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    The system of managed care began in the United States in the early 1900s, in an effort “to provide coordinated health care in a cost-effective way”(Amer. Assoc. of Retired Persons). Until recently,” managed care has emerged from the shadows to become the dominant form of health insurance and delivery,” succeeding the older fee-for-service program (Zelman and Berenson 2). Today, about 160 million Americans are enrolled in some kind of managed care plan. Managed care “has made health care more affordable andmore accessible for Americans. But sometimes cost

    cutting can lead to lower standards” (Clinton 1).

    Because managed care plans provide medical care to

    their members at a fixed rate, there is a substantial

    limit to the medical care each member can receive.

    Under this system of prepayment, managed care

    organizations (MCOs) can profit off every dollar of

    revenue that is not directly spent on patient care.

    This produces the problem of incentives, or

    temptations for MCOs not to provide sufficient medical

    care to their members, all too often resulting in

    tragedy (Fox, et al. 56). This problem explicitly

    impacts the estimated 125 million Americans who

    receive health insurance through MCOs that are

    provided by their employers. A federal law known as

    the Employment Retirement Income Security Act of 1974

    (ERISA) governs these self-insured plans. Under the

    Employment Retirement Income Security Act,

    ERISA-regulated MCOs are not legally held accountable

    for their actions. Until Congress passes The

    Patients’ Bill of Rights, MCOs will continually and

    wrongfully deny patients from quality care.

    Health costs have continually risen over the last

    decade. The average-income American family now spends

    an estimated $5,000 per year on health care alone, an

    amount that more than doubled from 1988-1996

    (Maciejewski). In an effort to relieve working

    Americans from this burden, Congress devised a federal

    tax law that would enable employees to obtain tax

    benefits for health insurance through their employers.

    Today, the vast majority of insured Americans acquire

    their health insurance through the workplace. ERISA

    governs the employer-based health system to protect

    employees from the potential abuses from their health

    plans (Amer. Psych. Assc.). Although both the tax

    code and ERISA were concocted to help and protect

    employees, they play an indirect role in shaping the

    inefficiencies that envelop the employer-based system

    of health care. Subsequently, regulations imposed by

    managed care organizations (MCO) on physicians also

    Under today’s tax code, Americans can receive a

    discount on health insurance, granted that they attain

    it through an employer. The reason for this stems

    from a single provision of the Internal Revenue Code,

    “which excludes employer premiums from the employee’s

    taxable income” (Goodman). This means that health

    benefits provided by insurers are exempted from an

    individual’s earnings, treating them as if they were

    expendable to the actual income. This tax alleviation

    “can reduce the cost of health insurance by 30 percent

    or more for an average-income family” (Goodman). By

    calculation, “an extra dollar of earnings can be used

    to buy a dollar’s worth of health insurance as an

    alternative to 70 cents of take-home pay” (Goodman).

    In contrast, individuals who purchase their own health

    insurance receive no tax benefits; therefore, most

    employees choose to join their employer-based health

    Many employers want to ensure that their workers have

    good access to health care so that they are more

    likely to stay healthy. Despite having to provide

    health insurance for their employees, employers also

    have to worry about the competition in the market.

    Because of this added obstacle, “employers will strive

    to push their employees into the least expensive

    insurance program in order to cut costs and remain

    competitive” (Gervais). Employers tend to favor

    managed care organizations because of their

    cost-cutting strategies. Doctor Robert P. Gervais,

    member and Board of Director of Physicians Who Care,

    explains MCOs’ cost-cutting approach: “…managed care

    instruments promise to rein in medical costs by paying

    doctors, hospitals, and nurses more money to do less

    for patients…When fewer health care services are

    provided, health care costs should go down. It is

    clear that patients lose under a managed care system”

    (Gervais). Employees are also usually limited to the

    choice of one health plan—that which their employer

    chooses to provide (The Center for Patient Advocacy).

