“ERISA, THE FOUNDATION OF EMPLOYEE

HEALTH COVERAGE”

HEARING

BEFORE THE 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS 

OF THE 

COMMITTEE ON EDUCATION AND 

THE WORKFORCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS 

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, JUNE 12, 2001 

Serial No. 107-18 

Printed for the use of the Committee on Education 

and the Workforce

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 77-907 pdf WASHINGTON : 2002

For sale by the Superintendent of Documents, U.S. Government Printing Office 

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ii

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman 

THOMAS E. PETRI, Wisconsin GEORGE MILLER, California 

MARGE ROUKEMA, New Jersey DALE E. KILDEE, Michigan 

CASS BALLENGER, North Carolina MAJOR R. OWENS, New York 

PETER HOEKSTRA, Michigan DONALD M. PAYNE, New Jersey 

HOWARD P. “BUCK” McKEON, California PATSY MINK, Hawaii 

MICHAEL N. CASTLE, Delaware ROBERT E. ANDREWS, New Jersey 

SAM JOHNSON, Texas TIM ROEMER, Indiana 

JAMES C. GREENWOOD, Pennsylvania ROBERT C. “BOBBY” SCOTT, Virginia 

LINDSEY O. GRAHAM, South Carolina LYNN C. WOOLSEY, California 

MARK E. SOUDER, Indiana LYNN N. RIVERS, Michigan 

CHARLIE W. NORWOOD, JR., Georgia RUBEN HINOJOSA, Texas 

BOB SCHAFFER, Colorado CAROLYN McCARTHY, New York 

FRED UPTON, Michigan JOHN F. TIERNEY, Massachusetts 

VAN HILLEARY, Tennessee RON KIND, Wisconsin 

VERNON J. EHLERS, Michigan LORETTA SANCHEZ, California 

THOMAS G. TANCREDO, Colorado HAROLD E. FORD, JR., Tennessee 

ERNIE FLETCHER, Kentucky DENNIS KUCINICH, Ohio 

JIM DeMINT, South Carolina DAVID WU, Oregon 

JOHNNY ISAKSON, Georgia RUSH D. HOLT, New Jersey 

BOB GOODLATTE, Virginia HILDA L. SOLIS, California 

JUDY BIGGERT, Illinois SUSAN DAVIS, California 

TODD RUSSELL PLATTS, Pennsylvania BETTY McCOLLUM, Minnesota 

 PATRICK J. TIBERI, Ohio 

 RIC KELLER, Florida 

 TOM OSBORNE, Nebraska 

 JOHN ABNEY CULBERSON, Texas 

Paula Nowakowski, Chief of Staff 

 John Lawrence, Minority Staff Director

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS 

SAM JOHNSON, Texas, Chairman

ERNIE FLETCHER, Kentucky, Vice Chairman ROBERT E. ANDREWS, New Jersey

JOHN BOEHNER, Ohio DONALD M. PAYNE, New Jersey 

MARGE ROUKEMA, New Jersey DALE E. KILDEE, Michigan 

CASS BALLENGER, North Carolina LYNN N. RIVERS, Michigan 

PETER HOEKSTRA, Michigan CAROLYN McCARTHY, New York 

HOWARD P. “BUCK” McKEON, California JOHN F. TIERNEY, Massachusetts 

THOMAS G. TANCREDO, Colorado HAROLD E. FORD, Jr., Tennessee 

JIM DeMINT, South Carolina 

PATRICK J. TIBERI, Ohio 
iii

Table of Contents 

OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, SUBCOMMITTEE 

ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION 

AND THE WORKFORCE............................................................................................. 2

OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON 

EDUCATION AND THE WORKFORCE..................................................................... 3

STATEMENT OF GARY M. FORD, ESQ., PRINCIPAL, GROOM LAW GROUP, 

CHARTERED, WASHINGTON, D.C........................................................................... 6

STATEMENT OF THOMAS R. HARTER, SENIOR VICE-PRESIDENT, THE 

SEGAL COMPANY, WASHINGTON, D.C................................................................. 8

STATEMENT OF JAMES A. KLEIN, PRESIDENT, AMERICAN BENEFITS 

COUNCIL, WASHINGTON, D.C. ................................................................................ 9

STATEMENT OF ALICE M. WEISS, DIRECTOR OF HEALTH POLICY, 

NATIONAL PARTNERSHIP FOR WOMEN & FAMILIES, WASHINGTON, D.C.

....................................................................................................................................... 12

APPENDIX A - WRITTEN OPENING STATEMENT, CHAIRMAN SAM 

JOHNSON, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE ................................... 37

APPENDIX B - WRITTEN TESTIMONY OF GARY M. FORD, ESQ., PRINCIPAL, 

GROOM LAW GROUP, CHARTERED, WASHINGTON, D.C. .............................. 41

APPENDIX C - WRITTEN TESTIMONY OF THOMAS R. HARTER, SENIOR 

VICE PRESIDENT, THE SEGAL COMPANY, WASHINGTON, D.C. ................... 47 

APPENDIX D - WRITTEN TESTIMONY OF JAMES A. KLEIN, PRESIDENT, 

AMERICAN BENEFITS COUNCIL, WASHINGTON, D.C. .................................... 71

APPENDIX E - WRITTEN TESTIMONY OF ALICE M. WEISS, DIRECTOR OF 

HEALTH POLICY, NATIONAL PARTNERSHIP FOR WOMEN & FAMILIES, 

WASHINGTON, D.C................................................................................................... 77

Table of Indexes............................................................................................................ 89
1

HEARING ON “ERISA, THE FOUNDATION OF 

EMPLOYEE HEALTH COVERAGE” 

_____________________

Tuesday, June 12, 2001 

U.S. House of Representatives 

Committee on Education and the Workforce 

Subcommittee on Employer-Employee Relations 

Washington, D.C. 

 The Subcommittee met, pursuant to notice, at 10:32 a.m., in Room 2175, Rayburn 

House Office Building, Hon. Sam Johnson, Chairman of the Subcommittee, presiding. 

 Present: Representatives Johnson, Fletcher, Boehner, Roukema, Ballenger, 

Tiberi, Andrews, Kildee, and Rivers. 

 Staff present: David Connolly, Jr., Professional Staff Member; Dave Thomas, 

Legislative Assistant; Jo-Marie St. Martin, General Counsel; Peter Gunas, Director of 

Workforce Policy; Dave Schnittger, Communications Director; Patrick Lyden, 

Professional Staff Member; Ben Peltier, Professional Staff Member; Heather Valentine, 

Press Secretary; Michael Reynard, Deputy Press Secretary; Deborah L. Samantar, 

Committee Clerk; Heather Valentine, Press Secretary; Brian Compagnone, Minority 

Legislative Aide; Michele Varnhagen, Minority Labor Coordinator/Counsel; and Camille 

Donald, Minority Legislative Associate. 

Chairman Johnson. Good morning. Thank you all for being here. A quorum being 

present, the Subcommittee on Employer-Employee Relations will come to order. We are 

expecting more Members. As you know, the House in not in session until later today. 

Here is Mr. Ballenger. Thank you for being here. He knows about ERISA. 
2

We are meeting today to hear testimony on ERISA and its impact on employee health 

coverage. Under committee rule 12(b), opening statements are limited to the Chairman 

and Ranking Minority Member of the Subcommittee. If other Members have statements, 

they may be included in the record. 

 With that, I ask unanimous consent for the hearing record to remain open 14 days 

to allow Members' statements and other extraneous material referenced during the 

hearing to be submitted for the official hearing record. Without objection, so ordered. 

I am glad to see that we have a quorum in the audience. Thank you all for being 

here.

OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

 Good morning and welcome to the first health-related hearing of the 

Subcommittee on Employer-Employee Relations. Today's hearing focuses on the role of 

the Employee Retirement Income Security Act, or ERISA, and how employers 

voluntarily improve and provide health insurance to millions of the nation's workers 

under ERISA. 

 This hearing is designed to help educate the Members of the Subcommittee as we 

examine what works as well as the problems facing our employer-sponsored health 

insurance system. 

 Thanks to ERISA, the largest number of Americans, 129 million Americans, 

receives health insurance through their employer. I anticipate additional hearings in the 

coming months to examine such important topics as: 1) increasing the number of insured, 

especially employees of small businesses; 2) the effects of claims regulations released by 

the Department of Labor, as well as other regulatory burdens on employer-provided 

health plans; 3) ensuring medical privacy; and 4) granting greater protection to workers 

enrolled in managed care plans. 

