ERISA preemption: will the elimination of the ERISA preemption clause help or harm America's ability to death with its pending health care crisis?

• Author: Taylor, Damon Henderson

1. INTRODUCTION

   Many health experts argue that "the American health system is a work in progress; it can and ... will get better."(2) Unfortunately, for individuals like Barbara Garvey, the health care system had not progressed fast enough to save her life.(3) In 1994, Barbara Garvey was vacationing with her husband in Hawaii when large bruises began to appear on her body.(4) She immediately went to a local clinic and was admitted into the oncology department at the Queen's Medical Center in Hawaii.(5) After trying remedial procedures, her doctors diagnosed her with aplastic anemia and recommended that she undergo a bone-marrow transplant.(6) Several days into Mrs. Garvey's treatment, her Health Maintenance Organization (HMO), a third-party payor (like self-insured employers),(7) conducted a prospective utilization review process--in which the third-party payor determines whether or not it will reimburse the patient for a medical procedure.(8) Upon completing the procedure, her HMO refused to pay for her treatment in Hawaii and furthermore, ordered that she return to Chicago where she could be treated by one of the HMO-designated providers (doctors).

   Following a last-ditch plea by Mrs. Garvey's husband, their HMO reiterated its refusal to pay for her bone-marrow transplant in Hawaii and she was forced to fly back to Chicago on a commercial airline.(9) Mrs. Garvey's condition left her without a functional immune system. As Mr. Garvey testified at a roundtable sponsored by President Clinton on Patient's Bill of Rights legislation: "We had to take her from isolation, put her on a commercial flight and expose her to all the impurities of recirculated air [and] the pressure changes, which most people here it wouldn't affect at all, but [to] somebody in her condition could, and may have, proved fatal."(10)

   Due to her weakened state, Mrs. Garvey suffered a stroke in mid-flight. Nine days later she died, never becoming stable enough to receive the bone-marrow transplant in Chicago.(11)

   While Mrs. Garvey's HMO's acts were reprehensible, even more disturbing is the fact that Mrs. Garvey's surviving family was denied any and all state law claims because of a preemption clause in the 1974 Employment Retirement Income Securities Act (ERISA). The preemption clause denied Mrs. Garvey's family all state remedies and affords her family only those remedies set forth in ERISA. The clause states, in part, that ERISA itself "supersede[s] any and all State laws" as they relate to health-benefit plans.(12) In Pilot Life Insurance Co. v. W. Dedeaux, the U.S. Supreme Court held that a state law cause of action is preempted by [the 1974 Employment Retirement Income Securities Act] if [the action] relates to an employee-benefit plan.(13) The Court held that because ERISA already includes a civil enforcement mechanism--which affords patients the ability to bring a civil action to obtain compensation for plan benefits refused, injunctions against refusals by plans to pay benefits, and attorney's fees--Congress did not intend to permit other remedies such as punitive damages in state courts for tortious claims by plan participants.(14)

   Compounding this disturbing situation, the lower federal courts maintain that while they are troubled by apparent injustices being committed against patients like Mrs. Garvey, it is not their responsibility to remedy the situation. They suggest, rather, it is Congress' responsibility to revisit ERISA and to reevaluate the preemption clause and its adverse effect on patients.(15)

   Although unjust and highly controversial, the Garvey incident is not unique within the American health care system experience.(16) Incidents like this have prompted serious debate in Congress as to whether immunity for third-party payors from state law actions is a form of immunity with which a country with arguably the best health care and legal systems in the world can live. In response to the Garvey ordeal and incidents like it, many entities--doctors, lawyers, patients, and politicians (Republican and Democrat)--argue that a patient's bill of rights law must be passed that includes a measure eliminating the preemption clause so as to protect patients from third-party payors who are sacrificing medical ethics to business profits.(17) Proponents of the bill state that approximately 125 million people currently enrolled in health care plans have no opportunity for substantive legal remedy, because their third-party payors are exempt from being sued for punitive damages for injuries caused by their decisions to, among others, delay treatment or deny procedures recommended by the patients' doctors.(18) Both consumer advocates and medical-doctor associations urge Congress to eliminate, or significantly alter, the federal-preemption clause so as to empower people like Mrs. Garvey's surviving family to use the legal system as a means to obtain legal redress in state courts for tortious acts committed by third-party payors.(19)

