NCPA - National Center for Policy Analysis

Patients' Rights: A Double Standard

December 3, 1999

Members of Health Maintenance Organizations (HMOs) can already sue their health plans under current law, says attorney John Hoff. What the Patients' Bill of Rights that recently passed the House of Representatives would do is encourage malpractice-like suits over what are essentially contract disputes.

  • The Patients' Bill of Rights would enable plan members to recover large judgments -- and their lawyers to take at least one-third of the recovery -- for pain and suffering and other noneconomic damages., and it would also allow the award of punitive damages.
  • The liability for health plans and employers could be huge, and health insurance premiums would soar as a result, pricing even more Americans out of the market and leaving them uninsured.
  • Medicare beneficiaries or to those participating in the government's health plan for federal workers do not have similar rights, notes Hoff -- if taxpayers, through the federal government, were subject to such suits, the cost of the legislation would be better appreciated.

Ordinarily, insurance is regulated by the states. However, in 1974 Congress imposed federal regulation on health plans sponsored by employers through the Employee Retirement Income Security Act (ERISA). ERISA preempts state laws that relate to employer plans. However, ERISA makes an exception regarding insurance, in recognition of the states' traditional role. But many employers' health plans, instead of being traditional insurance, are "self-funded" and thus do not fall within ERISA's exception for insurance. In a self-funded plan, the employer assumes the risk for claims. The employer may administer the plan itself, or it may hire a third-party administrator. In these cases, ERISA preempts the states' laws.

Hoff also notes that ERISA does not prevent members, even of a self-funded plan, from suing their doctor or hospital for malpractice under state law.

Source: John Hoff, Brief Analysis No. 307, "Patients' Rights: A Double Standard," December 3, 1999, National Center for Policy Analysis.

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