 Over the past 26 years the ERISA preemption of state law has played a key role in 

providing health insurance to millions of Americans. ERISA covers nearly 80 percent of 

all workers in this nation. ERISA allows employers and employees alike to agree on a 

vast array of benefits without significant government interference driving up the cost of 

health insurance. 

 Of the estimated 43 million Americans without health insurance, 60 percent are 

small business owners and their families as well as their employees and their families. 

Affordable and accessible health insurance for small business enterprises is a priority for 

this Subcommittee. 
3

When you run a small operation it is absolutely critical that employees and their families 

are healthy. People perform better when they have peace of mind, knowing their loved 

ones are healthy, safe and protected. 

 The same goal of a healthy employee also applies to the nearly 12 million 

American workers and their families who receive health coverage through multiemployer 

health plans. Over the past 20 years these plans have been on the cutting edge of 

providing quality to hard-working Americans and we all learned from their experience. 

 I look forward to the witness discussion of the role of ERISA in providing health 

coverage to our 129 million workers. The Subcommittee must be responsive to 

shortcomings in the health care system, but we must also insist on workable solutions that 

do not erode coverage or make cost unaffordable. 

 We need to expand access to more affordable health insurance and reduce the 

number of uninsured. 

 Finally, like some of our colleagues in the Senate, we will meet with health 

professionals, hospitals and other policymakers to study some of the major problems in 

our health care system, including medical errors. 

 I hope this hearing will launch this effort in the right direction. This 

Subcommittee intends to examine improving quality and reducing costs in the coming 

months and I look forward to working with my colleague Mr. Andrews to address these 

issues, along with my Vice Chairman, Dr. Fletcher, and the other Members of the 

Subcommittee. 

WRITTEN OPENING STATEMENT, CHAIRMAN SAM JOHNSON, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON 

EDUCATION AND THE WORKFORCE – SEE APPENDIX A 

 After I recognize Mr. Andrews for an opening statement, I look forward to 

hearing what these witnesses have to say. Thank you for coming today. We appreciate 

your presence. 

 Mr. Andrews, you are recognized for an opening statement. 

OPENING STATEMENT OF RANKING MEMBER ROBERT 

ANDREWS, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE 

RELATIONS, COMMITTEE ON EDUCATION AND THE 

WORKFORCE

Thank you, Mr. Chairman. Good morning. I look forward to hearing from the 

four very knowledgeable and talented witnesses we will hear from this morning. I 
4

thank you for charting this course that we are setting off on today to examine and listen to 

different points of view about some very serious health care issues in the country. I think 

you deserve credit for initiating this series, and I look forward to continuing to work with 

you as we go forward in it. 

 There are three major issues facing the American health care system. None of 

them is caused by the ERISA statute, but the solution to each issue must be found, I 

believe, somewhere within the ERISA statute. 

 The first issue is the question of cost. I have met with hundreds of employers and 

individuals in my district in this calendar year, and unfortunately we have seen the return 

of double-digit inflation in health care premiums, at least in my part of the country, and I 

think around the country. This is unsustainable. It leads us right back to the precipice 

that we confronted in the early 1990s. We didn't really get it right then, and we haven't 

gotten it right now. Dealing with the issue of somehow managing to control these costs is 

an issue for private individuals, private employers, and certainly for the public treasury as 

well.

 A second issue is the issue of quality. There is certainly a strong feeling among 

many in our country that quality decisions are being interfered with in the area of health 

care, that decisions about what care a patient needs, what course of treatment should be 

followed, or what kinds of devices or prescriptions should be used. Too often these are 

being second-guessed by those who have a financial responsibility and a legitimate 

financial responsibility, but whose loyalty to that financial responsibility may override 

the best medical judgment on behalf of the patient and the family. 

 This has given rise to an intense debate in this Congress in the last three or four 

years over various versions of patient protection legislation. It is anticipated that the 

other body will take up one version of that patient protection legislation as early as next 

week. I hope and anticipate that similar debates will take place on the floor of the House 

either this summer or this fall. This is an issue that is not going to go away, because it is 

so deeply felt and perceived by so many Americans. 

 The third issue is coverage or lack of coverage. As we convene this morning 

there are 44 million Americans who do not enjoy the benefit of health coverage at all. 

This number has gone up, not down, despite a time of strong prosperity for most parts of 

the country. 

 In the early 1990s the unemployment rate exceeded 7 percent, the federal deficit 

exceeded $350 billion a year, indices of economic activity were slumping, and the 

number of uninsured Americans was about 40 million. Since then the unemployment rate 

has fallen to below 4 percent at some times, slightly over right now. The federal budget 

has transformed itself from a deficit of several hundred billion dollars to a surplus of 

several hundred billion dollars, and by just about any measure the economy is 

qualitatively stronger than it was 10 years ago. 

 But the number of uninsured persons has gone up by about 10 percent during that 

period of time. This is not an accusation. I am making the statement as an observation, 

that we haven't figured out how to address this problem, and it is a very real, very 

serious everyday problem for 44 million persons living in this country. 
5

 So those are the three issues that I see in front of us. What do we do about the 

cost explosion that payers for health care are in fact experiencing around the country?

What do we do to ensure that medical decisions return to a position of primacy in the 

relationship between a health care provider and a patient? And what do we do about the 

national scandal, as I see it, that 44 million of our residents in this country are not the 

beneficiaries of health insurance at all? 

 I think that the ERISA statute and its basic formula must be at the center of 

answering these questions. I don't think that the statute causes any of these problems, but 

I think that our mutual effort to find a solution will have to be through this statute. About 

three-quarters of American employers provide some kind of health insurance to their 

employees. It is a model that works. 

 I favor its continuation, and I think the starting point for this discussion should be 

how to take that principle of employer-sponsored health insurance and build on it, so that 

costs are moderated, quality is improved, and coverage is broadened. 

Mr. Chairman, I look forward to the thoughts of the witnesses on these subjects 

and I thank you for the time. 

Chairman Johnson. Thank you, Mr. Andrews. Now I would like to introduce our panel 

of witnesses. 

 Our first witness is Gary Ford, who is Managing Principal for Groom Law Group 

in Washington, D.C. Mr. Ford has over 20 years experience in dealing with ERISA. 

Next would be Thomas Harter, the Senior Vice President and Consultant of The Segal 

Company in Washington, D.C. He has over 28 years' experience in compensation and 

employee benefits. Following him will be Mr. James Klein, President of the American 

Benefits Council. The Council is a Washington D.C.-based association representing a 

broad spectrum of employee benefit systems. The last witness on this panel will be Alice 

Weiss, Director of Health Policy, National Partnership for Women and Families. 

 I want to thank all of you for coming today. Let me remind you that under our 

Committee rules oral statements are limited to five minutes. We have a light system 

down there. I hope you all are familiar with it. It will come on green and then turn 

yellow when you have one minute left, and then go red. 

 Your entire written statement can and will appear in the record. 

 I thank my colleagues on the Republican side for being here with me today. We 

have a lot of states represented. Kentucky, two Members from New Jersey actually, 

North Carolina, and Ohio just showed up. So we have a broad section of the United 

States represented up here to listen to you today.

And with that said, Mr. Ford, will you please begin your testimony? 
6

STATEMENT OF GARY M. FORD, ESQ., PRINCIPAL, GROOM 

LAW GROUP, CHARTERED, WASHINGTON, D.C. 

Thank you, Mr. Chairman. As you mentioned, I am Gary Ford. I am from 

Groom Law Group. We are an employee benefits specialty firm also known as “ERISA 

nerds.” We spend our day working on ERISA issues. It should not come as a surprise to 

you that that is what we do given our field, and I am sure you are not envious of us for 

that.

 This Committee has had a long history in this area and it is a pleasure to be here.

Since before ERISA was enacted, this Committee has had an active jurisdiction in the 

regulation of health care back with John Dent and John Ehrlenborn continuing through 

COBRA and HIPAA and up to the present day. So it is an honor to be here with a 

Committee that has had such a pivotal role in crafting ERISA and its provisions. 

 My assignment, as I understand it, is to talk about some of the legal background 

very briefly. As you mentioned, almost 130 million Americans are in ERISA-covered 

plans, so it is hard to overemphasize how important this discussion is. 

 Let me start by talking about a controversial area in ERISA and that is 

preemption. Back in 1974 Congress chose the broadest language it could find to preempt 

state laws that regulate ERISA-covered plans. It said any law that relates to such a plan 

is preempted. 

