How the Most Boring Law Ever Determines the Shape of American Healthcare, Part 2
…Continued from the previous post.
Health insurers saw in the Employee Retirement Income Security Act of 1974 (ERISA) an incentive to sell as much insurance through employers as possible, because ERISA insulated them from any liability greater than the actual costs of treatments.
This aspect of the law was the key factor in making employer-based insurance the only health insurance product sold in America at reasonable prices. Under the protection of ERISA, insurers could include pre-care utilization review in employee sponsored health-plans as a way to control their costs. Pre-ERISA, pre-care utilization review was a risky proposition for an insurer. An insurer could be held responsible for complications (like death) following from a refusal to provide treatment.
ERISA changed this. Insurance companies working through employers could be held responsible for nothing more than the cost of a treatment denied. If an HMO improperly denied someone a $1,000 treatment, that individual could sue to obtain the $1,000, but not for consequences and complications caused by failure to have received treatment in a timely fashion. And because of the strict preemption rules, individual states could not pass laws that held insurers operating within their jurisdictions to any higher standard; this principle was most recently reaffirmed in the case of Aetna Health v. Davila (2004).
Given the risk-reducing advantages it provided to healthcare plans provided through an employer, ERISA motivated health insurance companies to get out of the business of selling insurance directly to individuals, and to sell health insurance only through employers.
ERISA may be the single most enervating factor in America’s healthcare debate. More than any other single factor, through its removal of personal healthcare decisions to a remote court system, the weak remedies it mandates for major harm caused, and its general incomprehensibility, ERISA creates the perception that problems with healthcare delivery in this country are the result of intractable, impersonal forces that can only be solved with big-government solutions.
But ERISA is not an uncontrollable, unstoppable force of nature. It is just a badly written and poorly interpreted 30-year old law. The reasonable first step in fixing healthcare delivery in this country is not creating more bureaucracy and regulation to support the problems created by ERISA, but to remove health insurance from ERISA enitrely.