February 2000
Government Relations
Practice Directorate

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Congress should close the ERISA loophole that denies patients injured by the negligent health care decisions of ERISA-regulated managed care organizations (MCOs) the right to hold these plans legally accountable. Federal courts and consumers across the nation are calling for action, which only Congress can provide. Congress can close the ERISA loophole by passing H.R. 2990 (the Norwood-Dingell bill).

• With the evolution of the health care system from fee-for-service to managed care, ERISA has evolved into a shield of immunity that protects MCOs even when they negligently deliver or deny treatment.
  
• Patients enrolled in ERISA-regulated MCOs have no remedy and no adequate right of recourse when their MCOs negligently deliver or deny care, even when these decisions result in serious injury or death. ERISA enrollees can only recover the value of the benefit denied.

• The loophole creates an unlevel playing field by depriving patients enrolled in ERISA plans the right to a meaningful remedy, whereas patients enrolled in non-ERISA-regulated plans are afforded real relief when a court determines that an MCO’s decision caused the injury.
  
• The loophole removes an important incentive to provide high quality health care by allowing MCOs to avoid accountability for their negligence.
  
• The loophole wastes scarce judicial resources as courts are forced to wrestle with the appropriate scope of ERISA preemption, instead of focusing on the merits of patients’ claims.
  

• Courts alone cannot fix the ERISA loophole. Frustrated with their inability to afford justice to injured patients, courts have been calling on Congress to act since 1992.
  
• Although a few federal and state courts have attempted to provide redress for injured patients in creative ways, courts continue to demand action by Congress when ERISA compels them to deny an injured patient a remedy.
  
• The following federal courts have expressly demanded congressional action to close the ERISA loophole, recognizing that -- despite tragic circumstances of patient death or significant permanent injury – there was nothing they could do to help:

• As, for example, the Massachusetts Federal District Court reluctantly concluded:

• In a recent poll, 72% of registered voters favor patients’ rights legislation that includes the right to hold MCOs accountable. Kaiser Family Foundation poll, January 19, 2000.
  
• 77% of Americans specifically support changing federal law to allow patients to sue MCOs when they are injured by negligent decisions or cost containment actions. Penn, Schoen & Berland poll, May 7, 1998.
  

• "In other contexts throughout our legal system, foreseeable injuries caused by a failure to deliver what has been promised must be compensated. Under ERISA, however, working men and women give their labor in exchange for the promise of benefits, but are not compensated for injuries when benefits are wrongly withheld. Under this system, an insurance company or HMO may stubbornly refuse to provide what is promised in the hope that the worker will not finance a court battle, and even if she does, years of litigation will produce no more than an order to provide the withheld benefits." May 14, 1998: Hearing Before the Senate Appropriations Subcommittee on Labor, Health and Human Services, Education and Related Agencies (Statement of Olena Berg, Assistant Secretary, PWBA).
  
• "In our view, stronger legal remedies are needed to assure compliance with the enhanced procedural protections." January 20, 1999: Hearing Before the Senate Committee on Health, Education, Labor and Pensions (Statement of Leslie Kramerich, Deputy Assistant Secretary for Policy, PWBA).

• The Congressional Budget Office (CBO) recently estimated that closing the ERISA loophole (as set forth in H.R. 2990) would cause premiums for employer-sponsored ERISA plans to rise by only 1 percent. February 10, 2000: Letter to Senator Don Nickles from Dan Crippen, Director, CBO).