Expanded Managed Care Liability: What Impact On Employer Coverage?

PROLOGUE: Unlike most other industrialized nations, which compel employers to contribute to, if not cover the entire cost of, health insurance, the U.S. employer-based system is voluntary. Neither federal nor state laws require employers (except in Hawaii) to finance insurance coverage for employees and their families. Under this voluntary approach a large (64 percent in 1996) but declining number of all nonelderly Americans receive health benefits through the workplace. But what happens if the federal government, through legislated policies, upsets the balance of interests that persuade most large, if not all small and medium-size, employers to offer their employees health insurance? In this penetrating paper David Studdert and three colleagues examine this question in the context of the intense congressional debate over whether patients should be allowed to sue managed care companies. Studdert holds advanced degrees in law (University of Melbourne, Australia), health policy, and public health (both from Harvard University). He is a policy analyst at RAND and worked previously as an attorney and as an adviser to the health minister in Australia. William Sage, a physician and an attorney (both degrees from Stanford University), is an associate professor of law at Columbia University. Carole Gresenz holds a doctorate in economics from Brown University and works as a health and labor economist at RAND. Deborah Hensler is a professor of law at Stanford University and a senior fellow at the RAND Institute for Civil Justice. ABSTRACT: Policymakers are considering legislative changes that would increase managed care organizations' exposure to civil liability for withholding coverage or failing to deliver needed care. Using a combination of empirical information and theoretical analysis, we assess the likely responses of health plans and Employee Retirement Income Security Act (ERISA) plan sponsors to an expansion of liability, and we evaluate the policy impact of those moves. We conclude that the direct costs of liability are uncertain but that the prospect of litigation may have other important effects on coverage decision making, information exchange, risk contracting, and the extent of employers' involvement in health coverage.