   Consumer advocates, nor their opponents among HMOs and other third-party payors, like to admit that these issues are not cut-and-dried. They cannot be easily resolved by simple alterations to ERISA. For example, while it appears that Mrs. Garvey's HMO committed an act that should be subject to legal liability, third-party payors and their lobbyists maintain that they should not be subject to inconsistent, emotional, and outrageously high judgments in state courts, because logical and health-related reasons could have accounted for her HMO's refusal to cover the prescribed treatment in Hawaii.(20) Furthermore, they argue that while doctors are seriously concerned for the health and welfare of patients, doctors make mistakes, and their concern with earning a sizable income can affect their ability to provide quality care.(21) Therefore, third-party payor advocates maintain certain health care claim decisions, while seemingly callous, are in fact calculated to provide cost-efficient solutions that are in the best interest of the patient and that seek to avoid possible mistakes by doctors.(22) Lastly, this free-market contingent of third-party payors argue that over the past twenty years, America's insured patients have been afforded health care at virtually no cost to themselves(23) The insured American patient has come to expect quality affordable heath care at no financial risk, even though the costs of such care could produce "an irrational health care system" in which health costs will never stop increasing.(24) Therefore, this free-market contingent concludes that if America's insured patients' unrealistic assumptions motivate significant alteration to, or elimination of, the preemption clause, they will be forced to increase premiums to offset any increased liability costs. If that does not work, they threaten that they will exit the health care benefits business altogether and leave patients to fend for themselves in securing affordable health insurance.(25)

   On the other hand, patient and consumer-rights groups have their own substantive arguments. These advocates point out that while third-party payors predict that the elimination of the preemption clause will be too costly for their businesses, they neglect to inform the public that the CEOs of the third-party payor companies and corporations are making astronomical salaries.(26) Families USA, a consumer rights group, studied health care companies' filings with the Securities and Exchange Commission.(27) In 1997, it found:

   The 25 highest paid executives in the 15 companies studied made $128.6 million in annual compensation, excluding unexercised stock options. The average compensation for these 25 executives was over $5.1 million per executive. The median compensation for these [same] 25 executives was $3.5 million.(28) Jamie Court, director of Consumers for Quality Care, a California-based watchdog group states, `[f]or-profit HMOs take as much as thirty cents of every premium dollar for their own profit and overhead, so the real fear of HMOs is that reform legislation, elimination of the preemption clause,] will cut profits and redirect dollars from companies' coffers to patients' care.'(29) Consumer-rights groups maintain that the idea of eliminating the preemption clause should not be squelched by a highly-suspect fear that third-party payors would be forced to fold their operations under the burden of resulting lawsuits and increased liability insurance.(30) Consumer-rights groups also posit that when a self-insured employer or HMO denies necessary medical treatment to the employee/patient, she could suffer irreparable damage--e.g., death or serious injury.(31) Therefore, according to Terre McFillen Hall, executive director of the Center for Patient Advocacy: "If HMOs [or self-insured employers] are making medical decisions, and in essence that's what they're doing ... then they should be held accountable just like any doctor who makes medical decisions."(32) McFillen Hall further argues that since federal courts have predominantly refused to hold third-party payors liable until the ERISA preemption clause is altered or eliminated, it strengthens and intensifies the arguments for Congressional elimination of the clause.(33) Consumer advocates reason that the third-party payors must take a step back and "concede [that] there are fundamental problems which gave rise to the [patient's] `bill-of-rights' movement in the first place[, and, that] the failure of managed care in many instances [was its inability] to reconcile cost containment with more humane considerations."(34) They conclude that the elimination of the preemption clause would be as good a beginning as any in initiating this reconciliation.

   Pure guilt or innocence do not exist in the discussion about the fate of the preemption clause. To move into the next millennium with an efficient, but humane health care system, this article argues that the various entities--patient, provider...