Contact FreedomWorks

400 North Capitol Street, NW
Suite 765
Washington, DC 20001

  • Toll Free 1.888.564.6273
  • Local 202.783.3870

Press Release

    Issue Analysis 71 - The "Patient Access to Responsible Care Act": Trojan Horse of ClintonCare

    04/09/1998

    Supporters of the "Patient Access to Responsible Care Act" (PARCA) claim it would protect patients from managed care plans that deny necessary care for the sake of higher profits. It would do no such thing. Rather, PARCA would implement major portions of the radical Clinton health plan and devastate the health coverage of millions of Americans:

    Like the Clinton health plan, PARCA would require all consumers to buy an expensive one-size-fits-all benefits package (including coverage for the services of acupuncturists, chiropractors and dozens of other special interests) whether consumers want it or not;
    PARCA would impose disastrous "guaranteed issue" and "community rating" mandates on all consumers;
    Just a few of PARCA’s consumer mandates could increase health insurance premiums an average of 23 percent nationwide and up to 90 percent for some managed care consumers; and
    PARCA would cause an estimated 4.6 million or more Americans to lose their health coverage.
    PARCA would do nothing to fix America’s health care problems because it fails to address their cause. On the contrary, it would make them far worse and invite a government takeover of the health care system.

    The Road to Government-Run Health Care
    PARCA is hardly the government’s first attempt to fix the health care system. Although the United States has the finest health care system in the world, nagging problems within that system — rising costs, restricted choices, and rationing — have persuaded many of the need for reform. In 1993, President Clinton responded to public fears with a radical proposal to put America’s health care system under the control of the federal government.

    Yet the problems that dog America’s health care system are themselves the unintended consequences of prior government interference. The most prominent example is a bias in the federal tax code that lets employers — and only employers — buy health insurance tax-free.

    This bias chiefly benefits the wealthiest Americans (the higher their marginal tax rate, the greater the benefit). It encourages us to pay for routine medical care through insurance, the equivalent of using auto insurance to pay for oil changes. It makes individuals pay up to twice what employers pay for equally priced coverage.1 Thus, six out of seven people with private insurance do not own their own policies, their employers do.2 It causes us to lose coverage when we switch jobs. It pushes prices higher, for we consume more medical care when someone else pays. This, in turn, makes coverage unaffordable for more Americans. It traps us in our employers’ plans, leaves us with fewer choices, and stifles competition and quality.

    With consumers unsatisfied and disengaged, special interests (psychologists, chiropractors, and so forth) have won passage of laws requiring our health insurance to cover their services. Most states have enacted about 20 such laws. These mandated coverage laws also lead to over-consumption and deny access to coverage by raising its cost by 30 percent or more.3

    As painful as the rising costs, restricted choices and rationing in our health care system are, greater government meddling would make these problems even worse. When the American people learned the Clinton health plan would put a government bureaucrat between every American and their doctor, they rejected it overwhelmingly.

    The president’s new strategy. Despite this rejection, President Clinton has vowed to keep fighting for his vision of a government-run health care system. Last September, he revealed his new health care strategy:

    I’m glad I tried to do the health care plan. … Now that what I tried to do before won’t work, maybe we can do it in another way. That’s what we’ve tried to do, a step at a time, until eventually we finish this.4

    The president already has taken America several "steps" down the road toward ClintonCare. In 1996, Congress enacted numerous consumer mandates under the guise of "consumer protection" in the Health Insurance Portability and Accountability Act.5 In 1997, Congress enacted a government-run health coverage program for children;6 the first step of the president’s acknowledged plan to impose government-run health care one population group at a time.7

    President Clinton’s next steps include a proposal to extend government coverage to another population group (55 to 64 year olds) through Medicare, even though that program will go bankrupt by 2010. Additionally, the president is seeking to impose even more mandates on consumers through an ironically named "Consumer Bill of Rights."8 (Each of these proposals is currently being written into legislation.)

    A step ahead of the president. PARCA, however, goes much farther than the president’s proposed mandates. In the name of "patient protection," PARCA would require consumers to buy unwanted coverage and create an enormous federal bureaucracy to steadily spit out additional consumer mandates. While the cost of the added coverage sends premiums through the roof, the number of uninsured will explode as millions of Americans find they can no longer afford health coverage.

    If PARCA is enacted, America’s health care problems will worsen. The cost of health insurance will soar by 23 percent or more, and as many as 4.6 million Americans will lose their health coverage (see below). Consumers will be left with fewer and fewer options.