 It then added something called the “savings clause”, which said nonetheless, state 

laws that regulate the business of insurance are saved from preemption. Then there was 

concern that that could be a loophole for indirectly regulating ERISA plans and it had the 

so-called “deemer clause” which said that states can't use that insurance authority to 

indirectly regulate ERISA plans, so it is a very broad rule. 

 There have been 15 to 20 Supreme Court cases alone on the preemption 

provisions, and I think the state of the law today, while it's impossible to describe it 

succinctly, is in summary that laws that conflict with ERISA are preempted. However, 

there may be some state laws of general applicability that don't conflict with ERISA and 

if that is in an area of traditional state regulation, and if there is no evidence Congress 

intended to preempt them, and if they don't affect an ERISA plan's benefits structure, 

benefit administration, claims processing or enforcement, it may be held, depending on 

the facts of the case, that they are not preempted but generally, very broad preemption. 

 So ERISA clears the decks, and then it imposes federal regulation. 

 The fiduciary rules are one of the key sources of these regulations, and the ERISA 

fiduciary rules boil down to a requirement of two things; care and loyalty. By “care” we 

mean that in dealing with issues of the plan you basically need to behave as a diligent 

expert. You have to be both careful and knowledgeable, as if you were dealing with your 

own affairs in an informed way. 
7

 The other side of the fiduciary rules is “loyalty.” You must have an undivided 

loyalty when you are acting as a fiduciary to the participants in your plan. One court said 

you have to have “an eye single” to the interests of the participants, and look at no other 

factors.

 ERISA goes on to add prohibited transaction rules. These are very complex rules 

that prohibit in advance a whole host of transactions and actions relating to an ERISAcovered plan such as loans and other transactions, self-dealing, kickbacks and the like. 

These prohibited transaction rules operate in advance and unless there is an exemption 

granted, they prohibit a whole host of actions before they ever occur. 

 ERISA also has broad reporting and disclosure requirements. Relevant 

particularly to Members who answer to their constituents, ERISA requires that a plain 

English, detailed description of the plan and its provisions, its claims processing rules, 

and so on, be provided to the individual participants. Then there are voluminous filings 

made with the government, which are publicly available as well. 

 On claims processing, ERISA basically contemplates that the participant will 

make the claim. The plan administrator will then make an initial determination on that 

claim. If he denies the claim, there is an internal appeal within the plan. If that is denied, 

then the participant has a right to go to court. Under current law they go to federal court.

A judge, not a jury, hears the case. There is some deference given to the decision made 

by the plan; some weight given to it. 

 If the participant wins he or she is awarded the benefit that was denied plus, in the 

discretion of the court, attorney's fees. An area of controversy is if this is enough of a 

remedy if a benefit has been wrongfully denied. 

 As I mentioned, this Committee has had an active role in some of the other 

substantive regulations such as COBRA, which provides continuation health care, 

HIPAA, which dealt with preexisting condition limitations and enabled workers to move 

from job to job, and various benefit mandates. 

WRITTEN TESTIMONY OF GARY M. FORD, ESQ., PRINCIPAL, GROOM LAW 

GROUP, CHARTERED, WASHINGTON, D.C. – SEE APPENDIX B 

Chairman Johnson. Thank you, sir. We appreciate your testimony. 

 Mr. Harter. 
8

 STATEMENT OF THOMAS R. HARTER, SENIOR VICEPRESIDENT, THE SEGAL COMPANY, WASHINGTON, D.C. 

 Thank you, Mr. Chairman. 

 I am with the Segal Company, which is a consulting firm that for over 60 years 

has served the greater share of the multiemployer market, which covers approximately 12 

million American workers. We believe that we represent more of these types of plans 

than all of the other consulting firms combined. 

 The Multiemployer Health and Welfare Funds basically have a number of unusual 

characteristics. First of all, they operate under the Taft-Hartley Act, where the benefits 

are operated through a trust fund with equal trustee representation from management and 

union workers. They are held together by collective bargaining agreements. They cover 

multiple employers with full portability when employees move from one employer to 

another. This most typically occurs in the construction, entertainment, transportation, 

and maritime industries, where an employee might work for a week or a month or even 

part of a day with one employer and then move to another. Yet all of these employers 

contribute to a common trust fund. 

 One of the characteristics is that the contribution rates for these plans are not 

directly tied to the eligibility of the participant. Rather, they will be represented by cents 

per hour, dollars per hour of contribution based on hours worked, or perhaps even some 

production units, such as a ton of coal or something like that. And this money then flows 

into the trust fund and the trustees are responsible for taking the stream of contributions 

and providing the best possible plan of benefits that can be provided under this stream of 

contributions.

 Individual employers may not be aware of the details of the plan or even which of 

their employees are eligible. All of that administration is done through the trust fund, 

which will either have its own employees administering the plan or contract with a third 

party administrator to do that work. 

 The financial structure of a trust fund is quite complicated, because the trustees 

are obligated to not only collect and enforce contributions under the collective bargaining 

agreements, but they need to finance the benefits claims for the plans that have been 

established, whether it be medical, dental, vision, or short term disability. 

 They need to reserve for their large claims exposure, and for their claims 

fluctuations exposure. They need to reserve for their eligibility rules, which typically 

allow people to maintain eligibility even when there are short periods where there is no 

work, so that eligibility can be maintained. They also need to reserve against economic 

cycles, because there can be periods where construction is very high. A lot of 

contributions are coming in. And then there can be periods of years where contributions 

are much lower. 
9

Finally, they need to concern themselves with any new legal or administrative 

requirements of law because any added expenses essentially subtract from the money that 

is available to provide benefits to the participants. 

 All multiemployer plans are unique, but if you look at their eligibility rules, you 

will see that they have some unusual features. In the construction industry when there is 

no work, for example, it is very common to have an employee travel to another state or, 

say, Houston. Contributions under a collective bargaining agreement would flow into a 

multiemployer plan in Houston and be transferred back to his home fund in the 

Washington area. Therefore the worker would be able to maintain eligibility for himself 

and his dependents. 

 Another characteristic of multiemployer plans is that the various work histories 

give rise to rules such as “hour banks’’ that allow people to bank hours in high periods 

and then maintain eligibility. 

 There's usually automatic coverage of dependents. Benefits are usually 

noncontributory as far as employee contributions through the payroll, although there will 

be deductibles and co-payments, and there are usually high levels of retiree coverage. 

 The ERISA framework basically works well for these plans because they operate 

on a multistate basis. They receive contributions from employers in various states. Their 

participants are mobile. They move where the work is. It is important to be able to offer 

a common plan of benefits for the union members nationwide. It is important to be able 

to reserve for liability without local or state jurisdictional concerns, and it is important to 

be able to operate a uniform appeal structure on a national basis to properly serve these 

participants. 

WRITTEN TESTIMONY OF THOMAS R. HARTER, SENIOR VICE PRESIDENT, 

THE SEGAL COMPANY, WASHINGTON, D.C. – SEE APPENDIX C 

Chairman Johnson. Thank you very much. I appreciate those comments. 

Mr. Klein, you may begin your testimony, sir. 

 STATEMENT OF JAMES A. KLEIN, PRESIDENT, AMERICAN 

BENEFITS COUNCIL, WASHINGTON, D.C. 

 Thank you, Mr. Chairman, and Members of the Subcommittee. I am James 

Klein. I am the president of the American Benefits Council. As you may know, the 

Council represents companies that either directly sponsor or provide services to health 

and retirement plans that cover more than 100 million Americans. 
10

Although members of our organization are overwhelmingly Fortune 500 

companies, and I appear today obviously on their behalf, I hope that you will indulge me 

if I speak in personal terms. I also speak from the perspective of a small employer since I 

have the responsibility for overseeing and providing health care insurance for my 11 

colleagues who are employees of the Council, myself and all of our family members. 

 We applaud you for holding today's hearing because despite the fact that ERISA 

has been around for nearly 27 years and despite the fact that millions of Americans 

receive their health coverage under plans that are regulated by the law, there really are 

several myths and misunderstandings about the statute. 

 Now in addition it appears quite likely that some version of the Patient's Bill of 

Rights will pass Congress this year and that will necessarily involve modifications to 

ERISA. It is extremely important that whatever passes does not do irreparable harm to 

ERISA's framework which, currently makes it possible for employers to provide 

coverage in a fair and consistent fashion. 

 Another way of saying it is to echo Congressman Andrews' comments, and that is 

that Congress focus on the number two issue, equality, and that it not do irreparable harm 

or exacerbate the problems of cost and coverage. 

