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Letter to Members of Senate Health, Education, Lab

Letter to Members of Senate Health, Education, Labor and Pension CommitteeUrging Support for “No Special Protection for HMO’s” Amendment to S. 326, fromJoan Claybrook and Frank Clemente


March 16, 1999

Member, Senate Health, Education, Labor, and Pension Committee
UnitedStates Senate
Washington, D.C. 20510

Dear Senator:

On behalf of Public Citizen’s 150,000 members, I urge you to amend S. 326 toeliminate the special protection from liability that current federal law grantsto just one industry — HMOs and other managed care health plans. When death orserious injury occurs as a result of an HMO’s decision to deny necessary orappropriate medical care, the patient or their surviving family members shouldhave the right to go to court to seek redress and the insurer should be heldaccountable for the consequences of negligent or reckless decisions.

There are several reasons why it is critical to enact this vital consumerprotection:

  • Require corporate accountability: eliminate HMO’s special protection from liability laws. Approximately 125 million Americans are covered by private sector employer-paid health insurance plans, which are immunized from malpractice and personal injury lawsuits under state law by the federal Employee Retirement Income Security Act (ERISA). A large majority receive their care from an HMO or other managed care plan; two-thirds of these are for-profit firms for which high profits mean high stock prices. Under managed care, decisions about necessary and appropriate medical care increasingly are made by insurance company bureaucrats seeking to hold down costs rather than by a physician or other health care provider. Because of the ERISA preemption, these managed care bureaucrats and the corporations they work for cannot be held accountable for the consequences of their faulty decisions. No other industry has such special legal protection — the HMO industry should not have it either.
  • Allow fair recovery for injured victims. The ERISA preemption of state consumer remedies prevents many victims and their families from being fully compensated for lost wages and other economic losses, pain and suffering due to loss of a limb, blindness or paralysis, or mental anguish. Numerous judges have expressed outrage that health insurers are able to use the ERISA shield to avoid assuming their full responsibility to injured parties. Only Congress can correct this grave wrong.
  • An administrative appeals process is no substitute for litigation. Only by having their day in court can injured patients be made whole. The ability to recover the full and fair costs of erroneous medical decisions sets the ERISA preemption issue apart from proposals to enhance internal or external appeals. Independent external appeals are complementary to, not a substitute for, the patient’s right to sue for compensation for injuries. At best, a successful external appeal can only force the managed care organization to reverse its care decisions; at worst, external appeals processes can encourage HMOs to deny care until an external appeals panel orders them to provide it. Only the right to pursue full remedies in state court can encourage appropriate care and assure justice for injured victims who do not receive it.
  • Create incentive to provide, not deny, necessary and appropriate care. Under ERISA, injured patients and their families who are wrongly denied needed medical treatment can only recover the cost of the procedure for which the plan failed to pay and attorney’s fees. Because health plans can escape from the responsibility to fully compensate injured patients, the current law gives HMO’s a huge incentive to deny necessary and appropriate care. Allowing consumers access to state remedies gives health care organizations the proper incentive to make sound medical decisions in the first instance.
  • Make those responsible bear the cost of serious injury or death. If managed care plans do not fully compensate victims for their decisions to withhold necessary and appropriate care, the cost of the consequences of those wrongful decisions is shifted to those injured, their families and communities, and the taxpayers. HMO’s should be accountable to the people they are paid to serve.

Public Citizen urges Congress to remove the special protection from liabilityfor ERISA managed care plans this year. At Wednesday’s markup of S. 326, pleasesupport amendments to allow consumers to hold managed care plansaccountable.


Joan Claybrook
President, Public Citizen

Frank Clemente
Director, Public Citizen’s CongressWatch