    These unintended consequences will create pressure for additional government health programs (such as the recently enacted MediKid entitlement and President Clinton’s proposed Medicare expansion) to provide coverage to the growing number of uninsured. In this environment, the Clinton health plan — or an even worse example of bureaucratic rationing — will be a much easier sell.

    Real solutions. It does not have to be this way. Congress can expand consumer choice, improve quality, hold the line on costs and save consumers from bureaucratic rationing simply by undoing the government meddling that created these problems in the first place.

    Thank Uncle Sam for Our Health Care Problems

    PARCA’s sponsors9 have identified genuine problems in America’s health care system — the high cost of coverage, restricted choices and rationed care. However, they make the flawed assumption that these problems can be solved only if we give more power to government. This approach ignores the fact that most of the problems in health care result from government substituting its judgement for the judgement of consumers.

    Third-party payment leads to managed care. The term "managed care" refers to health plans’ use of various spending constraints designed to minimize unnecessary treatment. These may include requirements that patients receive prior authorization for treatments; see a "gatekeeper" physician before being allowed to see a specialist, such as an obstetrician/gynecologist; and/or see only those doctors within the plan’s "physician network" (i.e. doctors who have contractually agreed to abide by the plan’s treatment guidelines).

    Health maintenance organizations (HMOs) tend to use the greatest number of managed care tools and are thus the most restrictive type of health plan. Preferred provider organizations (PPOs) use fewer managed care tools and are less restrictive. Traditional health insurance (also called "fee-for-service" or "indemnity" plans) uses even fewer managed care tools. The more managed care tools a health plan employs, the more affordable the plan tends to be.

    Through its tax bias against individually purchased health insurance and such programs as Medicare and Medicaid, the federal government has distorted America’s health care market to the point that third parties (usually employers or government) pay for most people’s health coverage and care. As Figure 1 demonstrates, in 1996, 61.2 percent of Americans received health insurance either through an employer or union, while 25.9 percent received coverage from the federal government (primarily Medicare and Medicaid). In contrast, only nine percent of Americans purchased health insurance for themselves.10

    Figure 1

    The Internal Revenue Code allows employers to purchase health coverage with pre-tax dollars. Individuals, on the other hand, must purchase health insurance with after-tax dollars. This bias has created an employment-based system of health coverage, where consumers have an incentive to buy coverage through their employer and employers must provide health care to their workers to remain competitive. Consumers who purchase their own health insurance can expect to pay one and a half to two times what their employer pays for identically priced coverage.11

    In this environment, consumers demand more care and have little incentive to limit spending themselves because they are not (initially) footing the bill. It therefore falls to third-party payers to control spending and keep coverage affordable. Managed care caters to this need with various spending constraints designed to minimize unnecessary spending.

    Managed care can do both good and harm. In many cases, managed care has led to positive health outcomes by emphasizing preventive care and making coverage affordable for many who would otherwise go uninsured. However, in some cases managed care spending constraints have harmed patients by delaying or denying necessary treatment.12

    Given managed care’s potential to do both good and harm, it is essential that such plans be scrutinized and disciplined by the most effective watchdog possible — the individual choices of every one of America’s 160 million managed care consumers. Unfortunately, the federal government cripples these consumers’ ability to scrutinize and discipline their health plans.

    Due to the federal tax code’s bias toward employer-provided health coverage, Americans view health care and health coverage as services that others shop and pay for on our behalf, rather than a matter of individual responsibility. Because most Americans’ health insurance is bought and sold by third parties, health plans face less scrutiny than they would if consumers bought health insurance themselves.

    Moreover, this bias penalizes employees who, dissatisfied with the company health plan, leave that plan and buy an individual health insurance policy that meets their needs. Again, such individuals may pay effectively twice as much as their employer for identically priced coverage.13 Managed care plans seldom have to ask how much business they will lose when implementing new restrictions, because few consumers can afford to discipline plans by "voting with their feet." By granting many health plans a captive clientele, the federal tax code allows managed care’s abuses to go unchecked.

    Until Congress and the president enable consumers to walk away from their employer’s health plans without penalty, third-party spending constraints will continue to harm patients.

    Patient Protection or Big Government?

    Although PARCA’s cosponsors number more than half the U.S. House of Representatives,14 few actually know what PARCA would do if enacted. In fact, one columnist reported that Congressman Charlie Norwood, PARCA’s chief sponsor, "admitted to angry colleagues that he never read his own bill in full."15

    As noted in Table 1, PARCA contains over 207 separate mandates that would dictate what benefits consumers must buy and allow the federal and state governments to micromanage the operation of health plans.16 These mandates would control such health plan features as the size and composition of provider networks
    (Sec. 2771(a)17); the workings of internal review and appeals processes (Sec. 2776); provider network participation and dismissal criteria (Sec. 2771); vast amounts of information retrieval and disclosure (Sec. 2778); quality improvement programs (Sec. 2780); and even the layout and "styles and sizes of type" to be used when publishing such information (Sec. 2778(b)).