 As the chart that I brought along displays, employers in general are already trying 

to cope with more than 12 percent annual increases in health care costs. I would argue 

that amending the law in a way that would include expansive liability provisions will 

only worsen the problem of cost and coverage and worsen the situation for those who 

lack coverage altogether. 

 I think it is important to note that one situation today that differs very 

substantially from when ERISA was enacted concerns how employers bear the burden of 

health coverage cost increases. The days when employers would simply absorb cost 

increases are clearly over and many companies now have very explicit benefit costsharing policies that make it quite clear that any additional expenses are shared equally 

between employer and the plan participants. 

 In the time that I have here today I would like to address two of the common 

myths and misunderstandings about ERISA. 

 The first is the claim that ERISA was really never intended to cover health 

benefits. Perhaps this myth is understandable given the use of the word “retirement” in 

the formal name of the law. But I think that a review of both the statute itself and its 

legislative history makes it quite clear that it is applicable to health benefits and that was 

very, very much intended from the outset. 

 The law provides a very extensively developed framework for regulating health 

benefits that despite much well publicized criticism I think has really withstood the test of 

time very well. 

 The second myth, and perhaps an even more important one to address, is the one 

that contends that ERISA lacks remedies for those who, let's say, violate its terms. In 

fact, I would argue that one of the most severe penalties that ERISA prescribes is that 
11

fiduciaries that violate the trust placed in them to administer the plan in the interests of 

the participants and beneficiaries may be relieved of their role as a fiduciary. For a health 

insurance company that is fundamentally in the business of providing health care 

products and services, that is an absolutely stunning penalty. 

 For someone like me, who oversees a small health plan for my colleagues on the 

staff and our families, the thought that I might be removed as a fiduciary with all the 

implications that that means for my future inability to attract and retain employees is 

clearly a substantial penalty which is designed to make sure that I always act in a 

consistent, fair and proper manner in administering that health plan. 

 It must be emphasized that ERISA is designed to encourage employers to sponsor 

benefit plans within the context of our nation's private, voluntary benefit system and then 

to establish very, very high standards by which those plans must operate. The law 

encourages efforts to resolve disputes in a way that hopefully ensures people get benefits 

they are promised without undermining the employer's ability or willingness to maintain 

plans for all participants and beneficiaries. 

 I guess one could say that that is another aspect of this balancing act that ERISA 

strikes between wanting to ensure that the individuals' promises are kept but that the plan 

is viable enough to continue for the benefit of all. 

 By contrast to the current framework and structure, I would say that much of the 

patient's rights debate would fundamentally alter the trust of the principles of law that 

underlie ERISA and have for nearly 27 years. Rather it encourages litigation instead of 

the expeditious resolution of honest disputes and exposes employer sponsors and health 

plans to the reality of enormous, enormous financial penalties. 

 This will certainly cause employers to question the prudence of sponsoring a 

benefit plan. In the past it has been an article of faith that it is prudent for an employer to 

provide health care coverage. More and more I see the likelihood that employers faced 

with the prospect of enormous liabilities will have to conclude that the prudent thing is 

not to be as actively involved in sponsoring benefits. 

 I would just like to say a brief word about ERISA preemption that both of my 

colleagues on the panel mentioned more extensively a moment ago but add an additional 

thought, if I may. ERISA's provisions that enable employers to provide a uniform and 

consistent benefit package wherever the employees may live, work, or receive their 

medical care, and again even for a small employer like our organization in the 

Washington metro area, it is a very vitally-important feature of the law. But I want to 

emphasize that it is really not just designed for the convenience of employers. It also 

exists for the protection of participants and beneficiaries, too. 

 It makes sure that the plans are administered in a consistent and an equitable 

fashion, which was not always the case in the days before ERISA. Its inclusion in the law 

was unquestionably one of the law's crowning achievements. I would argue that 

maintaining the federal preemption is of paramount importance, not just to employers but 

to participants as well. Therefore the possibility of being faced with different liabilities in 

different state courts is something to be approached with the greatest of caution. 
12

Finally, if I may just echo Gary Ford's point about the historical role of this 

Subcommittee in the development of ERISA. Clearly the Subcommittee will play a 

crucial role in crafting whatever patients' rights legislation will emerge from Congress. 

In this immediate legislative effort and in the future I would certainly urge the 

Subcommittee to continue its historic role as the stalwart, champion, and protector of 

ERISA.

Thank you. 

WRITTEN TESTIMONY OF JAMES A. KLEIN, PRESIDENT, AMERICAN 

BENEFITS COUNCIL, WASHINGTON, D.C. – SEE APPENDIX D 

Chairman Johnson. Thank you, sir. We appreciate your testimony. We are going to 

approach this with vigor, I assure you. 

Ms. Weiss, you may begin your testimony. I saw you taking a lot of notes. You 

still need to watch the light, please. 

Ms. Weiss. Thanks. 

Chairman Johnson. Thank you, ma'am. Go ahead. 

 STATEMENT OF ALICE M. WEISS, DIRECTOR OF HEALTH 

POLICY, NATIONAL PARTNERSHIP FOR WOMEN & FAMILIES, 

WASHINGTON, D.C. 

Good morning, Mr. Chairman, and other Members of the Subcommittee. Thank 

you for the opportunity to testify today on behalf of the National Partnership for Women 

and Families and its interest in advancing health care quality. 

 ERISA plays a critical role in our health care system and has had a number of 

positive effects for consumers. ERISA was passed to ensure individuals receive the 

benefits they are promised. Unfortunately, ERISA falls far short of the health protections 

consumers need. My testimony today will discuss ERISA's impact on our health care 

system and explain why federal legislation is needed to fulfill ERISA's promise for 

American families. 

 Contrary to Mr. Klein's assertion, ERISA was never intended to regulate health 

insurance. Enacted largely in response to employer pension fund abuses, ERISA created 

uniform federal standards for benefit plans while preserving states' traditional role 

regulating insurance. 

 Although it created detailed requirements for pension plans, its standards for 

health plans were minimal. In the quarter century since its enactment some new health
13

plan standards have been added, but they have done little to improve the quality of health 

care these plans provide. 

 ERISA's minimal regulation of health plans is problematic for the 129 million 

Americans covered by ERISA plans due to three important developments: the rise in 

self-insurance, the dramatic increase in managed care enrollment, and the Court's 

interpretation of ERISA preemption of state law. These changes have created a dire need 

for federal legislation. 

 First, in the decade since ERISA was passed there has been a substantial increase 

in the number of individuals covered by self-insured ERISA plans. Those covered by 

self-insured ERISA plans has risen from only four percent in 1976 to 43 percent today. 

Because ERISA preempts state regulation of these plans, 56 million Americans are 

without any protection from state insurance or managed care laws. This increase in selfinsurance has undermined the drafters' intent, to protect ERISA enrollees under state 

insurance laws. 

 Second, the number of individuals enrolled in managed care has skyrocketed.

Today, 92 percent of individuals covered by employer plans are enrolled in some form of 

managed care. Managed care has great potential. It can save money and provide better 

quality care. Women have much at stake and much to gain from managed care done 

right, but over the past few years managed care's potential has been eclipsed by concerns 

that for some it may do more harm than good. 

 ERISA was enacted during an era when fee-for-service insurance dominated the 

market. Today ERISA is badly in need of new protections to reflect managed care's 

inextricable link between medical treatment and coverage decisions. 

 The third development, which is discussed in greater detail in my written 

testimony, concerns the Court's interpretation of ERISA. Unlike other businesses, health 

plans covered under ERISA have become virtually immune from accountability for their 

decisions, even if individuals are hurt as a result. 

 If we agree that companies that make tires for our cars or toys for our kids should 

be accountable when people are hurt, then why should we treat health plans any 

differently? There are far too many examples of patients who are left without redress 

after the tragic results of a health plan decision. Although it is true, as Mr. Klein says, 

that fiduciaries may be removed from their duties that is cold comfort to those who are 

injured as the result of the managed care decision. 

 My written testimony discusses one recent example of a woman in Texas whose 

leg had to be amputated after her health plan repeatedly delayed and denied care. Adding 

insult to injury, when she tried to sue her health plan in state court, the court found she 

had no remedy due to ERISA's preemption. 

 Meaningful patient protections must ensure high quality health care and restore a 

sense of trust and accountability to our system. At a minimum, federal legislation must 

been the following principles: 
14

First, it must apply to all Americans covered by private insurance, setting a 

federal floor and allowing states to enact more protective requirements. 

Second, it must guarantee access to a fair, timely and unbiased independent 

review for health plan disputes. 

 Third, it must ensure meaningful remedies that do not roll back current 

protections or disrupt states' historic role in regulating health care. 

