High court's clear thinking on ERISA: Reining in HMOs

Thanks to the U.S. Supreme Court, health plans can no longer hide from state regulation. That could give physicians and patients greater strength in holding HMOs accountable for their decisions.

Editorial. May 5, 2003.

For many years, the U.S. Supreme Court has wrestled with a question that's central to the rights of patients and physicians: How far can states go in regulating the conduct of managed care companies?

In recent rulings, the court has tended to side in favor of regulation, reining in the power of managed care organizations to act unilaterally in sabotaging treatment plans. But the cases have been limited in scope, and the rulings have been narrowly won -- usually 5-4.

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If the court had ruled similarly in its April 3 decision in favor of Kentucky's any-willing-provider law, it would have been another positive step. Instead, the court boldly broke with that pattern.

First, the ruling was unanimous. More important, the reasoning behind the court's decision is expected to reverberate far beyond the issue of any-willing-provider laws and resonate to any case involving managed care regulation.

What the court did in Kentucky Assn. of Health Plans v. Miller was, in its own striking words, to "make a clean break" from past cases in which the justices tried to parse the meaning of various federal laws to determine what states could regulate.

The McCarran-Ferguson Act of 1948 affirmed states' authority to regulate "the business of insurance." But the Employee and Retirement Security Act of 1974, better known as ERISA, preempts state laws that would relate "to any employee benefit plan," which courts traditionally have interpreted to include employer-provided health insurance. (This even though ERISA itself also allows an exemption for state laws "which regulate insurance.")

Taken together, the language of these laws has confounded courts and lawyers, to say nothing of patients and physicians. The result has been broad judicial deference to the "benefit" wording of ERISA, which has shielded most health plans from state law.

The court's greatest accomplishment in the Kentucky case was to address and eliminate the confusion, mainly by focusing on ERISA only. Applying the Kentucky standard in future cases, it will ask two key questions in regard to health plan regulation.

First, does the law regulate insurance? Second, does the law substantially affect the risk-pooling arrangement between the insurer and the insured?

That latter question means that a state couldn't regulate, say, the number of janitors a health plan hires, but could regulate anything that would affect the actual delivery of health. The high court had signaled that it was leaning in that direction in earlier decisions like 2002's Rush v. Moran, which upheld an Illinois law mandating independent review of health plan decisions. Now it has restated its position in concrete terms.

The AMA and other medical associations filed a friend-of-the-court brief affirming a state's right to regulate insurance. The ruling "adds clarity to patient protections established by state lawmakers against the abuses of managed care," said AMA President-elect Donald J. Palmisano, MD.

The court's decision paves the way for a ruling on one of the greatest managed care abuses of all -- the lack of accountability, in state courts, for managed care coverage decisions. There are already two federal cases, one from Texas and one from New York, in which lower courts have upheld patients' rights to sue HMOs for denying care.

Neither case is yet on the Supreme Court docket, and there are no guarantees of patient-friendly rulings if the appeals are ever heard. While that question of accountability waits to be addressed, the answer provided by the Kentucky ruling bodes well for both patient and doctor.