By R. Michael Kemler, J.D., LL.M.
There are four players in health care: two hold power, two do not. The first two are insurers and employers (including government). The last two are providers and subscribers (consumers). Physicians, historically the elite provider, have been displaced by the unrestrained leverage of health insurers, by their cost containment policies, by reductions and delays in reimbursement, by dictates as to coverage policy and by mandates as to billing protocols, e.g., RBRVS.
Physicians, however, are not equipped to undertake systemic reform in health care directed at achieving greater power. This task involves economics, law, politics and advocacy, whereas the primary concerns of physicians are clinical practice and research. With the exception of public health, medicine is not oriented towards problem solving about systems and medical training does not foster expertise in economics and law or skill in advocacy.
Further, the remedies that medicine has used to date to coordinate physician action and increase power are palliative, that is, they provide symptomatic relief, but do not address etiology, the fundamental imbalance of power that favors the insurer. Health care joint ventures, such as the individual practice association or organization; physician unions; and legislation seeking to immunize physicians, who negotiate collectively with health plans, from the price-fixing provisions of the antitrust laws further empower medicine, but fail to address the imbalance of power that gives rise to the need.
This article will explore the nature of the power vested in employers and insurers and will address two proposals that foster a more equitable distribution of power, that is state insurance commissioner advisory boards and Federal Trade Commission monitoring of insurers. These are radical, long-term proposals, but they are realistic if state and federal legislators can be persuaded to commit to system reform.
Employers and Insurers: Basic Principles
Employers are the principal purchasers of health insurance and, thus, have considerable market power. Employers negotiate with insurers over premiums to determine the form of coverage (Indemnity/HMO/PPO); scope of coverage, e.g. ceilings, duration of services, inclusion of mental health services; the amount of copays and policy exclusions; and they have a role in designing the in-house appeals process for implementing employee rights. Subscriber rights in employment-related health insurance plans are governed by the Employee Retirement Income Security Act (ERISA), which provides that both employers and insurers who exercise discretion have “fiduciary” duties to “participants” and “beneficiaries.” However, the principal ERISA enforcement device is a civil action in federal court, which is very costly, with the result that most ERISA participant problems go unaddressed. Further, U.S. Department of Labor oversight of participant coverage issues is minimal. Insurer-provider relations are not addressed by ERISA. Plan sponsors and administrators have no obligations to providers, whose interests are an incident of employee interests. The power in employer health care plans is vested in the employer and insurer.
Private, for-profit insurers are required, under state insurance law, to obtain “certificates of authority” granted by the Secretary of Insurance, and are required as well to comply with standards regarding a variety of matters, including minimum reserves, rate filings, standards on policy provisions, annual reports, dissolutions of companies, unfair insurance practices, etc. Private non-profit Hospital and Health Plan Corporations (Blue Cross and Blue Shield entities) are also required, under state law, to have certificates of authority, but are bound by separate requirements, often distinct from those governing commercial insurers. Further, hospital plans are exempt from state taxation and are subject to a distinctive legislative mandate to assure access to care to subscribers, that appears not to have been enforced. (See D. Light, Life, Death and the Insurance Companies, in the Feb. 17, 1994 issue of the New England Journal of Medicine.) Hospital and health plans are also subject to the unfair insurance practices act.
State Departments of Insurance: Guardians of Whose Interests?
There are attributes of state insurance department that compromise their roles as guardians of the public interest, and of consumer and provider interests. First, most such departments perceive their authority as limited to enforcing the insurance statute and regulations, and not extending to the enforcement of the common law of insurance that derives from case law. The latter often determines the limits of insurer discretion on coverage issues, such as the meaning of “medical necessity,” of “pre-existing condition,” and whether “medically necessary” services are/are not within coverage “exclusions.” These common law issues affect the subscriber’s benefit level and the physician’s scope of practice. Administrative agency law and an agency’s inclination determine such views on authority.
Second, it is the conventional wisdom that many state insurance departments are aligned more with the companies they regulate than with the public from whom their authority derives under the insurance code. At the Pennsylvania Bar Institute’s annual “insurance” seminar, present and former Pennsylvania insurance commissioner’s share course planning and/or faculty positions with (and socialize at lunch with) executives and/or in-house counsel of the more prominent health insurers, as well as with others. This may create at least an appearance of impropriety. It is this writer’s impression that present and former Pa. insurance commissioners have routinely granted requests for premium increases by blue cross and blue shield plans, as to indemnity and managed care products.