 Finally, it must guarantee strong, comprehensive patient protections without 

loopholes or opt-outs. 

 Some have argued that the cost of these protections is too high or that it would 

open the floodgates to litigation, but that is not the case. According to estimates prepared 

by the CBO, there would be only a minimal increase of 4.2 percent of a member's 

premium per month, less than a dollar. Practical experience in the states where there is 

now expanded liability shows that there will be no flood of litigation. Since the passage 

of legislation expanding HMO liability in the Chairman's home state of Texas, only nine 

suits have been brought. 

 ERISA needs these critical changes to ensure real protections for American 

families. At this time the only legislation meeting these principles is the bipartisan 

Ganske-Dingell Patient Protection Bill. This bill is the only one endorsed by a large and 

diverse number of groups representing consumers, health care providers, and working 

families. 

 We strongly encourage you to consider these principles and to pass a strong Bill 

of Rights without delay. The health of women and families hang in the balance. 

 Thank you. I look forward to the opportunity to answer any questions. 

WRITTEN TESTIMONY OF ALICE M. WEISS, DIRECTOR OF HEALTH POLICY, 

NATIONAL PARTNERSHIP FOR WOMEN & FAMILIES, WASHINGTON, D.C. 

SEE APPENDIX E 

Chairman Johnson. Thank you very much. We appreciate your testimony as well. I 

think in Texas there's been an increase in the number of suits, probably double that, but 

notwithstanding, I am going to reserve the right to question along with Mr. Andrews. 

 I recognize Mr. Tiberi. 

Mr. Tiberi. Mr. Chairman, I don't have any questions at this time. Thank you. 

Chairman Johnson. Nice going. Can you imagine a freshman coming in here and not 

having a question? 

[Laughter.]
15

Chairman Johnson. Mr. Andrews. 

Mr. Andrews. Mr. Tiberi is a person of great judgment and maturity. I can see that. 

 I would like to thank all the witnesses for their testimony. I think it's an excellent 

start for the hearings that we are beginning. 

Mr. Klein, I wanted to ask you what your assessment of the present increases in 

health insurance premiums that we are experiencing. 

 I think it is a fair statement that as a general rule the liability that you mentioned 

in your testimony is not the law today, and the state statutes that have been enacted are 

rather narrow in their application. We can quibble over whether it is nine suits or 30 suits 

or whatever in Texas, but it isn't many. 

 Given the fact that the ERISA preemption that you favor is the law today, why are 

we having the kind of inflation in health care premiums that you have testified about? 

Mr. Klein. It's a very good question, and I think that the answers are multiple. 

 Certainly the new medical advances that bring great success to the health care 

system also bring great cost. It is interesting though that for many, many years the 

medical community argued that medical malpractice activity was a large cost driver, and 

was something that the health insurance industry and we in the employer industry 

certainly always agreed with and still do agree with. 

 There seems to be a disconnect. I would not attribute all of the increase in health 

care costs to large medical malpractice awards. 

Mr. Andrews. Could I just ask you a little further about that one? 

Mr. Klein. I would have to say that increase in liability would exacerbate it. 

Mr. Andrews. Well, that I think is a disconnect. It is indisputable that medical 

malpractice costs for providers have gone up, but isn't it also true that reimbursements to 

providers have gone down from the insurers, so would the providers be passing along the 

cost in medical malpractice increases to the insurers? 

Mr. Klein. Well, of course, there's a limit to how much you can ratchet down health care 

costs in terms of provider reimbursements and so forth. 

Mr. Andrews. My point is I think if you talk to just about any hospital or provider group 

they will tell you that in real dollar terms and sometimes absolute dollar terms payments 

to them by insurers have gone down in the last five or six years, so they are not in a 

position to pass along cost increases to anybody. So I don't think that increases in 

medical malpractice premiums are a cause. 

 What else might be? 
16

Mr. Klein. Well, certainly the extent to which those of us who provide health care 

coverage to our employees and their families are bearing a portion of the cost of the 43 

million uninsured to whom you quite appropriately referred, many of whom receive 

health care services but unfortunately don't have the means to pay. 

Mr. Andrews. What thoughts do you have about dealing with the problems of those 43 

or 44 million people? 

Mr. Klein. Well, I guess in the truest form of the Hippocratic Oath, “First, do no harm.”

I would say that those things that might worsen the problem should be avoided. I 

suppose we, like anybody else, struggle with the kinds of policy approaches that might 

help. Certain tax incentives that make it easier for individuals or smaller groups to 

purchase more effectively would be one way to help. There have been other discussions 

about ways in which people can collaborate in terms of their purchasing. 

 One of the things that we feel very positive about is that quality and cost need not 

operate at counter-purposes but rather one can assist the other. So much of the efforts that 

my members focus on are ways in which they can improve the quality returns for their 

workers in terms of insisting upon the best standards of practice as a way of not just 

achieving better health outcomes but in fact keeping people healthier and reducing cost. 

Mr. Andrews. I think Mr. Klein has pointed out an important relationship and that is the 

relationship between the increasing costs of health insurance for those who do provide it 

and the fact that 44 million people do not have it at all. One of the key strategies for 

reducing health care costs for health insurers, buyers of health insurance, is to 

dramatically reduce the number of uninsured. 

 Very quickly, Ms. Weiss, I wonder if you could tell us about the Roark v. 

Humana case and what remedy you think would be appropriate for the plaintiff in that 

case?

Ms. Weiss. I'd be happy to do so, and thank you for the question. 

 The Roark v. Humana case was a case that was decided very recently in May, a 

case that involved a woman named Gwen Roark, whose medical treatment for an 

infection in her leg was repeatedly delayed or denied by her health insurer. As a result 

she had to have her leg amputated. I will speak briefly to the facts of the case and then 

talk a little bit about what I think it says about the need for changes in ERISA.

 The patient, Gwen Roark, had a spider bite. It developed into a serious infection. 

Her doctor recommended treatment that he felt was medically necessary. Humana, her 

health plan, repeatedly delayed approval for the treatments that were needed or denied 

coverage. At one point, because of Humana's delay and outright denial of the treatment, 

her treatment stopped for a month and as a result she developed a serious infection, which 

developed into an injury, which ultimately required her leg to be amputated. Even after 

her leg was amputated, Humana continued to deny treatment for the services she needed 

to ensure she didn't have any further infections, and her leg needed to be amputated 

further.
17

In this case the Court found that even though the Texas liability law was available 

to her, this is a woman who lives in Texas, because her claim was being brought under 

her arrangement under ERISA as an employer-sponsored plan she would have no remedy 

under state law. 

 Essentially I think this case demonstrates very clearly why ERISA needs to be 

changed and while real accountability is needed. Otherwise health plans can avoid 

paying health benefits at will, and they have no accountability for the real world 

consequences of their actions. 

Chairman Johnson. Mr. Ballenger, you are recognized for questions. 

Mr. Ballenger. Thank you, Mr. Chairman. 

 Let me preface this on the fact that I own a manufacturing company that has 250 

employees. Having been County Commissioner before, one of the major, explosive costs 

in medical expenses has been the under funding of Medicare and Medicaid. If you 

haven't asked your County Commissioners and your State Representatives about the 

additional cost in Medicare and Medicaid, you haven't asked the right question. 

 The cost of the uninsured is also a substantial increase. That cost is passed on to 

those of us that have health care plans for our employees. 

 Let me just say also that once upon a time I had a pension plan for my employees 

until I found out that ERISA and the federal government were going to be involved. So I 

did away with my health care plan just to get away from the federal government, and we 

put in an ESOP. 

 At the present time, now, we are talking about 44 million people that are 

uncovered by insurance. Generally speaking it doesn't take a very large company to selfinsure. My company is large enough to self-insure and we cover 250 employees. Unless 

I am mistaken, and this is a point that I would love to have somebody really give me an 

answer to, if you choose the specifics of your health care plan and the manner in which 

the paperwork is done, doesn’t this involve you in making medical decisions? 

 If it does involve you in making medical decisions, considering Dingell or 

whatever kind of plan you want to talk about, with the ability to sue anybody that 

happens to participate, it appears to me that any employer who picks a health care plan 

has to realize that you renegotiate these plans every year, as Mr. Klein said, because the 

costs are very explosive. They cut their costs to get your business and then the next year 

they measure what you did and increase your costs so you ask for bids again. You are 

making these medical decisions on a yearly basis for your employees and once you get 

involved in that, it appears to me that you are in a liable position for being sued. 

