ERISA: A Prescription for Health Care Inequity
Tucker, William
E 11 CURRENT MEDICAL INSURANCE LAW FAVORS BIG CORPORATIONS AND LABOR UNIONS WHILE MAKING CARE MORE COSTLY FOR THOSE WHO CAN LEAST AFFORD IT. hi1uflklucNEfl here's been a lot of hypocrisy in...
...Following the model of auto insurance, many states began to set up programs to extend coverage to people with serious diseases...
...Clear that undergrowth and a national insurance market will emerge fully capable of indemnifying anyone who suffers a serious illness or accident...
...MSAs would alloweveryone to put aside $3,000 a year tax-free to pay for routine medical expenses...
...As in all socialist countries, rationing by price is replaced by waiting in line...
...An uninsured driver is more a risk to other people than to himself...
...The plan was immediately challenged by the Plumbing and Pipefitters Union, the Teamsters, the Graphics Communication Workers, and eight other Minnesota locals, which argued that the tax violated their ERISA exemption...
...Employers soon started circumventing the controls by offering health care benefits—a policy approved by the IRS in 1943...
...34 November 1998 • The American Spectator exempt themselves from these state mandates...
...Employees of the New York Times, on the other hand, pay $520 a year for full coverage, including dental care and prescription drugs, with a $750 deductible for the entire family...
...Since Clinton's failed initiative, many states have stepped up their regulations—with predictablydreary effects...
...But enterprising entrepreneurs saw an opportunity...
...The courts agreed with them...
...To give the Times editors their due, some healthy people bumped from job-based plans might be tempted to drop coverage altogether...
...In effect, safer drivers subsidize the riskier ones...
...We oppose mandated coverage and other government regulation that forces our employees to buy coverage they don't want...
...asks Mark Ugoretz, president of the ERISA Industry Committee ("Our membership is basically the Fortune zoo...
...In order to protect everyone, the states require insurance companies to form high-risk pools for people with bad driving records, offering them below-mar- , ket rates...
...Among them, of course, are those editors at the New York Times...
...In 1993, for example, Minnesota created a plan to extend insurance coverage to working families whose employers could not provide insurance...
...The vast majority— 52 percent—acquires insurance through its employer...
...First we should abolish the ERISA system...
...At the behest of President Nixon, Congress in 1974 passed ERISA, which committed the government to insuring all private pensions...
...November 1998 • The American Spectator 0 against property loss and liability claims...
...So why can't health insurance work the same way...
...Want to try now without slogging through to the end...
...With the explosion of state mandates that followed ClintonCare, the rush became a stampede...
...Then in 1973 the Studebaker Corporation went bankrupt...
...Congress finally allowed the states to regulate MEWAs in 1988 and they are now illegal in half the states...
...The whole myth of health care reform has been that there is a national market for health insurance," says Jack Ferris, president of the National Federation of Independent Business...
...Any money not spent could be rolled over to the next year...
...Such "stop-loss" insurance is now routinely sold to small employers...
...The strategy is particularly appealing to fringe groups—chiropractors, for example, or devotees of holistic medicine...
...This pushes up premiums and makes it necessary to investigate people's backgrounds...
...The whole crisis of "portability" (carrying insurance from job to job) —the subject of the Kassebaum-Kennedy Act of 1996 — involved only ERISA plans...
...This will mean creating medical savings accounts...
...Half the employees in New York state—all of them working for large and mid-sized corporations or belonging to labor unions—receive the same treatment...
...ClintonCare would have required employers to provide insurance and then herded all these job-related pools into regional buying cooperatives that would supposedly use their market leverage against doctors and hospitals...
...These so-called reforms have lowered premiums for the sick and elderly but nearly tripled rates for healthy young people...
...What we don't need is the government running the health care industry...
...This inevitably develops from an unholy alliance among health care providers, naïve consumer groups, and activist legislators...
...This would bring everybody back into the pool...
...With no price mechanism in effect, HMOs have substituted a bureaucratic maze...
...First and foremost, this bartering allowed employers to compensate their employees tax-free...
...With remarkable single-mindedness, the federal courts ruled that almost nothing could stand between an employee and his or her ERISA-protected health benefits...
