ERISA: Denting the Shield of Managed Care

Lawyers for patients say federal courts will continue to provide the means to hold managed care organizations responsible for their decisions, even after the U.S. Supreme Court slammed the door on lawsuits against health insurers in state courts. More ...

When the Employee Retirement Income Security Act (ERISA) was passed by Congress in 1974, it was designed to protect employees from the loss or reduction of benefits by creating a single, standardized set of rules governing all benefit plans nationwide.


One of the ways ERISA sought consistency was by superseding state attempts to regulate employee benefits. In achieving this goal, Congress exempted some self-funded health plans - plans in which an employer assumes the financial risk while using a managed care organization (MCO) or insurance company to administer the plan - from state regulation. Estimates place more than half of the Texans covered by health insurance in ERISA plans exempt from state regulation.

In the quarter century since ERISA's passage, the act's "preemption" of state law hardened into a shield - for managed care organizations. MCOs that administer exempted plans use ERISA to head off law suits brought by doctors and patients who want MCOs to be held accountable for decisions to deny medically necessary coverage that result in harm to patients.


Although the federal courts initially gave the preemption a broad scope, the US Supreme Court in June 2000 suggested that ERISA preemption did not stop states from authorizing suits for damages resulting from harmful decisions. Taking the hint, a three-judge panel of the US 5 th Circuit Court of Appeals two weeks later ruled that ERISA did not preempt the state law that allows patients to sue HMOs that negligently delay or deny medically necessary treatment.


TMA successfully worked for passage of that state law, the Health Care Liability Act of 1997, and it supported the state's defense of law. TMA is also heavily involved with state litigation challenging ERISA preemption and with national efforts to narrow the broad scope of the ERISA preemption through Congressional revision.


TMA also is participating in or monitoring several suits that seek to limit the use of ERISA as a shield for managed care. A federal judge has already ruled in one case that ERISA does not preempt a suit in which two Texas physicians and 13 patients challenge an MCO's financial incentives as a violation of the Americans with Disabilities Act.