    "The Departments of Labor and [Health and Human Services] would have to jointly promulgate 60 new regulations to implement the 207 new mandates. … In addition, [these departments] would have to issue ongoing guidance manuals, including model contract and policy language, and provide ongoing advisory opinions to address the numerous legal and factual questions that would arise." In order to execute these responsibilities, Congress would have to increase federal spending by an estimated $155 million per year and expand the federal bureaucracy by an estimated 3,828 employees. Yet, these estimates do not take into account the additional personnel and funding necessary to deal with the estimated 247,944 federal lawsuits that would be brought annually under the 33 new federal causes of action created by PARCA.18

    Table 1

    Implementing PARCA: Estimated Effects on the Federal Budget, Bureaucracy, and Courts

    Additional Spending Required $155,294,304/year

    Additional Federal Employees Required 3,828

    New Federal Regulations Required 60

    New Regulatory Mandates 207

    New Federal Causes of Action 33

    Additional Federal Lawsuits 247,944/year

    Source: Multinational Business Services, Inc.

    Supporters claim these mandates will merely require health plans to provide important benefits. However, laws that require health plans to provide certain benefits also require consumers to buy those benefits — whether they want them or not.

    Higher premiums restrict access to care. Added benefits mean added costs. Since World War II, state legislatures have enacted nearly 1,000 laws (an average of 20 each) requiring consumers to buy particular types of coverage.19 Although each mandate carries a different price tag, a recent study found that just twelve of the most common mandates increase health insurance premiums by as much as 30 percent.20 As costs increase, fewer Americans will be able to afford health coverage.

    Healthy consumers refuse mandate-laden coverage. As the price of coverage rises, healthy people stop buying coverage because "[h]igher premiums discourage people with lower risks from buying insurance." Actuaries call this "adverse selection," or "the annoying tendency people have to do what’s best for themselves."21 When healthy people take their money out of the system, they leave a smaller and sicker pool of participants to cover claims costs. Insurers must raise their rates, which causes more healthy people to drop out, and so on.

    On average, every one percent increase in health insurance premiums due to mandates causes 200,000 Americans to lose their employer-based coverage.22 Additional losses occur in the individual health insurance market, where consumers generally face higher premiums (which they must pay with after-tax dollars).

    The Wrong Way to Discipline Managed Care

    Many of PARCA’s mandates are designed to outlaw certain managed care practices that have frustrated many patients. However, these practices are merely the symptoms of an ailing system that denies individuals control over their own health coverage. While PARCA may eliminate some unsavory managed care practices, it would feed the disease by claiming even more control for government at the expense of consumers, ultimately doing more harm than good.

    PARCA’s price tag. One study estimates that PARCA would cause premiums to increase by an average of 23 percent nationwide.23 One survey found 46 percent of small businesses report they would be likely to stop providing health coverage if faced with such a premium increase from PARCA or similar legislation.24 Congressional Budget Office estimates indicate a premium hike of this magnitude could cause over 4.6 million Americans to lose their employer-based coverage (see Table 2).

    Table 2

    PARCA Provision
    Estimated Average Premium Increase25
    Estimated Increase26 in Uninsured Americans

    Emergency Care Mandates 0.5 percent
    100,000

    Mandated Access to Specialty Care 0.2 percent
    50,000

    No Inducements to Reduce Services 9.5 percent
    1.9 million

    Mandated Point of Service Option 0.3 percent
    60,000

    Reimbursement Rate/Price Controls 5.5 percent
    1.1 million

    Administrative Mandates 2.0 percent
    400,000

    One-Size-Fits-All Coverage/
    Elimination of Limits 5.5 percent
    1.1 million

    Adverse Selection 4.5 percent
    900,000

    Composite Effect27 23 percent
    4.6 million

    However, not all consumers would be affected the same way. Because PARCA would outlaw spending constraints used primarily by HMOs, those consumers would see much higher premium increases than fee-for-service enrollees would (as shown in Table 3). The same study estimated that consumers enrolled in the most restrictive managed care plans could see their premiums increase as much as 90 percent.