    This is unfair to employees because they cannot shop

    around to find a health plan that would best suit

    The whole medical system becomes inefficient. The

    tax code neglects that individual choice is ruled out

    in the employer-based health system. How could

    quality care be insured in the health care system if

    individual choice does not exist? Furthermore, the

    tax code fabricates health care as an invisible

    benefit, “seemingly free to employees” because costs

    are directly deducted from their paycheck

    (Maciejewski). As a resulting effect, employees

    become less cost-conscious, overpaying for unnecessary

    coverage and services “that could have been purchased

    more efficiently out of pocket or might not have been

    In sum thus far, Congress has inadvertently placed

    the health of working Americans in the hands of their

    employers, which in turn is overseen by the physicians

    of the managed care plan. Because of strict

    regulations and policies imposed by managed care plans

    on their physicians, they represent yet another factor

    in the inefficient system of managed care. Physicians

    are attracted to Managed care plans under the premise

    that they would be guaranteed an abundant number of

    patients. Once enrolling, physicians are prompted to

    sign a contract. Provisions or “gag clauses” in

    physician contracts prevent them “from giving patients

    information about treatment options that may not be

    covered by their health plans” (Cooper). This is a

    clear violation of the informed consent requirement

    that Congress has dictated as law. Moreover, gag

    clauses may also limit physicians from referring

    patients to specialists outside their health plans.

    Some managed care organizations and insurance

    companies retaliate against doctors who send their

    patients to specialists too many times, or too soon,

    or order expensive tests that the doctor feel is

    necessary but the MCO does not. They retaliate by

    firing doctors who do not follow their rules even if

    their rules may be dangerous to patients.

    The pre-determined budget or utilization target that

    MCOs establish and their physician payment system

    affix more problems. The system of capitation that

    physicians are paid accordingly to, provides

    physicians a fixed amount, not per service, but per

    enrollee on a monthly basis. Because physicians are

    given a utilization target that limits how much they

    could spend on patient care, they can be put in a

    financially insecure situation. If the utilization

    target is surpassed, the physician must pay for the

    extra services himself. Therefore, instead physicians

    are tempted to provide less service to their patients.

    Providing fewer services can be detrimental to

    patients but can be rewarding for physicians. Bonuses

    are given to physicians from the unspent fund when

    services of their patients’ are lower than the

    utilization target. The expressed concern that MCO

    policies and regulations have in interfering with the

    doctor-patient relationship is keenly expressed by Dr.

    Bruce Rushbaum, who practices internal medicine: “The

    plans have swung so far against what is good for the

    patient and what is fair for the physician that it has

    impacted most negatively on the quality of health care

    If physicians are making negligent decisions that are

    jeopardizing the health care of patients, why don’t

    they file a claim for damages against their physician

    or their health plan? Congress has passed patient

    protection acts that would allow patients to be

    compensated for damages caused to them, however, this

    does not apply to everyone. Those patients that are

    enrolled in employer-based health plans, governed by

    the Employment Retirement Income Security Act, don’t

    have the same protections. ERISA, which was ratified

    by Congress in 1974, was “intended to protect

    employees from potential abuses by their benefits

    plans. However, with the evolution of the health care

    system from a fee-for-service to a managed care

    system, ERISA has evolved into a shield of immunity

    that protects MCOs from potential liability for their

    negligent denial of health benefits (Amer. Pysch.

    The main reason for ERISA’s failure is its “preemption

    clause”. This loophole requires that “federal law

    override state laws relating to employee pension and

    benefits plans. When applied to managed care health

    plans, the clause creates an incentive to deny care

    because it removes (“preempts”) state law protections

    for patients, while federal law offers them virtually

    no effective remedy” (Hoffman and Hiepler A19). This

    unfortunately puts workers and their families much at

    risk. In a Louisiana case, Corcoran v. United

    Healthcare, Inc., 965 F .2d_1321 (5th Cir. 1992),

    Florence Corcoran was insured through her employer

    which administered United Healthcare as the

    utilization reviewing agency. Mrs. Corcoran was

    deemed to have a high-risk pregnancy because of her

    history with pregnancy-related problems. Taking this

    into careful consideration, “her doctors recommended

    hospitalization so that the fetus could be monitored

    as the due date approached, and another obstetrician

    (who was used for a second opinion) concurred”