...Every state but Utah now has a 2 percent tax on insurance premiums designed to fund such programs...
...Yet 16 percent of the population-41 million Americans—lacks health insurance, which is considered far more important...
...According to the Self Insurer, the monthly journal of the Self-Insurance Institute of America, there is no reason a two-person law partnership can't qualify for the ERISA exemption...
...Abolishing ERISA would mean taking on the Fortune 500, the nation's labor unions, plus middle-sized companies and non-profit organizations all over the country...
...Okay, here we go...
...We have proven in black and white that these regulations are counterproductive," said Grace-Marie Arnett, president of Galen...
...Why is it that we have a health insurance crisis but not an auto insurance crisis, a homeowners' insurance crisis, or a life insurance crisis...
...THE SUPREME COURT APPROVED THE CUTBACK BECAUSE THE PLAN WAS PROTECTED BY ERISA...
...Ninety-one percent of auto owners are insured and the other 9 percent are breaking state laws...
...Various studies have estimated that these state mandates drive up the cost of health insurance by as much as zo to 3o percent...
...Instead, they tend to enjoy writing insurance policies themselves through "mandated coverage...
...A family of four in New York now pays $8,000 a year for an insurance policy that has a $1o,000 deductible for each member...
...Thousands of workers were left without their pensions...
...There is no such thing...
...Second, legislators must stop trying to write insurance policies...
...What would this entail...
...Financial oversight of the industry should be given to either the states or the federal government but not both...
...Then, prompted by an eleventh-hour suggestion by Senator Jacob Javits, ERISA was also extended to so-called "Taft-Hartley Plans"—health benefits plans funded by employers but administered by their labor unions under the Taft-Hartley Act of 1947...
...Podiatrists, now covered in thirty states, have joined the Office Professional Employees International (AFL-CIO) to bargain with states over coverage...
...Yet instead we got ClintonCare and its subsequent piecemeal attempts to nationalize the health care industry...
...The legislature will respond by mandating that every insurance policy include mental health coverage...
...According to Self-Insurance Institute, self-insurance is now practiced by 97 percent of companies with 5,000 or more employees (up from 90 percent in 1992), 88 percent of companies with ',coo to 4,999 employees (up from 76 percent), 74 percent of companies with 100-999 employees (up from 53 percent), and 40 percent for companies between 5o to 99 employees...
...The same logic was sending Medicaid patients to the emergency room for complaints that could have been handled by a general practitioner...
...Let's start with a few observations...
...Hillary Clinton's famous remark, "I can't be responsible for every undercapitalized small business in America" is probably the closest an American President's wife has ever come to saying "Let them eat cake...
...REFUSING TO COVER NEWBORNS UNTIL IT IS CLEAR THEY HAVE NO CONGENITAL DISEASESACTUALLY INVOLVE ERISA PLANS...
...The mechanism by which insurance succeeds in other fields is simple—free enterprise with an occasional dash of state intervention...
...In truth, the health benefits lavished on employees of major corporations became so comprehensive that they barely qualified as "insurance" at all...
...In fact, once you recognize the significance of one little five-letter acronym —ERNA— all the mysteries of the "health care crisis" disappear...
...Seventy-eight percent of all families have someone who carries life insurance...
...But self-insurance among established companies continues to proliferate...
...With auto insurance, all states require drivers to insure themselves or at least bank a cash reserve big enough to indemnify other motorists...
...Nonetheless, union plans were also put outside the reach of state laws —solely on the grounds that it was too difficult to cope with all of them...
...Ending ERISA will restore a national market for health insurance...
...Is it because they are profit-making corporations...
...The only practical solution is to put money and decision-making power back in the hands of consumers...
...After this magnificent show of courage, employers will almost certainly stop providing health benefits—but that's exactly what we want...
...Unfortunately, what (Continued on page 86) AN AIDS PATIENT CLAIMED $1,000,000 IN LIFETIME BENEFITS, BUT HIS INSURANCE COMPANY PAID HIM ONLY $5,000...
...In this case, the courts have ruled, the majority of beneficiaries are to be protected—even if it means jettisoning the sick and dying...
...Yet under ERISA—and this is the important thing—large, self-insured employers are able to ERISA'S "ANTI-ALIENATION" CLAUSE HAS ENABLED O.J...
