procedure requirements) is sent to the
The participant is entitled to appeal a benefit denial by
submitting a request to the administrator. If the administrator finds that the
denial was erroneous under established rules and guidelines, the correction is
made and the appropriate payment is issued without further review. Otherwise,
the administrator prepares the claim for review by the plan's board of trustees.
The claim review file will include all documentation received from the patient
and care provider, an explanation of the denial, and all documents on which the
administrator relied in denying the claim.
The board of trustees, as a whole
or through a committee of trustees, reviews the appeal de novo. The trustees
have the authority to reverse or affirm the benefit denial by the administrator,
in whole or in part. In reaching that decision, there are various actions that
trustees can and do take, including the following:
- request further
information from the administrator;
- request further information from the
patient or provider;
- request a qualified medical professional to review
medical issues involved in a claim and provide advice to the trustees;
reverse the administrator's interpretation of the plan's rules or guidelines;
- amend the plan's rules or guidelines.
At least two aspects of this
procedure are unique to multiemployer plans. First, one-half of the
decision-makers -- the trustees -- are patient advocates. The labor trustees are
typically elected union representatives whose interest lies in making the plan
as responsive to the needs and wants of his constituent members as possible
consistent with maintaining the plan's financial soundness.
board of trustees has the authority to interpret and amend the plan's rules and
guidelines. Where a claims appeal brings to light a flaw, inadequacy, or
inequity in the plan's coverage, design or operations, the board of trustees can
make an immediate correction that will benefit the claimant as well as all other
similarly situated participants.
In situations where a plan's board of
trustees has contracted with an insurance company to insure some or all of the
benefits provided under the plan, the board may rely on the insurer to alone, or
jointly with the plan's staff, make an initial determination on claims for
insured benefits and to perform the reconsideration function. Similarly, in
situations where a board of trustees contracts with a utilization review firm, a
PPO, or an HMO, those organizations may alone, or jointly with the Plan's staff,
conduct the initial claims determination and the reconsideration function. But,
generally, but the plan's board of trustees remains the body to which claimants
can appeal for review of the insurer's managed care organizations' decisions.
The trustees, in addition to their above-described authority, may reserve by
contract the right to modify the contract or guidelines under which the insurer
or managed care organization is performing its function. And, of course, the
board of trustees can terminate the contract with the insurer or managed care
organization in accordance with its terms.
In short, the board of trustees
or a multiemployer plan plays an essential, positive role in minimizing and
resolving disputes and in promoting participant satisfaction. Legislation that
impedes this well-functioning role of boards of trustees would be
counterproductive for patients' rights.
benefit claims decisions should be the objective of any patients' rights
legislation. The timely reversal of an incorrect benefit claims decision that
enables a patient to obtain or pay for treatment is a better policy result than
timeconsuming, costly litigation that may produce a result long after the need
for treatment has passed.
In concept, "external review" of final plan
decisions by independent, qualified medical professionals would benefit both the
patient and the plan, at least where the decision is based on medical
considerations. The patient would obtain timely review by an independent,
qualified professional. The plan could avoid unnecessary, expensive litigation.
However, as is often the case with good ideas, the devil is in the details.
The multiemployer plan community ha substantial experience with alternative
means of dispute resolution. For example, the Taft- Hartley Act provides for the
resolution of disputes among labor and management trustees through binding
arbitration.33 ERISA, as amended in 1980, provides for the arbitration of
disputes between multiemployer pension plans and employers over withdrawal
liability.34 And, the collective bargaining agreements, pursuant to which
multiemployer plans are established and maintained, commonly provide for the
arbitration of various types of grievances and other contractual disputes as an
alternative to strikes and litigation. However, as often is the case with good
ideas, the devil is in the details of "external review." Many issues have to be
- Would plans (as well as insurers and managed care
organizations) be required to maintain external review procedures?
claimants be required to exhaust their external review rights as a precondition
- What types of plan decisions would be appealable to
external review? (Medical as well as non-medical, eligibility decisions?)
Would a claimant be required to first exhaust the plan's internal review process
before appealing to external review?
- How many reviewers would be needed
for any particular case?
- Who would select the external reviewer?
would pay the fees of the external reviewer and the other costs of the process?
- Who would determine whether the external reviewer is independent and
qualified, and under what standards?
What standard of review would the
external reviewer exercise over plan decisions (including whether the reviewer
could interpret or change plan rules)?
- What decision-making procedures
would the external reviewer use? (What procedural rights would the claimant and
- What time limits would apply to the external reviewer? (Would
they be different for retrospective versus prospective or concurrent payment
- Would the decision by an external reviewer be binding? If so,
would it bind both the claimant and the plan?
- Would the decision by an
external reviewer be subject to judicial review? If so, would the review be
limited and differential to the external reviewer (e.g., like court review of
arbitration decisions) or would the court review the claim de novo?
relief could the external reviewer grant if he finds the plan's decision wrong?
- Would the decisions by an external reviewer be precedential (binding as to
future similar claims)?
- Would the external reviewer be subject to personal
liability as a plan fiduciary under ERISA?
The NCCMP would be pleased to
work with your Subcommittee to develop an effective and efficient external
review procedure that addresses all of these and other issues. However, I must
stress that any external review requirement must be Federal, not State. ERISA
Section 503 35, which already regulates internal appeals procedures, would be
the appropriate situs for any external review requirement.
review we can live with. We cannot live with monetary damages and wipe out the
health care coverage of the thousands of workers, retirees and family members
who depend on, and finance, the plan.
