Employer-Based Managed Care Plans

In contrast to traditional fee-for-service insurance, managed care plans try to ensure that enrollees receive services that are necessary, efficiently provided, and appropriately priced. Such a cost-containment strategy can alter the process and timing of "benefit determination"--deciding whether a plan covers and hence will pay for a specific service for a participant. Since the late 1980s, benefit coverage decisions have increasingly shifted from being made after services are provided to before. The Employee Retirement Income Security Act (ERISA) effectively limits the remedies available when an employee of a private-sector firm claims to have been harmed by a plan's decision to deny coverage of a particular service. Under ERISA, plans must have an appeal process for participants who are dissatisfied with a benefit denial. Participants who are unsuccessful in obtaining a denied benefit through this process can file a civil lawsuit. 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. ERISA does not provide for compensating participants who have sustained losses because of the denial or a plan's failure to provide a benefit. ERISA can affect participants' ability to be compensated for injuries sustained while in an employer-based health care plan. If injured through medical malpractice, patients or their families may seek compensation against health providers for monetary and nonmonetary losses; ERISA does not affect these cases. In contrast, ERISA's preemption of state laws that "relate to" administration of employee health benefit plans enables managed care plans to avoid liability under state law for medical malpractice.

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.