This transition to managed health care has made benefit determinations more critical for participants in employer-based plans. Managed care plans attempt to ensure that services provided to plan enrollees are necessary, delivered efficiently, and priced appropriately. ERISA Provides the Exclusive Remedy for All Employer-Based Health Benefit Denials

Plan participants who believe they have been denied a plan benefit can seek to reverse the denial through the plan’s claims appeal process. If participants are successful in court, the only remedy under ERISA allows them to receive the denied benefit and, at the court’s discretion, attorney fees. Consumer Groups Believe Access to Health Care May Be Denied

Benefit coverage determinations have taken on a more critical role as employers have changed from traditional fee-for-service health care to managed care. ERISA May Limit Participants’ Ability to Sue Managed Care Plans for Damages Under State Law

ERISA’s preemption clause generally prevents plan participants from holding managed care plans directly liable under state laws for the damages that result from their negligent acts or omissions, and it complicates plan participants’ ability to hold managed care plans indirectly liable for the negligence—medical malpractice—of their providers. As a result, each of these groups has its own distinct reaction to the role that ERISA’s preemption clause plays in the ability to file claims for medical malpractice and benefit denials under state law. In addition, ERISA’s remedy for injuries occurring because of benefit denials is insufficient, according to consumer advocates. They believe that providing more remedies would also improve the quality of health care that consumers would get by holding managed care plans accountable for unfair denials, limitations, or reductions in care. Amending ERISA could change this. In contrast, according to managed care and employer groups, health care costs could increase if ERISA were amended to provide compensation in its civil enforcement section or to change its preemption clause so that it does not supersede state tort laws. However, data to accurately estimate the likely extent of such potential increases are lacking. Employers say that faced with such cost increases, they might in response (1) reduce health care benefits, perhaps by excluding from coverage particular treatments and procedures; (2) provide a “defined contribution,” or a fixed amount earmarked for such costs, to employees’ health care costs; (3) shift more of the cost to employees by making them pay a higher percentage of the premiums; or (4) eliminate health care benefits completely.Consequently, plan participants could end up with expanded remedies for adverse outcomes but potentially fewer or more expensive health care benefits. However, plan participants can be left without a remedy for injuries when they occur because of benefit denials. The plans, employers, and UR providers have argued that under the preemption clause, these state remedies are not available. As managed care has emerged as a principal cost-control measure, ERISA’s federal preemption has affected the ability of participants to seek compensatory or punitive damages from managed care plans, based on a plan’s role in providing medical care. While noting that there was no simple formulation, the court identified four categories of state laws that might “relate to” a plan, as that term is used in ERISA: “(1) laws that regulate the type of benefits or terms of ERISA plans; (2) laws that create reporting, disclosure, funding or vesting requirements for ERISA plans; (3) laws that provide rules for the calculation of the amounts of benefits to be paid under ERISA plans; and (4) laws and common law rules that provide remedies for misconduct growing out of the administration of the ERISA plan.” agent of the HMO is not preempted. 8-10. 6-7. 9-14. “ERISA Loophole Permits Utilization Review Firms to Avoid Liability for Malpractice.” HealthSpan, Vol. “Injury, Liability, and the Decision to File a Medical Malpractice Claim.” Law & Society Review, Vol. 11-13.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed how people enrolled in employer-based managed care plans are compensated when they are improperly denied health care benefits or when they experience negligent medical care and the role that the Employee Retirement Income Security Act (ERISA) plays, focusing on: (1) whether the transition from traditional employer-based fee-for-service health plans to managed care has changed the process of benefit determination; (2) the remedies that ERISA provides to participants in employer-based managed care plans who are improperly denied benefits; (3) whether ERISA affects the ability of participants to be compensated for injuries that result from either medical malpractice or improper benefit denials at employer-based managed care plans; and (4) the consequences of changing ERISA's remedies.

What GAO Found

GAO noted that: (1) managed care plans attempt to ensure that enrollees receive services that are necessary, efficiently provided, and appropriately priced; (2) since the 1980s, employers have shifted to offering managed care plans that use such techniques as prospective utilization review (UR); (3) as a result, benefit coverage decisions have increasingly shifted from being made after services are provided to before; (4) ERISA effectively limits the remedies available when employees of private-sector firms claim to have been harmed by plans' decisions to deny coverage of a particular service; (5) under ERISA, plans must have an appeal process for participants who are dissatisfied with a benefit denial; (6) if participants are not successful, they can file a civil lawsuit; (7) ERISA's exclusive remedy for improper benefit denials is to require the plan to provide the denied service and, at the court's discretion, pay attorney fees; (8) groups representing consumers believe that ERISA's limited remedy neither provides sufficient compensation for injuries that benefit denials contribute to nor effectively deters unjustified benefit denials; (9) ERISA can affect participants' ability to be compensated for injuries sustained while in an employer-based health care plan; (10) ERISA's preemption of state laws that relate to employee health benefit plans enables managed care plans and UR firms to avoid liability under state law for medical malpractice; (11) compelling evidence is lacking on the likely effects of amending ERISA to provide either expanded remedies for losses due to disputed benefit denials or the ability to sue managed care plans for medical malpractice under state tort laws; (12) consumer groups and others assert that additional remedies could: (a) improve health care quality by holding plans accountable for the consequences of their benefit coverage decisions; and (b) provide participants with a course of remedies more comparable to state tort laws; (13) managed care plan and employer groups maintain that these additional provisions would result in increased costs or benefit reductions; and (14) to date, data are not available to accurately estimate the extent to which the quality of health care would improve or the amount by which the costs of plans, employers, and employees might change if ERISA's remedies or preemption of state laws were amended.