Multiemployer Pension Plan Amendments Act of 1980 amendments to ERISA, PUBLIC
LAW 96-364, Section 3(a). "Multiemployer plan" is a term of art, defined in
federal statutes, as a pension, health or welfare plan (1) to which more than
one employer is required to contribute, and (2) which is maintained pursuant to
one or more collective bargaining agreements between one or more labor
organizations and more than one employer. See, ERISA Section 3(37) ,29 U.S.C.
Section1002(37); Section 414(f) of the Internal Revenue Code, 26 U.S.C.
2 See ERISA Section 3(40)(A); 29 U.S.C.
Section1002(40)(A)(excluding collectively bargained plans from the MEWA
3 Section 302(c) of the Act (29 U.S.C. Section186) prohibits
employer payments to unions and to organizations in whose administration union
representatives participate, with certain specified exceptions. Among the
exceptions are pension and health care plans that meet the structural
requirements described herein.
4 A single employer plan may also be subject
to the mandates of the Taft-Hartley Act if a labor union or its representative
participates in the plan's administration. However, single employer TaftHartley
health plans are rare. An employer may collectively bargain with its employees'
union over the content and operation of the company's employee health plan, but
rarely does an employer agree to involve the union's representatives in the
administration and control of the plan. In contrast, multiemployer plans
typically are established at the request of a union.
5 Taft-Hartley Act
Section 302(c)(5), 29 U.S.C. Section186(c)(5).
6 Taft-Hartley Act Section
302(d), 29 U.S.C. Section186(d).
7 Id.; Local 144 Nursing Home Pension Fund
v. Demisay, 508 U.S. 581 (1993).
8 Multiemployer plans accept all employees
covered by the collective bargaining agreement as they are, subject to uniform
eligibility rules. They do not "cherry pick" the good risks in a bargaining unit
and exclude the bad risks.
9 Coverage of non-bargaining unit employees is
often in response to an employer's concerns that cost-effective health plan
coverage would not be available for these employees if they are separated from
the union-represented group.
10 ERISA Sections 3(7), (8); 29 U.S.C.
11 For example, in the construction industry,
82% of contractors have fewer than ten employees. The Construction Chart Book:
The U.S. Construction Industry & Its Workers, Center to Protect Workers'
Rights, February 1997.
12 In the construction industry, virtually all
union-represented workers have health coverage through multiemployer plans. In
contrast, few non-union workers receive health care coverage through their
13 This essential link between multiemployer health plan
coverage and receipt of contributions has been recognized by Congress in
formulating legislation affecting plans. See, e.g., Report on the Family and
Medical Leave Act of 1993, Committee on Labor and Human Resources, U.S. Senate,
S. Rep. No. 103-3, 103d Cong., 1st Sess. 32-34 (1993).
14 In a few
situations, like the mining industry, the bargaining parties, rather than the
trustees, design the plan.
15 Boards of trustees typically hire actuaries
and consultants, attorneys, auditors, and investment advisors among other
16 Under ERISA, the board of trustees of a multiemployer plan
is typically the"named fiduciary," "plan administrator," and "plan sponsor."
See, ERISA Sections 3(16)(A), (B), 402(a)(2); 29 U.S.C.
SectionSection1002(16)(A), (B), 1102(a)(2).
17 ERISA prohibits use of plan
assets to compensate trustees who are full-time employees of the sponsoring
union or contributing employers. See ERISA Sections 406(a) and 408(c)(2); 29
U.S.C. SectionSection1106(a), 1108(c)(2).
18 ERISA Section405; 29 U.S.C.
Section 1105 (co-fiduciary liability).
19 ERISA Section 410, 29 U.S.C.
21 Inter-Modal Rail Employees Assn. v. Atchison,
Topeka & Santa Fe Railway Co., 520 U.S. 510, 515 (1997), citations omitted.
22 How Can Congress Protect The Privacy of Personal Medical Information,
Health Care Policy Briefing, ROLL CALL, April 12, 1999.
23 See generally
Employer-Based Health Plans: Issues, Trends, and Challenges Posed by ERISA,
General Accounting Office Testimony, July 25, 1995 (GAO/T-HEHS-95-223);
Self-lnsurance Is Working, 142 Cong. Rec. E237 (daily ed., February 28, 1996).
24 Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985).
Reportedly, there are more than 1,000 State mandated benefit laws applicable to
health insurance policies.
26 New York State Conference of Blue Cross &
Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995) (ERISA not preempt
State law requiring hospitals to collect surcharges from patients covered by
commercial insurers and ERISA-covered plans); DeBuono v. NYSA-ILA Medical &
Clinical Services Fund, 117 S.Ct. 1747 (1997) (State tax on gross receipts for
patient services at hospitals and other health care facilities not preempted by
ERISA as applied to medical centers operated by selffunded multiemployer health
27 Travelers, supra, 514 U.S. at 650.
28 FMC Corp. v. Holliday,
498 U.S. 52, 60 (1990).
29 Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9
(1987) (citations to Congressional Record omitted).
30 ERISA Sections 201
and 301; 29 U.S.C. SectionSection1021, 1031.
31 ERISA generally covers all
employee welfare benefit plans without regard to whether they are insured or
self-funded. See ERISA Sections 3(1), 4; 29 U.S.C. SectionSection1002(1), 1003.
32 This distinction is similar to the distinction between employee benefit
plans and insurers made in ERISA as originally enacted (see, ERISA Section
514(b)(2), 29 U.S.C. Section1144(b)(2)) and in the 1996 HIPPA amendments to
ERISA (see, ERISA Sections 701(a), 731; 29 U.S.C. SectionSection1181(a), 1191,
distinguishing "group health plan" from "health insurance issuer").
34 ERISA Section 4221; 29 U.S.C. Section1401. 35 29
LOAD-DATE: May 8, 1999