    Table 3

    PARCA Provision
    Range of Premium Increase For A Given Consumer28

    Minimum (Fee-for-Service):
    Maximum (HMOs):

    Emergency Care Mandates None
    4 percent

    Mandated Access to Specialty Care None
    3 percent

    No Inducements to Reduce Services None
    50 percent

    Mandated Point of Service Option None
    3 percent

    Reimbursement Rate/Price Controls none
    35 percent

    Administrative Mandates 1 percent
    5 percent

    One-Size-Fits-All Coverage/
    Elimination of Limits 1 percent
    10 percent

    Adverse Selection 1 percent
    20 percent

    Composite Effect29 3 percent
    90 percent

    Emergency care. Patients have become increasingly resentful toward managed care plans that refuse to pay emergency room bills because the expenditures were not approved in advance. Responding to this resentment, PARCA would require health plans to cover any care provided under circumstances that a "prudent layperson" believes might be a medical emergency (Sec. 2771(b)(1)(B)). PARCA then goes a step further by making it illegal for individuals to purchase health coverage that does not include emergency care coverage. (In this regard, PARCA is more restrictive than other emergency care mandates. For example, even though the "Health Insurance Bill of Rights Act" (H.R.820), sponsored by Rep. John Dingell (D-MI), would impose a "prudent layperson" mandate, it would still leave consumers and employers with the option of not buying emergency care coverage.)

    Although these emergency care coverage mandates would increase premiums for some consumers by as much as four percent, they are likely the most politically popular elements of PARCA. Their inclusion is instructive. The idea that government would have to mandate such a popular type of coverage illustrates how powerless government has left patients.

    Mandated access to specialty care. Managed care plans often refuse to pay for specialist visits (such as obstetrician/gynecologists) unless the plan considers them medically necessary — a legitimate source of patient frustration and one that likely would not exist if consumers could exercise any meaningful choice. PARCA would remedy this frustration by forbidding plans to override a physician’s judgement of what is medically necessary (Sec. 2771(c)). This mandate would increase premiums an estimated 0.2 percent nationwide, but could increase a managed care enrollee’s premiums by as much as three percent.

    No inducements to reduce services. Section 2771(d) would outlaw many managed care arrangements, such as capitation, that give doctors an incentive to provide less care, weeding out both necessary and unnecessary treatments. Under capitation, health plans pay doctors a monthly fee per patient, regardless of how much care the patient uses. This creates an incentive for doctors to provide a lesser amount of care to a higher volume of patients. On average, this provision would increase premiums an estimated 9.5 percent, but may cause some managed care enrollees’ premiums to increase by 50 percent.

    Mandated "point of service" option. "Any willing provider" laws require health plans to do business with all providers, whether or not they belong to the plan’s physician network. PARCA twice insists it is not an "any willing provider" bill (Sec. 2770(c) and Sec. 2773(c)). The bill protests too much.

    At the very least, PARCA mandates that health plans provide a "point of service" (POS) option, under which network plans must reimburse out-of-network providers for care provided to enrollees. Health plans would be required to offer enrollees this added benefit, but enrollees would not be required to choose it (Sec. 2772(b)(1)). Mandating that health plans offer this option would increase premiums an average of 0.3 percent. Managed care enrollees may see increases of up to three percent, depending on their current level of benefits.

    However, if enrollees who do not choose the POS option are forced to subsidize those who do, this would create an incentive for all enrollees to choose the POS option and may have the same effect as an explicit "any willing provider" mandate. More enrollees will opt for a POS benefit if it is offered below cost than at cost, especially if they would be required to pay a portion of its cost anyway. As more enrollees choose this option, costs would increase, as would the burden on those who do not choose the option. Any cross-subsidization will inflate the numbers who choose POS and unfairly increase the premiums of those who do not. PARCA clearly has the potential to force such a cross-subsidization.

    Reimbursement rate/price controls. First, the bill would impose price caps that limit what a plan may charge for the additional POS benefit.30 These fixed prices will be necessarily lower than the market price for the POS option (the only reason for price controls). Thus, a cross-subsidy may occur if enrollees who decline the POS option must pay higher premiums to make up for the fact that those who choose the POS benefit are not paying its full cost.

    In addition to pricing, another way health plans can prevent cross-subsidies is to reimburse out-of-network providers at a lower rate than in-network providers. That way, even though the provider may stray from the health plan’s treatment guidelines, the plan can lessen its financial exposure. Yet, PARCA would require plans to reimburse out-of-network providers at rates "not less than" those for network providers (Sec. 2772(b)(3)). This provision would also apply to network plans already offering a POS option, and would increase premiums an estimated 5.5 percent, or as much as 35 percent for certain managed care enrollees.

    Plans may be able to devise tools to prevent cross-subsidies, such as higher deductibles and co-payments for the POS option. However, it is questionable whether these would be permissible under PARCA.31 Given that PARCA goes to some lengths to block plans from charging enrollees for the true cost of the mandated POS benefit, it is likely that at least some cross-subsidization will occur.

