Statement of Michael J. Toohey, Director, Government Relations, Ashland, Inc.,
on behalf of the National Association of Manufacturers

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Patient Protections in Managed Care

April 24, 2001

Though I usually wear a governmental affairs cap, I am here to testify as a beneficiary of Ashland's health plan, without which, I might not be alive today. Let me tell you a little of my story.

In April of 1994, I went to the doctor to check on a persistent cough. I was diagnosed with CML, which is a chronic form of leukemia. My life expectancy at that point was six years.

Fortunately for me, I work for Ashland, which voluntarily sponsors a health plan. With their support, I entered the Fred Hutchinson Center in Seattle, one of the top leukemia research facilities in the country. I underwent a bone marrow transplant and have been symptom-free ever since. I owe my life to Ashland's health plan.

I would be in big trouble if that health plan ever disappears. Given my history, I probably could not afford coverage in the individual health insurance marketplace, even if I were to find someone willing to offer it to me. The coverage that Ashland provides me is irreplaceable, just as it is for the 172 million Americans who receive their health coverage through the workplace. I hope you will tread lightly as you consider new legislation and, above all else, don't make it more difficult for Ashland to provide my coverage. It is already hard enough.

The cost of health coverage for the NAM's 14,000 members (including 10,000 small and mid-sized manufacturers) is once again increasing at a double-digit rate (12-13% on average). In light of this renewed health care inflation, the NAM urges Congress to be wary of adding additional costs to health coverage costs. We can't afford to price both employers and employees out of health coverage.

A good managed-care reform bill will provide additional protections and ensure procedural fairness to beneficiaries without adding much in the way of additional costs. H.R. 526, the so-called "Bipartisan Patient Protection Act" introduced in the House by Reps. Ganske and Dingell does not come even remotely close to meeting this definition. Indeed, by exposing employers directly to federal and state health care liability and indirectly to the downstream costs of federal and state HMO and insurer liability, the Ganske-Dingell bill (and similar bills) will greatly increase health coverage costs and, consequently, will inflate the rolls of uninsured Americans.

Expanded health care liability helps no one but the trial bar. Ganske-Dingell and similar bills purport to shield employers from liability, but, in fact, they all still ensnare employers in potential health care liability through clever drafting (e.g., "discretionary authority" and the definition of "direct participation"). Employers will be forced to bear the time and expense of litigating over the extent of their participation and authority exercised over the disputed benefit determination.

Further, not one of these bills shields the health care purchaser - whether employer or individual - from the increased cost of coverage due to HMO or insurer liability. Even the Texas Health Care Liability Act - which clearly and unambiguously says one may not sue an employer-sponsor of a health plan - fails to protect employers from the downstream cost of HMO and insurer liability. In the NAM's view, there is no good or acceptable expanded health care liability.

We, too, would like to see this issue off Congress' agenda. However, the NAM is unwilling to gamble the future of the employer-based health care system - which provides coverage to more than 172 million Americans. We hope you will join us in first protecting what works best in health care today: employer-sponsored health coverage.

Health Plan Accountability

A persistent myth in this debate holds that HMOs and other health insurers can only be held accountable by the threat of health care liability. The NAM strongly disputes this unfounded conclusion. The best means to health care accountability, in our view, lies in a well-structured independent external review procedure that binds both the plan and the beneficiary. A quick, timely review - first internally by the plan and then by independent physicians in the external review procedure - will help ensure that patients receive what they desire most: good quality health care on a timely basis.

Health care liability punishes both good and bad actors - almost without distinction - and will threaten coverage for the 172 million Americans who receive their coverage through the workplace. Manufacturers and workers alike will bear the aggregate cost of expanded health care liability - a cost we believe has been greatly underestimated in the past - which is of great concern in an environment of double-digit health care inflation.

The greater concern is that employers will be forced to defend themselves from direct health care liability, an expensive and time-consuming proposition, at a minimum, and potentially a business-killing prospect. Any possible positive effects of health care liability are by far outweighed by its negative consequences, which are unnecessary given the availability of binding external review to hold health plans accountable. The NAM remains strongly opposed to expanded health care liability.

Employer Liability

Another persistent and insidious myth in this debate has been that the Ganske-Dingell, the old Dingell-Norwood and other patients' rights bills do not expose employers to direct liability. This is simply not the case.