...One-third of the employees end up pocketing some of the money...
...Insurance companies actually prefer the employer-based system because it brings in large numbers who might not otherwise purchase insurance...
...Meanwhile, employees of small firms, the self-employed, and the unemployed are left with the burden of subsidizing New York's sick and elderly...
...In a study released in August, the Galen Institute, of Alexandria, Virginia, showed that in the sixteen states identified by the General Accounting Office as having taken the most aggressive initiatives in regulating health insurance since 1990, the uninsured population has grown eight times faster than in the other thirty-four states...
...36 November 1998 • The American Spectator ERISA/Tucker (Continued from page 36) nobody ever considered was that such huge buying cooperatives would use their market leverage against consumers as well...
...Don't worry, probably not one person in a thousand does...
...There was little inherent logic to the move...
...It's virtually impossible to set up a pool that will benefit the uninsurable when half the state's employees can immediately opt out," said Sue Crystal, former member of the Washington State Health Board One of the most egregious efforts has been New York state's 1993 health reforms, instituted at a time when 15 percent of the population did not have health insurance...
...Simpson to put his National Football League pension off-limits in settling his $33 million obligation to the Goldman family...
...The courts eventually extended this umbrella to all self-insured employee benefit programs—plans in which the employer forms a risk pool out of its own employees rather than buying insurance from a commercial carrier...
...Yet ERISA plans are shielded from these reforms, meaning that the 5o percent of employees working for sizable corporations do not have to participate in this subsidy...
...In 1992, 52 percent of insured employees were in "feefor-service" plans, meaning they could choose any doctor and send the bill to the company plan...
...By 1990, 33 percent of the country's employees—almost all of them in major companies or labor unions—were in ERISA self-funded plans...
...A Texas company, facing a claim for $1 million in lifetime benefits from an AIDS patient, reduced the benefit to $5,000...
...With fewer than ioo employees, there is not even a form to fill out "Basically, it's a self-declaration," said Gloria Della, spokesperson for the DOL's Pension and Welfare Benefits Administration...
...Understand any of that...
...For these marginal providers, state-mandated coverage is the Holy Grail...
...Just as almost everyone now owns a telephone or a VCR, so the ranks of people of those who cannot afford health insurance will quickly dwindle...
...Not at all...
...Insurance implies the pooling of risks to cover unusual or unexpected expenses...
...This time it was health maintenance organizations...
...Often we didn't even know these companies existed until unpaid claims came pouring in," said Brian Atchinson, former president of the National Association of Insurance Commissioners...
...The rise of HMOs has indeed been the most dramatic development in health care over the past six years...
...In particular, no state laws—not even those involving murder or incest—could separate a pensioner from his or her pension...
...All it will require is having the president and Congress stand up to all the major corporations and unions in America...
...The federal government was not—repeat not — insuring these health plans...
...As Goodman and Musgrave argued in Patient Power, the joy of spending someone else's money—plus the defensive strategies brought on by malpractice—were the principal engines driving medical inflation...
...Another 23 percent relies on Medicaid, Medicare, and other federal programs...
...As a result, 900,000 people dropped health insurance between 1991 and 1996...
...Among companies with fewer than ten employees, 75 percent of the workers do not have any health insurance...
...The same clause has enabled O.J...
...But Congress recently approved an experimental plan in which the Government would provide tax subsidies to people who want to drop out of the common pool and buy cover- age on their own...
...Of course, all beneficiaries' interests are not alike...
...Meanwhile, every employer would have been mandated to provide health insurance — a burden that would have bankrupted thousands of small companies...
...Although they probably aren't even aware of it, the Times editors who penned this scold are themselves beneficiaries of a self-insurance plan funded by the Times and administered by its labor unions that exempts Times employees from state mandates and health insurance reforms...
...Almost all the horror stories you have heard about "insurance companies" actually involved ERISA plans...
...The practice of excluding newborn infants from benefit programs until it could be determined whether they had congenital defects was practiced solely by ERISA plans...
...Perhaps the most famous case —cited once again by President Clinton in introducing the Patient Protection Act— is Greenberg v. H 6 H Music...
...2. ERISA enables employees of large corporations and unions to avoid contributing to state health reforms designed to subsidize the poor...