    Ultimately, PARCA would require health plans to offer enrollees the option of an expensive POS benefit and then require enrollees who decline the benefit to pay a portion of its cost. This creates an incentive for all enrollees to choose the POS option, effectively making PARCA an "any willing provider" bill.

    Administrative mandates. As discussed above, PARCA would impose over 140 different mandates on health plans. These include requirements that would allow federal and state bureaucrats to dictate the inner workings of managed care networks and require plans to collect and distribute vast amounts of information. Compliance with these administrative mandates would be costly, and those costs would be passed on to enrollees. PARCA’s administrative mandates would increase premiums an estimated two percent, or as much as five percent for managed care enrollees.

    One-size-fits-all health coverage. Though PARCA has been billed as "patient protection," many provisions are merely shields to protect providers from the spending constraints government has unwisely left to managed care. In addition to its "any willing provider" elements, PARCA would grant a type of corporate welfare to provider groups who have traditionally been excluded from managed care plans. PARCA would require consumers to buy coverage of these providers — whether they want it or not.

    Like the Clinton health plan, PARCA would require all consumers to buy the same expensive benefits package. Section 2773(c) would forbid health plans to:

    "discriminate in participation, reimbursement, or indemnification against a health professional, who is acting within the scope of the health professional’s license or certification … solely on the basis of such license or certification."

    Although this provision seems to deal with how health plans select providers, in effect it would require consumers to buy coverage of every trade group their state recognizes as "health professionals." (Examples of health professionals of whose services states have mandated coverage are listed in Table 4.) It would also remove limitations that many plans place on various benefits, effectively requiring consumers to buy equally high levels of previously covered and newly mandated benefits.32

    Rather than employ an explicit mandate, this provision uses the threat of bureaucratic hurdles and costly lawsuits to achieve a de facto standard benefits package. For example, a health plan that does not cover acupuncture could conceivably continue to do so under this provision. However, it would be forbidden from refusing "participation" (whether claim reimbursement or network admission) to acupuncturists "solely" because they are acupuncturists. The plan would have to invent other reasons for doing so. Yet, even if the plan manages to invent such criteria, and even if the cost of inventing and implementing them fails to convince the plan it would be easier just to cover acupuncture, the threat of litigation by angry acupuncturists would convince plans to cover their services.

    Table 4

    Examples of Provider Coverage Consumers
    Would Be Required to Buy Under PARCA

    Acupuncturists
    Occupational Therapists

    Chiropractors
    Optometrists

    Dentists
    Osteopaths

    Dieticians
    Physical Therapists

    Massage Therapists
    Podiatrists

    Naturopaths
    Professional Counselors

    Nurse Anesthetists
    Psychiatric Nurses

    Nurse Midwives
    Psychologists

    Nurse Practitioners
    Speech and Hearing Therapists

    A government-mandated standard benefits package would be a boon for providers who know that more widespread coverage of their services means more business. However, it would be a disaster for consumers, who would see their premiums increase substantially — an estimated 5.5 percent on average, or as high as 10 percent, depending on a given enrollee’s current benefits.

    PARCA is replete with special interest mandates, and much of the bill reads like a list of provider complaints against managed care plans. For example, the bill would require health plans to grant network membership to doctors whether or not they have admitting privileges at a network hospital (Sec. 2773(B)(2)). This would mean more business for certain doctors. Yet, when these doctors’ patients are admitted to a hospital for surgery, they would have to switch doctors at a critical point in their treatment.

    Guaranteed issue and community rating. PARCA would also implement disastrous "guaranteed issue" and "community rating" mandates that have caused premiums to soar when implemented by the states. Guaranteed issue mandates require insurers to offer coverage to all consumers, irrespective of their health status. Community rating mandates require insurers to charge all customers the same "community rate," thus prohibiting insurers from charging higher premiums to old or sick patients who will require more care.

    Though well intentioned, these mandates inevitably lead to disaster. If health insurance companies are required to insure sick people at the same rates as everyone else, healthy people have no reason to buy health insurance until they become sick. Only sick people will buy insurance, and the cost of coverage will escalate.

    PARCA states (Sec. 2773(a)):

    "No health insurance issuer may discriminate in any activity that has the effect of discriminating against an individual on the basis of … age, disability, health status, or anticipated need for health services."33
    Under this provision, people could not be turned down for coverage because they are sick, for this would constitute discrimination on the basis of "health status" or "anticipated need for health services." Moreover, sick people could not be charged higher premiums than healthy people, because pricing people according to their health risk is an inherently discriminatory activity. As a result, healthy people would have no reason to buy coverage until they became sick, and only sick people would buy insurance.

