Guest Blogger Tony Sebok On Health Insurance Reform and ERISA
This is a good week to be guest-blogging at TortsProf. President Obama’s speech last week in defense of healthcare reform won the longest and most sustained applause from the Republican side of the aisle when he mentioned tort reform. Some commentators, such as Timothy Noah at Slate, have suggested that a cap of $250,000 on pain and suffering damages would be a small price to pay for meaningful reform.
Noah is an example of a certain kind of liberal—one who views tort litigation as an instrument for the achievement of certain social ends, but not as a unique instrument, or one that is worth defending for its own sake. In this way, Noah’s cavalier attitude is not very different from Obama’s own prescription to liberals about how to treat the idea of “single payer” insurance schemes: “only a means to [an] end”—namely universal coverage. I will call this the “instrumentalist position,” a term I have borrowed from my co-authors John Goldberg and Ben Zipursky.
I will be writing this week about the pros and cons of this position. We can analyze the instrumentalist position from two different perspectives. First, we might ask whether we will ever have enough information to draw the conclusion that medical malpractice law currently instantiated by the tort system—which is some mixture of strict liability and negligence—is a net drag on the other social goals we have (such as cost and safety). Some defenders of the medical malpractice system take the position that litigation over adverse events happens so rarely that the effect of the medical malpractice system on the healthcare system is negligible. That is not much of a defense, much less an endorsement, of one of the most criticized parts of the tort system.
Second, we might want to ask whether, if we were convinced that we would never be able to gather concrete and reliable aggregate data on the effect of the medical malpractice, we would be able to make decisions about its optimal shape nevertheless. That is, do we have to wait until we have “enough” data to decide whether to accept or reject reforms? The tort reformer might complain that their critics’ constant refrain that we lack data misses the point—that the demand that we wait for data is just another way of saying, as in Waiting For Godot, that we should do nothing forever. The defender of the tort system might argue, with equal vigor, that the demand that medical malpractice law prove that it does not create costs in terms of health care delivery misses the point, since there are other values at stake which justify the continued use of tort litigation, which is admittedly expensive and error-prone, other than its capacity to contribute to welfare maximization.
These are some of the questions which I will raise over the next week. Before I start with these questions, however, I would like to invite the readers of this blog to answer the following question: what, if anything, will Obama’s healthcare reform do with the problem of ERISA preemption?
As any teacher of insurance law knows, ERISA—the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.)—has been interpreted by the Supreme Court to provide complete preemption of all state contract and tort remedies relating to the interpretation of employer-provided health insurance plans. These plans, of course, sit exactly at the center of the current debate over healthcare reform. In his speech last week, President Obama promised “[a]s soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it the most.”
This is a wonderful claim, except that the federal government, through ERISA, preempted the state law remedies that would have allowed disappointed policyholders who got their coverage through their employers to sue when companies “drop[ped their] coverage” when they got sick or “water[ed] it down” when they needed it the most. To get a sense of how much damage the federal government has already done, one only has to read the angry pleas to Congress to remove this preemption from judges like Federal District Court Judge William Young in Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49, 50 (D. Mass. 1997) who wrote, “ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.”
One simple reform to the healthcare system which would be simple, budget-neutral and actually conservative would be to repeal the part of ERISA that immunizes health insurance providers from state common law actions in tort and contract. I honestly do not know whether the plans being considered by the Congress would provide this repeal, or whether they simply maintain the federal preemption but provide for federal remedies with more teeth than the current system. The current federal remedies—reimbursement of out-of-pocket expenses by a victorious beneficiary or injunctive relief—are useless for most people, and certainly lack the deterrent effect of state tort and even contract remedies.
If anyone knows whether Obamacare will finally get rid of ERISA preemption, please let me know.
Tony Sebok
Professor of Law
Benjamin N. Cardozo School of Law