...Consumers have lost out in the process...
...We're much happier when employers deliver us large groups, most of whom are healthy...
...Only nine percent of the population buys health coverage directly from an insurance carrier...
...The HMOs have simply extended the practice, long followed by major corporations and labor unions, of invoking ERISA to exempt themselves from state regulations and statutes malpractice laws being among them...
...Big corporations and unions have been allowed to create their own sheltered market under ERISA...
...By turning over financial decisions to large corporate entities, they have sacrificed their power of choice...
...Why should our members have to pay extra just because of these state laws...
...Of the 52 percent of people covered through their employers, 85 percent are now in programs practicing "managed care" (although "managed costs" might be a more appropriate term...
...In November 1997, President Clinton announced that we were in the midst of yet another health care crisis...
...The MEWA era is remembered as a bad dream among state insurance commissioners...
...o where does all this leave us...
...Although ERISA forbade them from even asking for a phone number from a MEWA, they inevitably got the blame when a plan went belly-up...
...As a result, health insurance has remained eminently affordable for employees of large industries, while growing progressively more expensive for everyone else...
...Premiums nearly tripled for people under age 3o...
...New York adopted a "community rating" and "guaranteed issue," which means that insurance companies cannot evaluate risks but must offer the same prices to 25-year-olds and 7o-year-olds, people in perfect health and people with AIDS...
...Having discovered the tax-free loophole, however, major corporations began funneling more and more financial rewards to their employees...
...Companies with fewer than 5o employees are only 13 percent self-insured...
...What's the problem...
...Incredibly, President Clinton's 1993 health care reforms were aimed at protecting the benefits for large employers while shifting even more of the burden to small business...
...Amend the 1974 law to exclude health benefits (pensions can remain) and the problem will be solved...
...Only for small business—the most dynamic sector of the economy—does the health insurance crisis hit home...
...Among the most onerous are New York state's ill-conceived "guaranteed issue" and "community rating" laws, adopted in 1993...
...agreed to call it "business insurance," thereby allowing much smaller employers to partake of ERISA...
...The strategy proved to have significant advantages...
...Yet in every one of these states, ERISA plans have been able to exempt themselves from the negative effects...
...Almost every word of that paragraph reeks of hypocrisy...
...Although this might seem a simple breach-of-contract, the United States Supreme Court ruled in 1992 that the cutback was permissible because the plan was protected by ERISA...
...Here's one good reason...
...The states also set up high-risk pools...
...y the mid-1980's, word about ERISA was spreading rapidly...
...As a result, all employee pension plans were put out of reach of state legislation and under the rather lax oversight of the Depaitment of Labor...
...Vaguely aware that the bill might come due one day, Congress decided to protect itself by inserting an "anti-alienation" clause, which said that under no circumstances could pension money be diverted from its beneficiaries...
...The bag is getting heavier...
...Crucial has been the invention of "stop-loss insurance," which insulates smaller plans from insolvency...
...Between 1988 and 1991, 400,000 MEWA members were stuck with $123 million in unpaid medical bills by fly-by-night MEWAs...
...Ninety-six percent of homeowners carry insurance and even 26 percent of renters insure themselves WILLIAM TUCKER is TAS's New York correspondent...
...The rise of HMOs is generally credited with controlling health care costs, which were increasing at 11 percent annually in 1992 but now rise only 4 percent...
...he whole thing began during World War II when wage and price controls forbade defense contractors from bidding up wages for wartime workers...
...In their landmark book, Patient Power (Cato Institute, 1992), John Goodman and Gerald Musgrave argued that these expensive state mandates are precisely what has driven low-income people out of the market...
...We're always left holding the bag...
...Is there a trade-off...
...At first, it was believed that only companies with 5,000 or more employees were large enough to spread the risks in these self-insurance pools...
...Why are HMOs exempt from medical malpractice suits...
...So here's where the auto-insurance example comes in...
...Citing several horror stories, Clinton announced a proposed "patient's bill of rights" that would open HMOs to malpractice suits for denied treatment, mandate three-day hospital stays for mastectomies, and add several The American Spectator • November 1998 other measures recommended by the President's Advisory Commission on Consumer Protection and Quality...
