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Abstract

In today’s society, most people receive their health insurance through their employers. If their employment-based insurer engages in cost cutting that leads to patient injury, Employee Retirement Income Security Act of 1974 (“ERISA”) preemption means that these people have no state tort-based recourse against their insurers. ERISA is a federal statute that regulates employee benefit plans, and the Supreme Court has interpreted the ERISA statute to preempt most beneficiary state tort claims against an employment-based insurer. In other words, even if the insurer, and not the doctor, caused the patient’s harm, the patient with employment-based insurance can only sue their health care provider for medical malpractice, with very limited federal remedies available against the insurer. However, when the Affordable Care Act (“ACA”) individual exchanges come into play in 2014, the number of individuals with non-employment-based insurance will likely expand and so will their remedies for insurer cost cutting that results in patient harm. Imagine it is 2014 and Bill Smith does not have employment-based insurance, so he buys insurance from a Health Maintenance Organization (“HMO”), XYZ Insurance Company, through his State’s individual exchange. XYZ is concerned about high costs within the individual exchange, so they have set up incentives or bonuses for general practitioners in their network to keep patients in-house, if at all possible, instead of referring them to specialists. Bill Smith goes to see Dr. Jones, a general practitioner in XYZ’s network, for treatment for a skin lesion. Dr. Jones is eager to receive his bonus, concerned that excessive referrals might cause him to be terminated from XYZ’s network, and believes that the lesion is a simple cyst that he can dispose of without referral to a specialist. Accordingly, Dr. Jones treats the cyst in-house. Unfortunately, the cyst is actually a virulent form of cancer that requires highly skilled treatment from a dermatologist and/or oncologist. Due to the delay in receiving specialty care, Bill dies and his estate sues Dr. Jones for malpractice and XYZ under theories of corporate negligence and apparent agency. Since Bill is buying his insurance through the individual exchange and not receiving his insurance through his employer, ERISA preemption does not apply, and therefore his tort claim against XYZ is a viable claim. On the surface, equity favors providing an individual exchange beneficiary with recourse for insurer wrongdoing, especially when compared to the lack of remedies available to beneficiaries with employment-based insurance. However, the situation is not so simple and raises a troubling dilemma. While the lack of ERISA preemption opens up a new damage recovery source for individual exchange beneficiaries, it hinders the ability of individual exchange insurers to engage in cost cutting measures that eliminate waste and fight potentially high costs within the exchanges. High costs, in turn, will likely be passed along to beneficiaries in the form of higher premiums. Given the impacts of the lack of ERISA preemption within the individual exchanges, to quote “Men at Work,” insurers will “not be the only one[s] saying it’s a mistake.” This Article seeks to address this dilemma in an effort to balance beneficiary access to damages when insurer cost cutting causes harm and properly incentivize insurers to engage in beneficial cost cutting and to keep down exchange costs, so that the exchanges can thrive. Section I starts by outlining insurance coverage access problems for high-risk individuals prior to the passage of the ACA, and the ACA’s efforts to expand coverage access. Section II addresses concerns that the ACA access expansion provisions may lead to adverse selection and high costs with regard to the individual exchanges. Section III outlines how insurers may respond to adverse selection and high costs within the individual exchanges through cost cutting measures. Section IV discusses insurer tort liability, the operation of ERISA preemption, and the impact of the lack of ERISA preemption on the individual exchanges. Finally, Section V outlines potential solutions to the ERISA problem with a proposal for a no-fault insurer liability fund solution.

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