    Guaranteed issue and community rating mandates have wrought havoc with consumers’ premiums when enacted at the state level. A community rating law in New York State increased health premiums for some residents by as much as 170 percent.34 Similar laws in New Hampshire have caused premiums to double and have driven insurers out of the state.35

    A solution in search of a problem. PARCA’s most instructive section appears under the heading, "Prohibition of Interference with Certain Medical Communications" (Sec. 2774). Drafted earlier this year, this section would outlaw so-called "gag clauses" in provider contracts. According to lore, these "gag clauses" require doctors to tell patients only about approved treatment options and prohibit them from telling patients about other options that would cost the plan more money.

    However, since this section was written, the General Accounting Office (GAO) scoured nearly 1,200 physician contracts from over 500 managed care firms and found exactly zero "gag clauses."36 Not a single one. The GAO did find contract provisions requiring doctors not to trash the HMO, lure patients to another HMO, or reveal proprietary information. But even these clauses are typically accompanied by explicit "anti-gag" language that states doctors are to inform patients of all treatment options.

    This is not to say that "gag clauses" never existed. They may have. But if they did exist, they do not anymore because managed care plans discovered that interfering in the doctor-patient relationship is bad for business, and got rid of them. That "gag clauses" no longer exist shows that markets correct abuses faster than government can. (Nor is this to say that health plans may still discreetly steer doctors away from recommending expensive treatments. However, if this is still the case, the cure is a larger dose of the same market forces that eliminated explicit gag clauses.)

    This otherwise useless provision is instructive for two reasons. First, it suggests that other perceived abuses PARCA purports to solve may fade away upon closer inspection. Second, it shows how competition corrects abuses and delivers consumer protection faster than government, even when prior government meddling has crippled consumer choice. PARCA’s well-meaning prohibition of "gag clauses" inadvertently demonstrates that real managed care abuses would be fixed much sooner if consumers had greater control over their own health care decisions.

    Good for the goose, good for the gander. Among PARCA’s mandates is a requirement that health plans inform consumers what portion of their premiums is spent on administration and marketing versus actual patient care (Sec. 2778(a)(2,3)). This is certainly a very useful piece of information.

    However, another useful piece of consumer information would be how much more expensive is their coverage due to government mandates. If PARCA’s authors truly want to give consumers all pertinent coverage information, why not require all health plans to tell consumers what percentage of their premium goes toward complying with government mandates, including the mandates under PARCA?

    That way, consumers would see how much of their health care spending is directed by politicians and how much less expensive their coverage could be in the absence of such mandates. If politicians are to decide what kinds of coverage consumers must buy, shouldn’t they be held as accountable as health plans?

    The "ERISA shield." The Employee Retirement Income Security Act (ERISA) of 1974 allows employers to provide uniform benefits to their employees across state lines by exempting self-funded health benefit plans from the patchwork of laws regulating health insurance at the state level. Large employers often take advantage of ERISA in order to avoid the high costs of these regulations.

    Typically, when a health plan wrongfully denies a covered benefit, the enrollee may sue the plan for the costs imposed on him by this decision. These costs may include the price of the benefit denied, legal expenses, the suffering endured as a result of being denied the benefit, and punitive damages. Moreover, such suits are filed in state court, where juries award damages. But because ERISA plans provide health coverage through a trust relationship (much like pensions, for which Congress designed ERISA), enrollees may sue only in federal court before a judge who can only award damages up to the value of the benefit denied, plus legal costs. Section 4 of PARCA would amend ERISA to allow enrollees to sue self-funded employer plans at the state level for compensatory and punitive damages. Understandably, this one provision alarms employers — and excites trial attorneys — more than any other element of PARCA.

    PARCA advocates are right to argue that to promote quality care, government must change the incentives faced by health plans. However, increasing health plan and employer liability is not the answer. One study estimates PARCA’s liability provisions would lead to nearly $1 billion in "meritless claims and damages payouts," which would be passed on to consumers in the form of higher premiums.37 This additional burden would make coverage unaffordable for even more consumers.

    Instead of mandating this remedy, Congress can allow consumers to decide whether or not they want to purchase it by giving them the option of staying in their ERISA plan (which would inform them of the limited remedy) or purchasing coverage — without a tax penalty — from a plan that can be sued in state court. That way, only those consumers who want to pay for the added remedy are required to do so. Customer choice can restore this remedy without destroying ERISA.