    (Pollack). Despite her doctor’s request, United

    Healthcare insistently denied the hospitalization, but

    appointed an in-home nurse to attend Mrs. Corcoran ten

    hours a day. While the nurse was off duty, the fetus

    developed complications and died. Mrs. Corcoran and

    her husband brought their litigation to court,

    alleging that the MCO’s decision not to provide her

    with the hospitalization caused the death of their

    unborn child. Despite the obvious injustice, the

    courts ruefully ruled in favor of the MCO because of

    the ERISA preemption clause. Sadly, but true enough,

    the haplessness of this situation can be best put in

    the words of Bob Herbert of the New York Times,

    “Insurance companies are not in the business of curing

    people, they are in the business of making money.

    They will use any excuse to deny payment of what they

    perceive as more expensive therapy” (qtd. in Zelman

    Under ERISA, patients are entitled to equitable

    relief. This means that a patient can recover the

    value of the denied service, which sometimes comes far

    too late. However, ERISA restricts patients from

    obtaining monetary damages or “compensation to make

    him or her whole from the benefit denial, even in an

    event of loss of life because of the health plan’s

    improper denial” (Pollack). The Corcoran family only

    received in compensation, the value of the denied

    hospitalization, an insignificant amount compared to

    The Patients’ Bill of Rights, supported by the

    American Medical Association and the American Nurses

    Association to name a few, would ensure an end to

    MCOs’ wrongful conduct. Should Congress enact this

    bill, the Patients’ Bill of Rights would provide

    patients an independent authority where they can

    appeal their managed care plan’s decisions. Patients

    would also have the right to hold health plans

    accountable when things go wrong. Another important

    aspect of the bill is that it would allow patients to

    get emergency services when the patient thinks he or

    she needs them. Had this bill been approved in

    previous legislative reforms, Troy Benoit would still

    be walking today. In Benoit v. WW. Grainger, Inc. et

    al., No. 98-1315, 1998 U.S. Dist. LEXIS 16988, 7 (E.D.

    La. Oct. 21, 1998), Mr. Benoit’s health insurer,

    Aetna, refused to provide the emergency services he

    needed. After sustaining serious neck and spinal

    injuries from a motorcycle accident, hospital

    physicians urgently recommended that he have surgery

    immediately. Aetna formally refused to fund the

    procedure, but eventually certified it. Despite the

    reversed decision, Mr. Benoit was left paralyzed with

    little or no chances of ever walking again (Amer.

    It is evident that the tax code unintentionally limits

    the choice of health plans that employees can choose

    from, sometimes being limited to only one choice.

    Employees are wrongfully compelled to join a health

    plan that is not in their best of interests.

    Regulations imposed on physicians also add to

    inadequate health care. The failure of the intended

    role of ERISA, to protect employees, predominantly

    adds to the inefficiency of the managed care system.

    The working American, thus, is truly a victim of a

    non-ending cycle of negligence and irrationality

    embedded in the lawmaking by Congress.

    Yet opponents in Congress and the managed care

    industry, especially self-insured employers, have

    reasons to believe that expanded liability will force

    insurers and employers to pay for unnecessary health

    care, encouraging employers to drop health coverage.

    Also, the Patients’ Bill of Rights will increase

    health plan costs, which would ultimately increase the

    The managed care industry fears that the Patients’

    Bill of Rights would have a reverse effect. The

    opponents of legislative reform argue that expanded

    liability on ERISA-regulate MCOs (mainly the

    employer-based system) would force insurers and

    employers to “practice ‘defensive utilization

    review’—paying for unnecessary or inappropriate health

    care to reduce their risk of even more costly

    litigation” (Arg. Against Liability). Patients would

    have the incentive of taking advantage of health care

    services causing an unbalance in the health care

    budget. If managed care legislation passes, it would

    further more encourage employers to drop health

    coverage. If employers were to be discouraged from

    providing health insurance, this would force insurance

    companies to downsize their networks and eventually

    consumers would “have substantially less choice among

    available types of coverage” (Arg. Against Liability).