 Aside from the fiduciary responsibility and being removed as a fiduciary, what 

scares me to death is I have 250 employees and spend about $4,000 a year on insurance 

for each one. That is a million dollars in free benefits that we give the employees and yet 

I have seen suits take place. The trial lawyers are getting rich from all of us and I think 

we are building a case where that little million dollars that I am paying for my 

employees puts me in a position to lose millions of dollars, and probably put my 
18

company out of business if it was necessary. 

 And so the way I read this whole thing, if what I am saying is correct, and I am 

not a lawyer, so I am not really positive about it, but if I’m correct, then the simplest 

thing for me to do is give each of my employees the $4,000 a year that we are spending 

on health insurance and have them buy their own insurance, and hope that they can find 

something. They obviously will not be able to get as good a health care plan because 

they are buying as individuals rather than groups. 

 I know I have talked an awful long time. First of all, I’d like Mr. Klein to field 

this question. You seem closer to my problem than the other guys that are all big wheels. 

Mr. Klein. Yes. I don't think I could articulate it any better than you have, Congressman.

I think that you hit the nail right on the head and I think that one additional point that I 

would make is that even if it turns out that you would prevail in demonstrating that your 

actions in selecting a health insurer, for example, did not constitute the kind of decisionmaking that would hold one liable, there could be enormous costs just in successfully 

defending yourself for that position. 

 In that regard I think the thing that worries me and certainly worries a lot of my 

very large company members is not just the 4.2 percent increase that is reflected in the 

chart that Ms. Weiss talked about. It is the reality that if you are the one who is held 

liable it could be an enormous financial catastrophe for your company. 

 If I may also answer your question by echoing Ms. Weiss and adding another 

dimension to a separate point that she made. She pointed out that if we hold people or 

companies liable for the tires on our cars or the toys for our kids, why not something like 

health care? 

 I guess my answer to that would be many of my Fortune 500 company members 

have gotten out of the business of manufacturing certain products on which they make 

money because of the fear of product liability. I don't think it is a stretch or Chicken 

Little saying “the sky is falling” to assume that the very rational decision of a lot of 

companies and certainly small companies providing health care, is that it isn't worth the 

risk.

 Since this hearing is about ERISA, that is a fundamental change from the balance 

that was sought to be struck in crafting ERISA. 

Mr. Ballenger. Mr. Ford, you’re up on the legal end of this. Is that possible? 

Mr. Ford. Let me just echo your concern that Congress look back at what it did in 1974, 

when it had the idea of a named fiduciary. It specifically identified people who had 

certain liability and responsibility and other people who didn't, so that it was clear who 

had to stand up to that obligation. That person could ensure against the liability that 

might flow from it. 

 Some versions of legislation that are now being considered would make people 

liable for, quote, “Any other duty under the plan.” That is very broad and amorphous. 

It is hard for people to know whether they are acting under that provision or not. 
19

 Something that clarifies who is responsible for what would I think get a higher 

quality decision, because they will know they are on the line, and also avoid uncertainty 

and ambiguity about other people being responsible. 

Chairman Johnson. Thank you.

Thank you, Mr. Ballenger. Your time has expired. 

Mr. Kildee.

Mr. Kildee. Thank you, Mr. Chairman. ERISA was enacted I think two years before I 

came to Congress, and we have been dealing with it ever since. 

 It is a complicated law. It is a very important law. It protects a lot of people in 

my district and sometimes creates some problems for people in the district. 

Ms. Weiss, is the preemption of state law ensuing beyond the actual cost of a 

benefit, is that explicitly written in ERISA, or is it implicitly there as interpreted by the 

courts? 

Ms. Weiss. I would argue that it has been interpreted by the courts, that it is not explicitly 

there. There are some who have argued that the remedies that were provided under 

ERISA were intended to be much broader, but have been narrowed by the interpretation 

of the courts, both regarding what would constitute equitable relief under ERISA and in 

terms of the preemption of other state causes of action that might exist. 

Mr. Kildee. But basically it was a court decision that ERISA preempted state law that 

nailed this down? 

Ms. Weiss. Right. There was a case that the Supreme Court decided in 1987 called Pilot 

Life Insurance Company v. Dedeaux, which basically found that all of those state causes 

of action that an individual in a disability plan wanted to bring for injuries they had 

incurred as a result of a plan denial, were preempted because as the Court interpreted 

ERISA Congress had intended to occupy the field and therefore preempted any state 

regulation in this area. 

Mr. Kildee. Let me ask you then, how does the Texas law work, because there is 

permission. 

Ms. Weiss. Right. 

Mr. Kildee. How does that work in light of ERISA? 

Ms. Weiss. Right. Well, there has been an evolution of the Court's thinking in terms of 

ERISA preemption since the Pilot Life Insurance case was handed down, and there has 

been an evolution in understanding that there is a division between what are considered to 

be ERISA benefit decisions that involve the quantity of benefits that could be provided 

and the quality of medical care which has been traditionally a historic role for the states 

to regulate. 
20

So I guess in the mid-1990s a number of circuit courts started deciding cases that 

distinguish between what they refer to as quality of care cases versus benefit 

administration or quantity cases. Following that line of thinking, which has largely been 

established now, the fifth circuit in a recent decision decided that the Texas HMO 

liability law was safe from preemption as relating to the quality of medical care that is 

provided by the HMO, not with respect to the benefit administration. 

 The Pegram case, which the Supreme Court decided last year, affirmed that 

understanding and actually in the opinion the Supreme Court, in a unanimous opinion I 

should say, the justices suggested that the idea of what is a quality of care case is actually 

broader than we originally thought. It is not just strictly medical malpractice cases but it 

is cases like the one I was describing that involved both mixed treatment, medical 

treatment, issues, and plan administration issues, and so if there is any element of medical 

judgment, the Supreme Court reasoned, these cases should stay in state court. 

Mr. Kildee. So an attorney representing a client has to look at ERISA, state law, and 

court decisions, and perhaps a Patient's Bill of Rights could clarify all of this, make it 

nice and clean and clear what the rights of the patient are? 

Ms. Weiss. Right. The Ganske-Dingell bill provides clear lines of avenues of relief that 

would be created, basically. It would clarify that with respect to these medical treatment 

decisions and the mixed treatment and eligibility decisions, those would be eligible for 

relief under state law, existing state laws, and states could pass whatever laws they like. 

 With respect to the pure coverage or eligibility decisions, whether or not a 

member is an individual member of the plan, and whether or not the individual has 

exhausted their waiting period, those decisions would go to federal court and there would 

be some expanded remedies available. 

Mr. Kildee. Thank you very much. 

Ms. Weiss. Thank you, Mr. Kildee. 

Chairman Johnson. Thank you, Mr. Kildee.

Mrs. Roukema. 

Mrs. Roukema. Thank you.

 Let me first state that I am a strong supporter of the Patient's Bill of Rights or 

whatever we are calling it these days, Ganske-Dingell, and I was an original co-sponsor 

of Norwood-Dingell and I don't hear anything that has been said thus far that would 

change my mind. But I also want you to know, aside from that, that for a number of years 

I was the ranking Republican on the Subcommittee on Labor-Management, which had 

jurisdiction over ERISA, so I am quite familiar and have been strongly supportive of 

ERISA over the years. 

 I have been listening carefully and I haven't heard anything said here today that 

would firmly state that somehow the Patient's Bill of Rights would be in specific 

conflict with ERISA as written both in the law or as Ms. Weiss has just pointed out, 
21

subsequent court cases. So I have heard nothing that would contradict what my 

convictions were before. 

 Now if one of the other three members on the panel would like to respond to what 

Ms. Weiss just said, as well as the fact that in her testimony she said ERISA may be 

adjusted? She didn't go into any explanation as to how it might be adjusted. I don't 

believe it has to be. 

 I believe that anything that is in the law now is consistent with dealing with the 

managed care explosion and the question of accountability. If it isn't, if there is 

something incontrovertible in ERISA, tell me about it. I didn't hear it. If so, then this is 

the modern age and ERISA would have to be adjusted. But I haven't heard anything that 

contradicts that. 

 Would anyone like to comment on that? 

Chairman Johnson. Mr. Ford, can you respond? 

Mr. Ford. I would be happy to, Mr. Chairman, and thank you, Mrs. Roukema, for your 

service on the ERISA front for all of these years. 

 All of the Patient's Bills of Rights that are pending amend ERISA, one way or the 

other in major ways. 

Mrs. Roukema. But it is not a fundamental rewriting of ERISA. It is only a 

modification.

Mr. Ford. I think the degree of change depends on the portions of which bill one is 

talking about. 