As noted earlier, the Ganske-Dingell bill relies on clever drafting to ensnare employers.⁽¹⁾ The very term "direct participation" - upon which the sponsors rely in arguing that, unless an employer "directly participates" in the decision to deny benefits, he or she won't be liable - is defined as including the "actual exercise of control" over the decision. Like the earlier "discretionary authority" standard, the "direct participation" standard implicates ERISA's fiduciary responsibility duty. At the very least, employers will be forced to litigate the extent of their "direct participation" or "actual exercise of control." The Ganske-Dingell bill, like the Dingell-Norwood bill before it, exposes employers directly to liability.

Employers and Health Care Liability

Some have sought to downplay the risk of employer liability, citing the lack of employers willing to state publicly their intention to drop coverage rather than face expanded health care liability. The danger of these proposals isn't only in the number of employers who would drop coverage; there is also a real risk that expanded liability would force many employers to reduce benefits or increase employees' share of coverage costs - strategies already well under consideration due to the present double-digit health care inflation. A worker who cannot afford the coverage his employer offers is just as uninsured as a worker whose employer no longer offers coverage.

It is no surprise to us that most companies are reluctant to publicly state that they will drop coverage. Both employees and investors are likely to react adversely to a premature declaration, making polls and surveys a valid and safer way to gauge employer concern. In our most recent poll of small manufacturers, nearly 60 percent said they would seriously consider dropping coverage in response to expanded liability.⁽²⁾ In our view, we can neither afford to increase the number of uninsured Americans (43 million) nor reduce the number of Americans with employer-sponsored coverage (172 million).

Additional Patient Protections

Although there is broad consensus on the subject matter to be covered (e.g., external review, pediatricians as primary care physicians, direct access to OB/GYNs, emergency room treatment), there remains considerable disagreement on the specifics of these proposals. Last Congress's conference committee on managed care reform discovered this, much to its ultimate frustration. For our part, the NAM urges Congress to proceed carefully and with an awareness of the high and increasing cost of coverage. The most trivial of mandates becomes important if it becomes the straw that breaks the camel's back and prices the worker and his family out of coverage.

We urge your particular attention to the question of what standard will govern the external review panel's examination of a disputed benefit determination. It makes sense to us that the health plan's terms - particularly its definition of medical necessity - should govern. After all, the plan's terms are what we design or purchase. Many patient protection proposals have taken the position that the review should be made de novo, without regard to the plan's terms and definitions. In our view, this approach will create as great a potential for increased costs as would expanded health care liability. The better approach would allow the plan's enumeration of covered benefits to govern and would give substantial deference to the plan's definition of medical necessity.

Conclusion

The NAM strongly opposes the Ganske-Dingell bill and similar bills that will expand health care liability for employers, HMOs and other health insurers. We urge Congress to adopt a more limited patient protection bill that relies on binding independent external review to resolve disputes over benefit determinations, instead of costly and wasteful litigation. President Bush also has indicated he favors a more limited approach.

It is more important than ever that we build on the strength of our employer-based health care system to expand coverage, rather than expand the rolls of uninsured Americans. I thank the Subcommittee and will welcome your questions.

1. Sec. 302 Availability of Civil Remedies

Sec. 302 (a) creates a new federal cause of action under new subsection (n) of Section 502 of ERISA.

Paragraph (4) of the new subsection (n) is entitled Exclusion of Employers and Other Plan Sponsors.

Paragraph 4 (A) Causes of Action Against Employers and Plan Sponsors Precluded. - Subject to subparagraph (B), paragraph (1) (A) does not authorize a cause of action against and employer or other plan sponsor maintaining the plan…

But,

Paragraph 4 (B) Certain Causes of Action Permitted. -

Notwithstanding subparagraph (A), a cause of action may arise against an employer or other plan sponsor …

(i) … to the extent there was direct participation by the employer or other plan sponsor (or employee) in the decision of the plan under section 102 of the Bipartisan Patient Protection Act of 2001 upon consideration of a claim for benefits or under section 103 of such Act upon review of a denial of a claim for benefits, or

(ii) … to the extent there was direct participation by the employer or other plan sponsor (or employee) in the failure described in such clause.

And

Paragraph 4 (C) Definition of Direct Participation -

(i) Direct Participation in Decisions - … the term "direct participation" means … the actual making of such decision or the actual exercise of control in making such decision or in the conduct constituting the failure.

2. NAM Survey of Small Manufacturers, February 2001. 58.82 percent of respondents said they would "seriously consider dropping coverage."