HMO Accountability

Kerry's HMO accountability proposal would allow people to sue HMO's for injuries caused by coverage denial. What the plan is really calling for is an amendment to ERISA section 502(a) which limits damages to contract damages for all employer provided health insurance plans. Kerry's plan is clearly a response to the Supreme Court's 2004 decision of Aetna Health Inc. v. Davila, (124 S. Ct. 2488), which held that ERISA 502(a) preempted state malpractice actions against an HMO's treatment decision. (The more cynical side of me believes that Kerry's plan is also a response to the Trial Lawyers lobby).

I have no problem with holding HMO's accountable to state tort actions (or to amending ERISA 502(a) damages) because the facts of these cases are usually pretty egregious and the injured parties deserve more compensation than ERISA currently provides. The problem that I have with Kerry's plan to hold HMO's accountable is that it contradicts his plan of reducing health care costs and frivolous claims.

By opening up HMO's to liability for treatment decisions, Kerry would force health insurers to incur substantial costs in both defending the claims and risk of liability faced. Health insurers would then pass these costs on to all consumers thereby raising the cost of health insurance for all. Also, without implementing some form of tort reform (or caps on his new ERISA 502(a) damages), the liability that these insurers face could be very substantial. Juries would be very sympathetic to a victim of negligent coverage decisions because the insurer would be acting out of business judgment (the Ford Pinto case is an example of what happens when a large corporation chooses to expose individuals to harm because of business judgment).

The large costs of defense and the massive exposure to liability would make insurers more likely to settle claims before they get to trial. This system would create an incentive to bring frivolous claims since an insurer will find it cheaper to settle many of these claims than it is to investigate the allegations and to proceed to the certification program level.

Thus, this plan is not going to cure the problem of rising health care costs, in fact it will raise health insurance premiums. As I stated earlier, I am not against amending ERISA to allow for greater remedies, I am just trying to point out a fundamental contradiction in Kerry's health care plan. Kerry would need to provide more than just a certification program to counteract the increased costs that will be incurred by all because of the expanded insurer liability.

Note: I realize that many of my posts are contradictory (for example arguing for tort reform here and against it in other posts). It is not that I am against many of the proposals themselves, it is that both candidates' plans, taken as a whole, are problematic and would not cure the health care crisis. My final post will go into why many of these proposals would be better implemented by the states and not the federal government because the states can create a more cohesive plan, taking into account their own geographical problems. My first eight posts are meant to point out some of the flaws in each proposal and not to argue that the individual proposals have no redeeming value.

Post #8 in the series will be up on Sunday and my final post will be up on Monday morning.

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