    Conclusion

    Ultimately, PARCA would hurt consumers at the margins. It will hurt those who do not even know why their health insurance premiums went up, but who know that this latest increase means they can no longer afford coverage. It will hurt small businesses that, facing higher premiums, either cannot afford to hire an additional worker or must cancel health benefits altogether. More importantly, it will hurt those workers who are denied health benefits and consumers who can barely afford the restrictive managed care coverage they have today.

    Supporters of PARCA would have patients believe the government that traps them in managed care plans will now keep them cozy during their confinement. There is another way. Rather than impose harmful new mandates on consumers, Congress should allow consumer choice and competition among health plans to correct the excesses of managed care.

    Unleash consumer choice and competition. A market where individuals buy their own health insurance would give consumers more choices and force health plans to compete for customers on the basis of cost and quality. Ultimately, this would require fundamental tax reform, such as a low, flat, loophole-free income tax. In the meantime, medical savings accounts (MSAs) and giving all individuals the same health insurance tax deduction as employers can change the incentives faced by health plans and truly make ours a more patient-friendly health care system.

    1 Joseph L. Bast, Richard C. Rue and Stuart A. Wesbury, Jr., Why We Spend Too Much On Health Care, The Heartland Institute (Chicago), 1993, p. 63.

    2 Robert L. Bennefield, "Health Insurance Coverage: 1996," Current Population Reports, P60-199, U.S. Census Bureau, September 1997.

    3 John C. Goodman and Merrill Matthews Jr., "The Cost of Health Insurance Mandates," Brief Analysis, National Center for Policy Analysis, August 13, 1997.

    4 Federal News Service, "Remarks by President Clinton at Service Employees International Union Legislative Conference, Hyatt Regency Hotel, Washington, D.C.," September 15, 1997. Emphasis added.

    5 John Tottie, "Dangerous Medicine: The Kassebaum-Kennedy Health Insurance Bill," Issue Analysis, Citizens for a Sound Economy, Number 21, February 8, 1996.

    6 Michael F. Cannon, "MediKid: Whose Idea was This, Anyway?" Issue Analysis, Citizens for a Sound Economy, Number 56, July 17, 1997. (All Citizens for a Sound Economy health care publications dated after January 1, 1997 may be viewed at http://www.cse.org/health.html.)

    7 Health Care Interdepartmental Working Group memorandum, April 9, 1993.

    8 Michael F. Cannon, "Clinton’s Health Care ‘Bill of Rights’: You Have the Right to Do as You’re Told - And Like It," Issue Analysis, Citizens for a Sound Economy, Number 68, January 28, 1998.

    9 PARCA is sponsored in the House of Representatives by Georgia Republican Rep. Charles Norwood (H.R. 1415) and in the Senate by New York Republican Sen. Alfonse D’Amato (S. 644).

    10 Robert L. Bennefield, "Health Insurance Coverage: 1996," Current Population Reports, P60-199, U.S. Census Bureau, September 1997. Some individuals may receive coverage from more than one source. Data are based on the Current Population Survey (CPS), which is designed to collect data on employment and demographics, not health coverage. (For a discussion of the CPS’s limitations, see Cannon, "MediKid: Whose Idea Was This, Anyway?" July 17, 1997.) Nonetheless, the CPS adequately approximates the size of the employer-based health insurance market.

    11 Joseph L. Bast, Richard C. Rue and Stuart A. Wesbury, Jr., Why We Spend Too Much On Health Care, The Heartland Institute (Chicago), 1993, p. 63. This tax bias is enhanced by the deductibility of health insurance from employers’ state and local income taxes, which is included in the estimated tax penalty.

    12 For examples of how managed care spending constraints can actually lead to higher costs, see George Anders, Health Against Wealth: HMOs and the Breakdown of Medical Trust, Houghton Mifflin Co. (New York), 1996.

    13 Joseph L. Bast, Richard C. Rue and Stuart A. Wesbury, Jr., Why We Spend Too Much On Health Care, The Heartland Institute (Chicago), 1993, p. 63. This tax bias is enhanced by the deductibility of health insurance from employers’ state and local income taxes, which is included in the estimated tax penalty.

    14 To learn if your congressman and senators are supporting PARCA, visit the Library of Congress web site for a listing of cosponsors in the Senate (http://thomas.loc.gov/cgi-bin/bdquery/z?d105:SN00644:) and House of Representatives (http://thomas.loc.gov/cgi-bin/bdquery/z?d105:h.r.01415:), or contact your elected officials through the Capitol Operator at (202) 224-3121.