...The HMOs' first mistake has been to continue the tradition of providing prepayment of all medical expenses, rather than real medical insurance...
...Today only 15 percent of employees have fee-forservice...
...As a result, two things happen: mental health providers are assured of a much wider pool of paying patients, and people who don't want mental health coverage are forced to buy it anyway...
...Many of these people have simply foregone insurance and the state's uninsured population has risen to 19 percent...
...The practice of arbitrarily cutting off benefits when serious illness struck occurred only in ERISA plans...
...Employees without dependents get the same policy for free...
...Banks and mortgage holders require homeowners to buy property insurance...
...Right now the major obstacle to a nationwide insurance market is the two-tier system created by ERISA...
...The offer, of course, put the government on the hook for untold billions...
...So try answering this question...
...Then, for that very small minority of people whose medical condition makes them uninsurable, special high-risk pools can be created...
...Typically, the insurance company agrees to pick up any individual claim over $5,000 and total annual claims over $25,000...
...North Carolina mandates pastoral counselors and Florida mandates massage therapists...
...Any company plan that pools fewer than 1,000 employees risks being bankrupted by one or two large claims...
...Had we been looking for an example of universal coverage, auto insurance would have provided the perfect model...
...It was through this small loophole that the "health insurance crisis" entered the national stage...
...This meant avoiding income taxes plus Social Security and eventually Medicare payroll taxes as well...
...Although 44 states have enacted at least one of the protections recommended by the Quality Commission," Clinton intoned, "millions of Americans lack many of these protections because of the extent to which the Employee Retirement Income Security Act of 1974 (ERISA) preempts state-enacted protections...
...Yet for almost a decade, in election after election, the country has turned itself inside out arguing over something hardly anybody understands—the two-tiered health care system created by the Employment Retirement Income Security Act of 1974...
...Once this loophole was established, the urge to funnel tax-free benefits through it became irresistible...
...Why not say that, in order to qualify for an MSA, an individual must also buy a good old-fashioned, high-deductible "hospitalization and major medical" policy for less than $1,000 of tax-free money...
...Knowing they were spending other people's money, employees were soon visiting the doctor for every sniffle...
...Washington state eventually abandoned its 1994 plans for a statewide high-risk pool and subsidies for the poor when Congress refused to grant a waiver to the ERISA law...
...There is no federal money at stake...
...Inevitably, prices rose for the young and healthy and declined for the elderly and infirm...
...But what if the company or union buys insurance to protect against such emergencies...
...The practical result of the Clinton health initiative was the rise of health maintenance organizations...
...Finally, Congress should extend the privilege of buying health care and insurance with tax-free dollars to all Americans...
...To the untutored eye, this might seem like health insurance with high deductibles...
...But dodging state mandates wasn't the only value of ERISA...
...SIMPSON TO PUT HIS NFL PENSION ENTIRELY OFF-LIMITS IN SETTLING HIS $33,000,000 OBLIGATION TO THE GOLDMAN FAMILY...
...Is it because they are practicing managed care...
...There are now more than 1,0o° separate state mandates—up zo percent since 1990...
...The $250 million plan was financed by a two-percent medical provider tax...
...Kaiser Permanente, the nation's first HMO, was co-founded by Henry Kaiser in 1945 as a way to deal with the burgeoning cost of health benefits he was providing in his postwar industrial plants...
...The reasons are social...
...You don't buy homeowners' insurance to cover the plumber's visits or auto insurance that pays for oil changes...
...The basic difficulty—never fully Par 14 articulated—is that there is no national market for health insurance...
...The more generous health plans soon included dental care and prescription drugs, plus "first-dollar coverage," meaning that members paid none of their own medical expenses...
...You may laugh, but the Supreme Court ruled in 1997 that ERISA's anti-alienation clause trumped state community property laws in dividing up a deceasedemployee's estate...
...Why don't President Clinton and the Republicans and Democrats in Congress take the bull by the horns and do away with ERISA entirely...
...Those who truly could not afford this policy would likely be on Medicare or Medicaid...
...When the Texas-based Ministers Benefit Trust collapsed in 1981, its founder, an ex-insurance man, promptly set up the Christian Organization Medical Society, which soon left another $5 million in unpaid claims in its wake...