 One thing that they fundamentally differ on is whether ERISA should remain a 

statute that is focused on a nationally uniform federal set of remedies and claims 

procedures. Some do that. Some attempt to meld new and additional federal remedies 

with the opening of additional access to state courts and state remedies at the same time. 

 I will say as a lawyer, and I guess that's what I bring to the table today if I bring 

anything, that the ones that combine the state and federal regulation systems so that one 

really has 51 different systems operating at the same time, are for us a Rubik's cube or a 

three-dimensional chess game. They are going to be fascinating legal work, and involve, 

being in federal and state courts one after the other. It's going to be much slower. It's 

going to be much more expensive. It's going to be much more complicated. 

 Those of us who run law firms are already looking at expanding our space and 

hiring more people to accommodate it. That is good for us. Going back to Mr. Andrews' 

three goals I would suggest that the question for the Congress is the one area you can 

save. One of them isn't to pay more lawyers and overhead. 

Mr. Andrews. I didn't say that. 
22

Mr. Ford. That was not his fourth principle. I was listening carefully, and I think this is 

one area where one version or another could be more efficient and cheaper and faster. 

That is not only good for the employers and unions who put these plans together, but it 

would also be good for the participants because a system that is slow and expensive is 

daunting. It is hard to enter and it's hard to get out of, and hard for the participants to get 

justice.

Mrs. Roukema. Excuse me, Mr. Ford, but isn't that fundamental to ERISA in that we 

can deal with the uniform appeals process on a national scale. That is consistent, is it not? 

Mr. Ford. Yes, you certainly may and I would suggest that the ERISA platform is the 

right platform to legislate on. 

Mrs. Roukema. There is nothing contradictory in the Patient's Bill of Rights that would 

conflict with that procedure. 

Mr. Ford. Some versions would introduce state processes at the same time, and one 

would not necessarily, as you now do, go to the plan, exhaust your administrative 

remedies, and then go to federal court. You could go to state court. You could be in 

federal and state court at the same time. You could not exhaust your remedies within the 

plan. So some versions of the Patient's Bill of Rights would be a fundamental departure 

from the approach, which ERISA has taken for 25 years. 

Mrs. Roukema. I guess my time has run out, but if Ms. Weiss would like to submit 

something for the record please, I would appreciate it. Thank you. 

Chairman Johnson. Well, Mrs. Roukema, I think you have hit at the core issue here, and 

I would like to offer each of the other witnesses a chance to respond to that question if 

you desire. 

Mr. Klein. Well, without belaboring the point, I would just echo Mr. Ford's comments 

about it being a dramatic departure to insert this idea of different results arising in state 

courts. I think the point that Congresswoman Roukema was probably going to make, at 

least as I interpreted it, is the question of how do we then address the real problems, like 

the case, for example, that Ms. Weiss cited. 

 I think that the way it can be done without a dramatic departure from ERISA but 

within the ERISA framework is to follow exactly the formula that the federal government 

uses for the health plans that it provides. It serves as the sponsor, for the nine million 

people who are covered by the Federal Employee Health Benefit Plan or the 12 million 

people who are within the managed care features of the Medicare system. When there is a 

dispute it automatically goes through an external review approach. All of the Patient's 

Bills of Rights that have been introduced would provide that a patient that faces the kind 

of serious situation that Ms. Weiss spoke about would be able to get a decision on 

coverage within 72 hours. 

 Resolving these issues upfront, rather than the cold comfort of a huge damage 

award that comes after the fact and after the tragic amputation of a leg is a point that 

Chairman Boehner championed last year in the last Congress when the Patient's Bill of 

Rights was being talked about. 
23

 So I think that there are ways in which this can be accomplished by addressing 

these questions through an independent external review. I would note that the federal 

government protects itself against any liability for the Federal Employees Health Plan 

and the Medicare system. I don't see why it should be imposed on private employers 

without a commensurate opportunity for resolving these matters through external review. 

Ms. Weiss. If I might respond? Thank you. 

Chairman Johnson. Yes. 

Ms. Weiss. Chairman Johnson, obviously I would agree with Mr. Klein's suggestion that 

external review is especially important and will help reduce the number of injuries that 

could ultimately result. 

 However, I would argue that the case that I described actually provides an 

excellent example of why external review is not enough and why some further 

accountability and some redress is needed. 

 In the case I described there were repeated delays and denials and even after 

approval there were additional delays and denials. The delay and denial that caused a gap 

of a month in treatment where the woman's infection was already so serious and so 

detrimental that she would have required an amputation to cure her and to save her life. 

In those cases external review provides no meaningful relief, and it provides very few 

protections in terms of the fairness of the process. 

 It provides a quick, independent medical judgment as to whether or not medical 

care is needed. It doesn't provide the sort of accountability that health plans obviously 

may need to ensure that they provide the treatment that they are supposed to be covering. 

Chairman Johnson. Thank you. Mr. Fletcher is recognized. 

Dr. Fletcher. Thank you, Mr. Chairman. I appreciate you having this hearing. 

Chairman Johnson. Excuse me, Mr. Harter. Did you have a comment to make on that 

subject? 

Mr. Harter. I would just like to add that again when you are dealing with small 

employers that are participating in multiemployer plans the ability for these people to 

even deal with variations in state law is virtually nonexistent. 

 If they are operating a plan in one jurisdiction the legal support that they have 

knows the local law but it is not cognizant of what is going on nationally. Claims coming 

in from other parts of the country will embroil them in involved legal cases. 

 It is not going to take more than a couple of these before the employers and 

unions that are running these plans are going to simply throw up their hands and say, you 

know, this won't work. 

Chairman Johnson. Puts the unions in a bind, doesn't it? 
24

Mr. Harter. Certainly does. 

Chairman Johnson. Thank you. Mr. Fletcher. 

Dr. Fletcher. Thank you, Mr. Chairman I appreciate the testimonies. Let me first just 

make a few brief comments. 

 One, I guess it's pretty clear the increases in the costs of health care is driven more 

by the new treatments, technology and pharmaceutical agents that we have. Certainly a 

litigious environment substantially increases the costs of health care, not primarily but 

secondarily.

 There's cases and estimates by the medical associations that show the number of 

tests that are done that are probably not needed, while the number of MRIs that are done 

for headaches increase substantially. 

 As a practicing physician I know that there were a number of MRIs I ordered 

particularly because of the concern about frivolous lawsuits, even though it was very, 

very unlikely that there was an early tumor involved or other pathology. 

 There is no question that HMOs have certainly earned to some extent, the ire of 

the public because of the hassle factors. But getting away from anecdotes, although I 

know a particular case is very important, let me ask Ms. Weiss. When we are dealing 

with science and dealing with quality of health care we shouldn't be legislating on 

anecdotes, and yet I do believe that if there is an egregious case there needs to be 

appropriate redress. 

 Let me ask you if you have seen any studies of quality of care by the self-insured 

versus individual markets, particularly regarding women’s issues, such as the number of 

Pap smears that are performed, the percentage of mammograms that are performed, Csection rates, or hysterectomies? 

Ms. Weiss. Well, actually, I don't believe that I have seen any studies dealing with that, 

but I would want to respond to your suggestion, with all due respect, that legislation is 

being done by anecdote.

There was a recent study by the Kaiser Family Foundation, actually it was just 

released I believe last week that showed that 51 percent, a majority of the people who are 

enrolled in managed care report that they are experiencing real problems, and that these 

problems have real consequences, including lost time at work. 

Dr. Fletcher. Ms. Weiss, let me interrupt you. 

We were looking for academic studies that are done on the quality of care, 

because even though I certainly as a practicing physician find managed care very difficult 

to deal with, there are some changes that are needed. I think internal-external review 

would help. But actually the studies from academic centers on quality of care have not 

shown a difference between fee-for-service and managed care. There have been studies 

on both sides, but I don't think we have seen a distinction. 
25

In my experience the other thing that managed care has brought, is that we do see 

more preventive care coverage than we have seen in the past. I think we will find an 

increase in the percentage of mammograms that we are getting, the percentage of 

immunizations for children, the percentage of Pap smears that I was doing, which I didn't 

previously get and do not get under strictly fee-for-service. So I think we need to realize 

that there are some benefits to managed care, even though I think we need some 

legislation, a Patient's Bill of Rights. 

 I think it is also inappropriate to try to compare Texas law with our attempts here 

to open up state litigation, and you have made our point very well that the trial lawyers 

are probably not going to invest a great deal in court. Where there is a question of 

whether it would go forward anyway, and/or saying that we could predict the number of 

cases that would be filed if open litigation under state courts would be passed here is like 

comparing apples and oranges. 

