TESTIMONY

 

HB 710

 

STATE HOUSE JUDICIARY COMMITTEE

 

JANUARY 20, 2000

 

GETTYSBURG, PA

 

ROSS SCHRIFTMAN, RHU, LUTCF

LEGISLATIVE CHAIR

PENNSYLVANIA ASSOCIATION OF HEALTH UNDERWRITERS

 

HEALTH INSURANCE LIABILITY - UNINTENDED CONSEQUENCES

TESTIMONY - HB 710

 

My name is Ross Schriftman.  I serve as legislative chair of the Pennsylvania Association of Health Underwriters.  Our membership is primarily composed of health insurance agents who serve the needs of hundreds of thousands of our fellow citizens.  The products we sell and service include health, dental, long term care and disability insurance as well as other group and individual benefits.

 

Our members are very concerned about the trend toward additional liability specifically in the area of health insurance.  Although the popular stance today is to support the right of patients to sue their health insurers, we believe there are dire unintended consequences that you must consider.

 

Many say that the mere threat of law suits will make health insurers more accountable.  However, what is the real goal that we are trying to achieve?  Is it accountability or quality health care for all Americans?  Is it blame or better treatment?   We believe the ultimate goal is quality health care for all of us.  We do not believe that expansion of liability works toward that end.

 

First, you need to understand human nature.  People do not purposely put themselves at greater risk to be sued on a voluntary basis.  Let me start with the impact on the business community which is the primary source of the dollars for health insurance in our nation.

 

 

Negative impact on the business community

According to a study done last year by the Louisiana business community to its members, 90% would not offer a health plan if the premiums would increase to cover the cost of employees being able to sue their health plan.  Also, 94% of the respondents in the survey would not offer a health insurance plan if they could be sued by an employee for the actions of their health plan.  The participating organizations in this survey were the Louisiana Association of Business and Industry, the National Federation of Independent Business, the Louisiana Health Care Alliance, the Louisiana Association of Health Underwriters and the Louisiana United Business Association.

I have attached a summary of this survey to my testimony as well as several articles addressing the issue of health insurance liability.

The business community is very concerned about the expansion of liability. Even if business owners were not liable, they may be called upon to testify at a trial since they had input in the selection of the health insurance for their employees.  Questions such as “Why did you select the plan you did?” and “Didn’t you investigate whether this insurer had a history of denying care to the people they insure?” would certainly be raised to a business owner.

 

A small business owner would lose valuable time and business focus dealing with this matter.  He or she would have to pay an attorney, review employee enrollment documents, plan summaries and other document to prepare for trial.  Oddly enough, the business owner who provides no health insurance to his or her employees escapes all these problems.  Those business owners, even today, have a tremendous advantage over their competitors who do provide health insurers.  Not only can they sell their product for less because they do not expend money for health insurance, they also do not have to deal with regulatory issues raised by such laws as COBRA, HIPAA, and ERISA when it comes to group health insurance.  Add liability to the mix and many will walk away from their social mission to help their employees insure their health care needs.

 

Without the business community providing health insurance, the system will collapse.  We have already seen a rise in the number of Americans without health insurance.  Studies have shown that most of these people are employed, but their employer cannot or will not provide health insurance.  The reasons include the ones listed above.  Now add another liability and see more stop participating.

 

Businesses have already taken the brunt of increasing health care costs demonstrated in the premiums.  Add the added costs of liability and many will walk.

 

Negative impact on the medical community

 

We strongly support tort reform; not expansion of medical liability.  If more law suits occur by adding health insurer liability, doctors will be spending more time in court and less time practicing medicine.  After all, they have the medical records and they have been treating the patient.  Again, just like any business, the doctor will have to focus time and effort and preparation for a case and less time seeing patients.  Who suffers?

 

We have also seen the collapse of several large HMO’s; one just to our East in New Jersey.  Insurers cannot continually raise premiums to cover questionable treatment requests and to defend themselves in court.  If premiums are not raised, however, there will not be enough money to pay their bills and hospitals and other providers do not get reimbursed for the services they provided.

 

Insurers and providers are integrally untwined when it comes to financing health care.  Providers cannot operate without the money provided by the insurers.  The insurers must remain solvent and profitable to have the money to pay claims on a timely basis.  Law suits disrupt this process and make health care worse; not better.

 

Furthermore, the recent report by the National Academy of Sciences contained valuable information this committee should review.  The report estimated that 98,000 Americans die each year due to medical errors.  One of the most disturbing findings of the report was that doctors and hospitals seek to hide these mistakes out of concern that they would be subject to litigation. The irony here is that by admitting a mistake an individual or organization can be sued.  It is common sense that in order to fix a problem, you must first admit that you have one.  We have become a nation of denial whenever an error is made.  For example, it certainly would be refreshing for elected officials to go home to their constituents and say, “I admit I voted the wrong way on that bill and I am sorry for the harm it has caused.”  However, you and I now that the public will not be forgiving.