...When Arkansas passed an "any willing provider" law in 1996, requiring that HMOs include any doctor who applies (thus depriving HMOs of their bargaining power), Tyson Foods, the state's largest employer, and the Arkansas AFL-CIO sued to have themselves exempted under ERISA...
...Third, we should extend the advantage of paying for medical expenses with tax-free money to everyone...
...State insurance commissioners tore out their hair...
...The Times editors' jeremiad against "healthy people who want to drop out of the common pool...leav[ing] the chronically ill to fend for themselves" applies exactly to themselves...
...and 3. by bifurcating the health insurance market, ERISA has become the prime reason that 41 million Americans cannot afford health insurance...
...Most Americans buy health insurance through their employers in common insurance pools that include healthy and sick people alike," wrote the Times in October 1996...
...Under ClintonCare, companies with over 5,000 employees would have been allowed to remain outside the state-run regional health cooperatives — a mimic of the ERISA exemption that would have insulated them from being pooled with chronically ill people...
...Remarkably, the Department of Labor exercises virtually no oversight over the qualifications of ERISA plans...
...Forbes's overall medical costs have declined (although much of this is because the company used the opportunity to self-fund and join ERISA...
...In theory, this means exercising financial oversight so that insurance companies have enough reserves to meet their claims...
...Unfortunately, you're going to have to read this entire 4,000-word article to understand why...
...After the war, the IRS tried to revoke the exemption but Congress—under heavy pressure from major employers—wrote it into Section io6 of the tax code in 1954...
...Since 1996, Forbes magazine has given each employee a $1,500 account to pay for medical expenses...
...Soon they were scouring the country creating MEWAs—"multiple employer welfare associations" —that pooled ministers, schoolteachers, construction workers, or other professionals into makeshift self-insurance pools eligible for the ERISA exemption...
...Once again, ERISA companies and unions claimed exemption...
...Mile criticizing ERISA's negative effects, the White House failed to note that: 1. it is pre33 cisely this exemption from state regulations and malpractice claims that makes medical insurance so cheap for employees of large corporations...
...Meanwhile, small businesses and their employees must assume all the costs of state mandates and high-risk pools...
...But the courts have The American Spectator November 1998 ALMOST ALL THE HORROR STORIES ABOUT "INSURANCE COMPANIES"-E.G...
...But ambitious legislators have never been content to stop there...
...There is no harm in the government encouraging the purchase of health insurance, just as it encourages home ownership and capital investment...
...The state premium taxes, they argued, forced them to spend health benefit funds on other people rather than their own members...
...Twenty-four states mandate coverage for social workers, seven for occupational therapists, six for acupuncturists...
...Doctor's visits are still ridiculously cheap—an average "co-payment" of $10 per visit, versus the $5o you pay to summon the plumber...
...Since the McCarran-Ferguson Act of 1945, states have had the sole power to regulate the insurance industry...
...If one employee comes down with a grave illness, other members of a self-insured program may face increased premiums—even bankruptcy of the plan...
...Abolishing ERISA will be easy...
...Psychologists and psychiatrists, for example, will band together and appear before a state legislature with alarming reports of a "crisis" in mental health...
...There certainly is...
...Washington state went whole hog last year and mandated chiropractors, acupuncturists, naturopaths, and all forms of alternative medicine...
...Highly organized chiropractors have pushed through mandated coverage in forty-two states...
...People tend to wait until they are confronting major medical expenses before they buy health insurance," says Richard Coorsh of the Health Insurance Association of America...
...hi1uflklucNEfl here's been a lot of hypocrisy in the health care debate, but for sheer chutzpah probably nothing matches a series of recent editorials run by the New York Times opposing the Republicans' proposal for medical savings accounts...
...Although these government entities did not materialize, private HMOs have done much the same thing...
...But what did it matter...
...In the end, it's easier to let 41 million people go uninsured...
...People buy life insurance of their own accord...
...The likely outcome is that only well-off healthy people will choose these individual medical savings accounts...
...The last 16 percent—up from 13 percent in 199o—has no insurance at all...
...That would leave the chronically ill to fend for themselves and thereby eviscerate the notion of insurance...
Vol. 31 • November 1998 • No. 11