State insurance departments must be more responsive to provider and consumer concerns. To accomplish this, this author offers two proposals. First, that the Pennsylvania Legislature and other state legislatures form an Insurance Advisory Board to the Commissioner of Insurance, consisting of an equal number of provider and consumer representatives (say, a hospital and physician member and two subscriber members), whose majority assent would be required as a condition to the Commissioner’s exercise of authority on such issues as are designated by the Legislature as having sufficient public import to warrant advisory concurrence. Such issues might include approval of rate filings, application of standards on policy provisions, physician reimbursement practices (not an item of Pa. Department of Insurance regulation, but left to contract), and prior approval of contract terminations with hospitals. Amendment, as necessary, of the insurance code to make physician payment levels subject to the Commissioner’s authority and to advisory input would provide some accountability of the regulator to the medical profession. Advisory input on Commissioner determinations as to standards on health insurance policy provisions would give physicians and hospitals a role in determining insurer coverage policy, which affects medical practice, e.g. what is and who determines the standard for “medical necessity,” as illustrated by Rudolph v. Pennsylvania Blue Shield (Pa. 1998). Consumer input on rates provides some control over insurance costs, an area where some state departments have had limited impact.
While there is likely no precedent for limiting an insurance commissioner’s discretion through an advisory board, there is an analogy for advisory boards in health affairs in state department of health requirements providing that HMO subscriber grievance procedures be performed by committees consisting of a percentage of HMO subscribers.
Also, to compel health insurers themselves to be more responsive to provider and consumer concerns, this author proposes, second, that the Federal Trade Commission (FTC) monitor insurers in selected areas (or monitor the performance of state insurance departments in balancing insurer interests, on the one hand, and consumer and provider interests, on the other).
The Proposed Role of the FTC: The McCarran-Ferguson Act
The McCarran-Ferguson Act, at Section 2(a), provides “the business of insurance…shall be subject to the laws of the several States which relate to the regulation or taxation of such business.” It provides, at Section 2(b), “[n]o act of Congress shall be construed to invalidate, impair or supercede any law enacted by any State for the purpose of regulating the business of insurance…unless such Act specifically relates to the business of insurance: Provided That…the Sherman Act, and…the Clayton Act, [the antitrust laws]…and the Federal Trade Commission Act,…shall be applicable to the business of insurance to the extent that such business is not regulated by State law.”
The Act’s primary purpose was to preserve state regulation of insurance companies (Group Life & Health Ins. Co. v. Royal Drug. Co., (S.Ct.1979 )) and, to a lesser extent, to provide insurers limited immunity from the antitrust laws. The Act inhibits the federal government from intruding into state regulation of the “business of insurance.” The latter includes the core activities of insurance, i.e., underwriting and risk-spreading functions, validity and enforceability of policies, rate-setting, disclosure of terms, dissolution, etc., but is not interpreted to encompass every business decision of an insurance company. Further, the business of insurance is subject to the antitrust laws to the extent that such business is not regulated by state law.
The proposal that the FTC directly monitor insurers, to the extent this affects the “business of insurance,” is likely to be viewed as intruding upon areas that are, by law, reserved to the states, and therefore constituting a violation of McCarran Ferguson. Federal monitoring of issues relating to medical necessity and/or who defines it, pre-existing conditions and exclusions may be said to relate to core insurance activities. But, to the extent such issues are viewed as common laws issues, governed by the courts, and not within the jurisdiction of state insurance departments, there may be no intrusion on the business of insurance and no McCarran Ferguson prohibition.
Further, Section 2(b) of the Act contains the additional proviso that the Federal Trade Commission Act is applicable to the business of insurance to the extent that such business is not regulated by State law. Arguably, common law issues are not. This proviso may also be interpreted to extend to areas where state insurance departments have authority, but have failed to exercise independent judgment and control. See Federal Trade Commission v. Ticor Title Ins. Co. (S.Ct.1992).
Federal oversight of state administrative agencies, themselves, may be an impermissible and unconstitutional exercise of federal power over the states, precluded by the Tenth Amendment, which reserves to the States powers not delegated to the United States. As such, any exercise of FTC authority would probably have to be directed at monitoring insurance companies and not insurance departments. Since federal law has protected state regulation of insurance for over half a century, it is certain that a proposal to extend the oversight functions of the FTC to insurance, consistent with McCarran Ferguson, would be controversial.
Finally, the McCarran Ferguson Act was enacted in 1945, over 50 years ago. While its purposes are to give primacy to state regulation and provide insurers limited antitrust immunity, it has had the effect of insulating what is now a powerful industry from federal oversight. Conversely, the medical profession has become a target of antitrust price-fixing scrutiny when it seeks to collectivize to negotiate rates with insurers, particularly managed care entities. As an alternative to working within the Act, which is complex and difficult, one might seek to repeal the Act, at least with reference to health insurers, to permit unfettered federal oversight. Indeed, to the extent that state regulation of health insurance is aligned with insurers and to the extent that state enforcement has been less than satisfactory, repeal to rectify the imbalance may help us achieve national policy objectives of health care access and quality, as well as cost containment. This would give the federal government, i.e., the Justice Department Antitrust Division and the Federal Trade Commission, a far freer hand in oversight of an industry that has acquired an excess of power in health care affairs. As with many things that appear on the horizon, the way to implement such a proposal is by letters to one’s congresspersons.
R. Michael Kemler, J.D., LL.M., is in private practice in health care law based in Philadelphia and is a guest lecturer at the University of Pennsylvania School of Medicine.