 

The Federal Agency for Health Care Policy and Research has funded a research project by Dr. Lucien Leape and others who have the responsibility for shifting the focus of ways to reduce errors from blaming individuals to addressing system problems that make errors likely to happen.  We believe this is the kind of effort that needs to be made if we are to achieve better health care.

 

Will we ever eliminate all mistake? .  Do we always know the best treatment?  Liability may cause some to do the least and not the best for the patient for fear of being sued.  Also, what happens if the health plan goes along with the doctor on a decision and the doctor is wrong and the patient is harmed?  Who becomes liable?  It is always easy to second-guess a decision after harm is done.

 

We now are beginning to see real potential patient harm directly related to the increase in law suits.  I have included with my testimony, a statement concerning the AMA’s fear that the pap test will no longer be performed because an increase in the number of law suits.  Again we have an irony.  Will women die in the future, because providers fear law suits?  On the other hand, are there any studies proving that liability improves the quality of health care?  I have not seen one.

A recent briefing by the Washington Legal Foundation is included in my testimony.  Legal scholars believe lawsuits will hurt; not help.

 

 

Negative impact on patients

 

None of the protections the bill addresses extend to those who have no health insurance or lose their coverage because of the price for that protection.  Ultimately, those that bear the cost of successful law suits are those that are insured by the plan.

 

When a tobacco company is successfully sued and the cost of cigarettes increases, some people may decide no longer to smoke.  That is a good thing.  However, when an insurance company is successfully sued and the premiums for coverage increase, some people are forced to drop coverage and that is a very bad thing.

 

One successful law suit in California will cost an HMO $113 million if their appeal to the decision is denied.  Whether or not the case has merit, the success of this suit would cost every insured person $113 if the insurer has 1,000,000 people in their plan.  Add to this just 50 law suits of the same size in Pennsylvania and we are talking about more than $5 billion out of the pockets of all of us.

 

 

Negative impact on taxpayers

 

The fewer Americans have private health insurance, the larger the number of people who become the responsibility of the government eventually through the Medicaid program.  Expenditures for Medicaid in Pennsylvania are more than $5 billion per year when you include medical assistance for health care and long term care.  If more people lose their private health insurance, will you be willing to raise taxes to cover these people under government programs,  if you made a mistake by passing legislation that opens the floodgates for law suits?

 

Also, consider the cost to taxpayers for the judges, court staff and court time involved in hearing these cases.  What other important legal matters will not be heard and how many additional judges will need to be added and new courtrooms built if the number of cases increases dramatically.  If you do not think medical malpractice extending to health insurers will increase the number of cases, you need only look at the yellow pages in your local directly.  I recently reviewed the Philadelphia Yellow Pages.  There are 30 pages of listings of lawyers in Philadelphia.  That sounds normal.  However, there are just as many pages of ads for personal injury lawyers.  The pitch in the ads is always the same. “You pay no fee unless we recover” and “You are entitled to the highest award possible.”  What they are saying is that you have nothing to lose by suing and you could receive substantial sums of money.  It’s even better than the lottery because you don’t have to lay any money down.  How many cases are settled prior to court just so the target of the suit can avoid a long and costly battle?  For health insurers, how many questionable treatment decisions would be covered simply because the insurer is afraid to deny?  We may never know this.  We would only know how many cases were brought forth and how much money insurers would have to pay.  The real cost of defensive treatment coverage approvals is ultimately paid for by policyholders.

 

Negative impact on health insurers

Health insurers get their money to run their business in two ways.  First is from the premiums we all pay for our coverage.  Second, if the insurer is for-profit, it receives capital through the faith of investors buying their stock and hoping they will turn a profit.  If an HMO or other insurer is losing money or facing law suits or about to have additional regulations imposed on them by legislators, they are less attractive to investors.  If you don’t believe that this is happening, I suggest you review some of the financial reports from services such as Standard and Poors on the advisability of investing in health insurance companies.  You may not want to put your money there while other segments of the economy are booming.

 

If an insurance company cannot attract investors, they must go back to policyholders and raise premiums.  Again the public suffers

 

There is a difference between a Health Maintenance Organization (HMO) and a health insurance company.  In Pennsylvania, there is a law creating a State Guarantee Association.  This may provide some protection for policy holders if a company’s operations are suspended due to financial weakness or other causes.  This law does not apply to non-insurance company plans such as HMOs.  Recent action in Massachusetts forced that State’s legislature to pass a law protecting a bankrupt HMO; one of the largest in that State.  Just last year, the state of New Jersey had to take over the operation of a major HMO that had gone bankrupt.  Although the reported reasons for these failures did not directly relate to health plan liability, the added cost of such legislation could bring other major giants down.  Already, the attorneys who successfully argued against the tobacco companies have begun a class action suit against several large HMOs.  They are using the Federal “Rico” racketeering law as the basis for their suit.  Their claim is that the HMOs are breaking their pledge to provide quality health care.  These attorneys who are flush with cash from the hundreds of millions in legal fees they received will not give up their efforts easily.

