NCPA - National Center for Policy Analysis

ERISA is Misunderstood

May 2, 2000

There is a misunderstanding at the core of the whole debate over what level of rights patients should have in dealing with their health maintenance organizations (HMOs), says health policy expert Greg Scandlen.

The misunderstanding is that the Employee Retirement Income Security Act (ERISA) -- which subjects most employer-provided health-care plans to federal laws and exempts them from state statutes -- provides special protections to HMOs or other managed care organizations, including exempting them from accountability for medical errors.

  • In fact, HMOs are far less likely than are fee-for-service plans to be self-funded and exempt from state oversight.
  • They are far more likely to be subject to state-mandated benefits, solvency requirements, appeals requirements, and consumer protections than are self-funded "traditional" plans.
  • All employer-based plans -- whether self-funded or fully insured, whether HMO or indemnity -- are exempt from state contract and most tort laws, under ERISA.
  • But to the extent a plan "practices medicine," it is subject to state malpractice laws.

Critics confuse the right to sue HMOs in contract disputes -- say, over what procedures are covered -- with the right to sue them for malpractice, says Scandlen. Proposed federal reforms would actually result in poorer health-care coverage.

Not only would the reforms undercut state authority in such matters, but they would make it more difficult for employers to offer their workers better health coverage. "Such a law could keep new, patient-centered health plans from ever being invented," says Scandlen.

Source: Greg Scandlen (senior fellow, National Center for Policy Analysis), "Legislative Malpractice: Misdiagnosing Patients' Rights," Briefing Paper No. 57, April 7, 2000, Cato Institute, 1000 Massachusetts Avenue, N.W., Washington D.C. 20001, (202) 842-0200.

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