    Another point that opponents of the Patients’ Bill of

    Rights want to clarify, is the effect that managed

    care reform will have on the costs of health

    insurance. Because the health system is so

    competitive, insurers “cannot afford to absorb the

    increased cost of expanded liability” (Arg. Against

    Liability). These costs would be passed on to

    employers, who also cannot afford to absorb the costs.

    Unfortunately, these costs are eventually passed on

    to employees, “either directly or indirectly lowering

    their pay or decreasing the amount of benefits they

    receive” (Hoffman 17). Moreover, expanded liability

    could escalate the costs of health care. Increased

    costs of health plan coverage would have a chilling

    effect in increasing the number of uninsured

    Americans. This negative aspect of managed care

    reform is supported by the general counsel of the Self

    Insurance Institute of America, Brian Davenport, who

    also practices law in Franklin, Indiana: “If you

    substantially increase the cost of providing the

    benefits, I think there’s a strong possibility that

    you will substantially increase the number of people

    The supporters of the managed care industry and the

    employer-based health care system have brought into

    perspective, rational arguments. Despite their

    contrasting viewpoints, they fail to realize that

    employers are not the ones making the medical

    decisions, managed care plans are. Managed care

    reform protects employers from liability when they are

    not involved in the medical decision that results in

    harm. The principle that we should be held

    accountable for our own actions is universally

    accepted. The bottom line is that managed care plans

    should be held accountable, just as everyone else is.

    Congress can improve ERISA by explicitly removing the

    “preemption clause” that currently limits states’

    abilities to establish accountability for wrongful

    denials of MCOs’ to their patients. If ratified, the

    Patients’ Bill of Rights would amend the loophole in

    ERISA. Congress should do its part to protect the

    welfare of those Americans that are affected by

    ERISA-regulated MCOs. Three of the top managed care

    organizations in the industry, including Kaiser

    Permanente, are calling for legally enforced

    standards. Clearly, “when respected leaders of an

    industry are calling for standards to be placed upon

    themselves, it is a sure sign that Congress should

    act” (Managed Care Reform: Fact vs. Fiction).

    Clinton, Bill. “The President’s Radio Address.”

    “ERISA Managed Care Organizations Should Be Held


    Fox, Peter D., et al., eds. Determinents of HMO

    Success. Office of Health Maintenance

    Hoffman, Ronald F. and Mark O. Hiepler. “An Easy Out

    Washington Post. 4 April 1998: A19.

    “Managed Care Reform Legislation: Fact vs. Fiction.”


    “Managed Care: What Consumers Need to Know.” 3 August

    ** (21

    Pollack, Ron. “Current Problems with the Federal

    Security Act of 1974.” 14 May 1998.


    Zelman, Walter A. and Robert A. Berenson. The Managed

    Them. Washington D.C.: Georgetown Press, 1998.


    Talk to your friends online with Yahoo! Messenger.

    Works Cited
    Clinton, Bill. “The President’s Radio Address.” Weekly Compilation of Presidential Documents. 10 August 1998: 1556.

    “ERISA Managed Care Organizations Should Be Held Accountable for Decisions that
    Harm Patients.” 1 February 1998.
    (21 April 1999).

    Fox, Peter D., et al., eds. Determinents of HMO Success. Office of Health Maintenance Organizations. January 1998: 56.
    Hoffman, Ronald F. and Mark O. Hiepler. “An Easy Out for Managed Care.” The
    Washington Post. 4 April 1998: A19.”Managed Care Reform Legislation: Fact vs. Fiction.” 1 January 1999. care/mcrl_fvf.html
    (21 April 1999).

    “Managed Care: What Consumers Need to Know.” 3 August 1998.

    (21 April 1999).

    Pollack, Ron. “Current Problems with the Federal Employment Retirement Income
    Security Act of 1974.” 14 May1998.
    (21 April 1999).

    Zelman, Walter A. and Robert A. Berenson. The Managed Care Blues and How to Cure Them. Washington D.C.: Georgetown Press, 1998.

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