    15 Robert D. Novak, "A Health Care Bill That’s DOA," The Washington Post, February 2, 1998, A9.

    16 Regulatory Requirements of H.R. 1415, "The Patient Access to Responsible Care Act", Multinational Business Services, Inc. (Washington, D.C.), March 10, 1998, p. i. See also James C. Miller III, "Prepared Statement of James C. Miller III, before the Subcommittee on Health and Environment, Committee on Commerce, U.S. House of Representatives on H.R. 1415, The ‘Patient Access to Responsible Care Act,’" Testimony, Citizens for a Sound Economy, October 28, 1997.

    17 One-digit section numbers refer to PARCA. Four-digit section numbers refer to the Public Health Service Act, which would be amended under Sec. 3 of PARCA.

    18 Regulatory Requirements of H.R. 1415, "The Patient Access to Responsible Care Act," Multinational Business Services, Inc. (Washington, D.C.), March 10, 1998, pp. ii, 15-21.

    19 Susan Laudicina, et al., State Legislature Health Care and Insurance Issues: 1997 Survey of Plans, BlueCross BlueShield Association, January 1998.

    2 John C. Goodman and Merrill Matthews Jr., "The Cost of Health Insurance Mandates," Brief Analysis, National Center for Policy Analysis, August 13, 1997. See also Michael F. Cannon, "By Mandating Health Benefits, Congress Will Make Even More Americans Lose Their Health Insurance," Issue Analysis, Citizens for a Sound Economy Foundation, Number 45, January 29, 1997.

    21 Robert Pear, "Clinton Plan to Widen Medicare Can’t Pay for Itself, Experts Say," The New York Times, January 20, 1998.

    22 U.S. Congressional Budget Office, CBO’s Estimates of the Impact on Employers of the Mental Health Parity Amendment in H.R. 3103, May 13, 1996, p. 2,4. This estimate is based on the expected decrease in employer-based health coverage as a result of a law mandating parity between levels of mental health and other medical coverage. While different health benefit mandates may cause greater or lesser coverage losses (depending on the price elasticity of health coverage given the additional mandated benefit), the CBO estimate is the most credible datum on the impact that mandated health benefits have on coverage levels in general.

    23 Timothy D. Lee, et al., "Actuarial Analysis of the Patient Access to Responsible Care Act (PARCA)," Milliman & Robertson, Inc. (Brookfield, Wisconsin), November 7, 1997, p. 1.

    24 "Majority of Small Employers Likely to Drop Health Coverage if Congress Exposes Them to New Lawsuits, New Survey Shows," Health Benefits Coalition press release (Washington, D.C.), February 24, 1998. The poll was conducted by Public Opinion Strategies of Alexandria, Virginia.

    25 Lee, et al., p. 1. All PARCA cost estimates refer to the Milliman & Robertson study. A Muse & Associates (Washington, D.C.) study of PARCA - based on suggested report language rather than the bill itself - estimated a nominal cost increase.

    26 Lee, et al.; U.S. Congressional Budget Office, CBO’s Estimates of the Impact on Employers of the Mental Health Parity Amendment in H.R. 3103, May 13, 1996, pp. 2,4; and CSE calculations.

    27 Due to overlap, composite estimates are less than the sum of estimates for individual provisions.

    28 Lee, et. al., p. 2.

    29 Due to overlap, composite estimates are less than the sum of estimates for individual provisions.

    30 Premiums would be limited to whatever state regulators and the National Association of Insurance Commissioners consider a "fair and reasonable" markup (Sec. 2772(b)(2)).

    31 Lee, et al., p. 8.

    32 Lee, et al. grant that this provision "might be interpreted to require health plans to cover services of professionals (chiropractors, acupuncturists, etc.) that are sometimes excluded from coverage" (p. 9). Muse & Associates claim this is not a mandate.

    33 Rep. Norwood has indicated this provision should be removed.

    34 Leah E. Braesch and Michael Harrold, "Risky Business: Insurance, Risk Classification and the Consumer," Capitol Comment, Citizens for a Sound Economy Foundation, Number 162, June 25, 1997.

    35 Joe Holahan, "Guaranteed Issue and Community Rating in the Individual Health Insurance Market: States Struggle to Repair the Damage," Policy Brief, Council for Affordable Health Insurance, Volume 2, Number 1, January 14, 1998.

    36 U.S. General Accounting Office, Managed Care: Explicit Gag Clauses Not Found in HMO Contracts, But Physician Concerns Remain, GAO/HEHS-97-175, August 29, 1997, p. 3.

    37 Regulatory Requirements of H.R. 1415, "The Patient Access to Responsible Care Act," Multinational Business Services, Inc. (Washington, D.C.), March 10, 1998, pp. 28-30.