 

Insurance companies and HMOs are working on small profit margins in recent years.  Many, in fact, lost money when comparing premiums collected and claims and administrative expenses.  If not for investors, many more failures could have occurred.

 

Adding additional liability exacerbates the situation.  It does not help.  Insurers would need to hire more legal staff to defend themselves.  Employees dealing with the public may be less inclined to answer technical questions of patients who call in.  Instead, more routine questions will have to be referred to legal staff so that the wrong answer may not be given or the right answer mis- interpreted.  This slows the whole process and makes the system less functional.

 

 

Negative impact on Local and State Government

The various municipal governments, counties, school districts, authorities and the Commonwealth itself provide health insurance to their employees.  Those in the position of making health plan selections will also have to testify in court.  Who will be handling the needs of employees while human resources managers are tied up with these legal matters?  Will additional staff be hired to cover the absent employee’s duties.  Will some local governments decide not to provide health insurance to their workers as many small employers have done or are considering doing?

 

Negative impact on Insurance Agents and Representatives

 

Good health insurance agents work very hard to help their clients work through the health care system.  We also try and find the most affordable and, yet, most comprehensive coverage for our clients.  We are currently liable for errors and omissions concerning the insurance contracts we sell.  We can be sued if the coverages were not appropriate for the client and we can be sued if the coverages were not properly explained, or an unwarranted delay occurred that was our fault or for a number of other causes.  Until now, we could not be sued for a medical decision which we do not make.  HB 710 now makes us liable for something we do not control; medical coverage decisions.  Our malpractice insurance does not cover us for such actions.

 

As health insurance agents, many of us sell other products such as disability insurance and long term care insurance.  Health insurance is the most service-oriented type of product we sell because their can be numerous claims of various types of a period of years involving just one patient.  More and more of our members no longer sell health insurance.  There is too much aggravation, too little resulting income and too many pitfalls.  Business clients forget the COBRA rules or fail to add a new employee to the plan on a timely basis.  Every time a new law mandating an additional benefit occurs, employees are not sure if it applies to them or not.  Policy contracts have additional inserts that need to be explained and are quickly forgotten by those clients doing their other daily activities of working and taking care of their families.

 

Then a General Assembly makes us liable for decisions made by a health insurance about what they will or will not pay for.  Our reward for providing a social mission of insuring more Americans becomes our downfall for ourselves and our families.  We will sell other products and leave the social mission to the Commonwealth.  This trend has already started and HB710 will certainly push it along.  As I stated earlier, human nature will not go toward the danger (i.e. liability) but away from it.  Ultimately, people who want and need health insurance will suffer.

 

Another fact that cannot be ignored is that, just like other segments of the business community and the medical profession, we will have to spend valuable time away from our work preparing and testifying.  Our clients, who need and deserve our help, will not get it if we will be spending our days in court.  We will also be forced to hire legal counsel.  None of this is good for our clients; your constituents.

 

What do we recommend?

 

In 1998, the General Assembly worked very hard and passed good legislation that ultimately became Act 68.  This law creates ways to improve the protections available to Pennsylvanians.  We urge you to consider a moratorium on passing any liability legislation until Act 68 has had a chance to work.  We ask that you allow us to continue to fight for the rights of our clients when they feel that their health insurer has not done right by them.  Act 68 is an important tool and we can assist our clients through the processes established by this law.

 

We also urge you to consider various tax incentives to make health insurance more affordable for all Pennsylvanians.  We ask you to join us in our efforts to insure as many people as possible.

The most important patient right is the right to be able to afford the coverage they need.

 

 

CONCLUSION

 

We need to get back to the time when people were not afraid to say they made a mistake.  After all, we are human.  Let us try better.  Fear does not make our health care better.  It increases secrets and hiding.

 

This reminds me of the old fable about the wind and the sun.  They argued one day about their ability to remove the coat of a man walking along the road.  The wind blew very hard and instead of the coat being removed, the man drew the coat tighter around him.  Then the sun shown bright and gradually the man took off his coat.  For us, let the sun shine into our health care system.  Let us allow the doctors to treat without fear.  Let the health insurers be open about the way their plans work and to make the improvements necessary.  Allow us to work without fear that fulfilling our mission to insure as many of our neighbors as possible does not put our own careers and the financial well being of our families in jeopardy.

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