 Let me ask Mr. Ford his opinion. Mr. Ford I have two questions. My time is 

slim. Let me ask them both and you can respond. 

 First, where are the courts going regarding ERISA cases, and second, maybe Mr. 

Klein, you will contribute to this one after he answers, if litigation was opened up with a 

designated decision-maker particularly for the self-insured, how would that work 

regarding ERISA? 

Mr. Ford. Thank you. On the first question there are two or three areas, and I will try to 

be very brief. One area is where the courts are active right now. This is the Pegram 

decision, which Ms. Weiss alluded to. Pegram was a Supreme Court decision that 

basically said that the kind of mixed decision of medical and plan eligibility or coverage 

made by a managed care physician who had made a mistake in making a medical 

necessity determination, and who had delayed a particular treatment by eight days and 

done it in network instead of ordering it immediately, was not an ERISA fiduciary 

decision.

 The Court noted that medical malpractice law exists under state law to deal with 

it, and wondered whether the Congress would want the courts to invent a federal medical 

malpractice law. 

 I don't agree with what Pegram decided that any kind of eligibility decision made 

by a managed care organization and anyone in that organization is therefore not 

preempted and is subject to state suit. It was dealing with medical malpractice and a 

physician in a treatment setting, and that is a much narrower finding. 

 I think at least in answer to where it's going it leaves a number of question marks 

that haven't been resolved. 

 The second area is on this issue of state external review laws. To cut to the chase, 

the Texas law requiring external review was preempted because it interfered with 

ERISA's claims process. On the other hand, a seventh circuit decision in a case called 

Moran found that an external review law in Illinois was not preempted, that it could 

continue, so there is disagreement there. 
26

I expect that to go to the Supreme Court and expect the Supreme Court to say that 

external review, the laws on the state level as opposed to what the Congress might do, are 

preempted by ERISA. 

 The third major area is disclosure. There is a lot of disagreement in the courts 

over what ERISA requires by way of disclosure. It has these detailed disclosure rules 

that are set out in Sections 102 and 104, but some courts are finding that there is a general 

fiduciary duty to perform disclosures. Now clearly a fiduciary has a duty not to mislead a 

participant or a patient, but does the fiduciary have an additional duty to give 

individualized advice and disclosure to people, say on the tax consequences of a 

particular decision or about the internal medical incentives, or financial incentives in a 

managed care organization? The courts disagree on that. 

 I think ultimately the decision will be that ERISA disclosure has been legislated 

in detail. The Department of Labor has detailed disclosure regulations, new ones, and 

that is where the disclosure rules ought to be, not in some generalized, ill-defined 

fiduciary duty. But it is not resolved yet. 

 On the designated decision-maker point, I think that making clear who is 

responsible for what is very important. That will get better conduct by people who are 

making the decisions. It will let the participant know who is accountable. It will enable 

the insurance and the cost process to be refined and it will be much more efficient and I 

think cost effective. 

Mr. Klein. You asked me to follow that up, and I guess I would characterize the 

designated decision-maker provision that though a well-meaning effort to try to limit the 

scope and the circumstances under which there might be liability, I think that two points 

need to be noted. 

 The first is the potential for chilling effect that that could have on the current very 

active and positive role that employers and other designated decision-makers play in 

terms of being advocates for the participants in their plans, alluding back to the dialogue I 

had before with Congressman Ballenger in terms of what kind of vulnerability that there 

might be for those like me. Would I be held liable at some point for having directed the 

decisions about what kind of coverage was selected? 

 The other point, more Ganske-Dingell legislation or Kennedy-McCain legislation 

in the Senate, is the extent to which there still is liability under class actions, 

notwithstanding a designated decision-maker feature that might be added into that kind of 

a framework at some point down the road. So I think that one has to make sure that it 

would be crafted in such a way as to provide protections for all different kinds of liability 

for different kinds of claims. 

Chairman Johnson. Thank you. You didn't want to respond? 

Ms. Weiss. I would love the opportunity to respond. Thank you very much, Chairman 

Johnson.
27

In terms of the concept of making clear who is responsible for what, I think a 

point that was made earlier by Mr. Klein was that the Ganske-Dingell bill could subject 

employers to extensive liability; there would be no way for them to control it and that 

merely setting up the plan would subject them to liability. 

 I wanted to respond in kind and say, you know, the Ganske-Dingell bill does 

include specific protections for employers and clarifies that employers shouldn't be held 

liable unless they are in the business of basically what is effectively making medical 

decisions for their employees. 

 To the extent that they are, they should be held liable, as other health plans are, 

and the Ganske-Dingell bill does also include a specific protection against employers 

being held liable merely for setting up the plan. 

 Apart from that, in terms of the appropriate role of the states and the federal 

government in regulating health care, I would just respond to Mr. Ford's comments in 

regard to the direction the Court is going in. In looking at the Supreme Court's likely 

decision in the fifth circuit case involving preemption of external review it is possible that 

the federal judiciary does not want to interfere in states' regulation of health care and 

managed care. 

 I think the unanimous opinion of the Court in Pegram alluded to this, but I think it 

was also reiterated in a letter that Chief Justice Rehnquist recently wrote to Senator 

Nickles where he states that he doesn't believe the federal judiciary is the appropriate 

place for these types of lawsuits and other regulation he wants to defer to the states' 

traditional role in regulating health care. Thank you. 

Chairman Johnson. Thank you. Mr. Boehner. 

Mr. Boehner. Mr. Chairman, thank you, and let me congratulate you and Mr. Andrews 

on having this hearing and the timeliness of it. 

 As we all know, employers and unions cover some 129 to 130 million American 

workers. It is the foundation of the health care insurance system in our country and 

there's certainly some turmoil in the marketplace with these tremendous cost increases, 

and tremendous concerns on the part of employers, their employees and others about how 

they are going to continue to afford quality health insurance. 

 What is happening around America is that employers and their employees are 

getting increasingly concerned about whether they can continue to do what they have 

been doing. As we here in the Congress begin to consider the legislation that would offer 

new mandates, open up new liability, I think that we have to be very, very careful that we 

don't kill the goose that is laying the golden egg in terms of providing the foundation of 

our health insurance system. 

Mr. Klein, you know that there are proposals kicking around Congress that would 

subject employers and/or insurers to liability both in federal court, which is already 

allowed under ERISA, and open ERISA and ERISA plans up to state rights of action. 
28

Mr. Ford made earlier comments about the fact that it is going to be expensive, 

and it is going to subject employers or their agents to be hauled into state or federal court. 

What is the likely impact if you are an employer? What are you likely to do? 

Mr. Klein. Well, you know, I was at an event this morning, Chairman Boehner, with 

some other business groups, and we were talking about this issue. I was saying that 

throughout the course of this very vigorous debate over the last couple of years I have 

been an advocate for major employers. I have also thought of this in very personal terms, 

in the context of what would I do for the health care that I am responsible for providing 

for my colleagues on the staff and their family members, and for myself, for that matter? 

 I have to say that as an organization dedicated to the promotion of the employersponsored health care system and in fact we provide a very generous plan for my 

colleagues, we would be among the last out the door in terms of saying we would give it 

up.

 But I would have to very seriously consider whether the prudent business thing to 

do, would be to sponsor a health plan and to take as active a role as we like to take in 

terms of insuring good care. Would I in the process expose our small organization and 

potentially myself as a fiduciary to enormous liabilities? 

 I looked around the room because this event this morning was held over at the 

National Federation of Independent Business, and I thought that if I am seriously 

considering that I might have to re-evaluate that in a post-Ganske-Dingell world of that 

being the law. What about those companies whose pictures were shown up on the wall of 

the NFIB, such as the small bicycle shop, or the music shop where benefits is not a 

fundamental core of what they do? 

 I think that it would be a very serious evaluation that one would have to draw. 

Mr. Boehner. Mr. Harter, how many employees are covered under multiple employer 

welfare arrangements? 

Mr. Harter. Approximately 12 million employees. 

Mr. Boehner. And what do you think the reaction of a board of trustees would be to the 

possibility of being held personally liable, because each of those trustees, as I understand, 

are in fact fiduciaries under ERISA? 

Mr. Harter. That's correct. Of course they have that liability today and they are able to 

insure it, so part of the answer is whether in fact insurance protections can be put in place 

so that they feel comfortable with assuming any new responsibility. 

Mr. Boehner. Now those boards of trustees are made up of both employer 

representatives and union representatives, is that correct? 

Mr. Harter. That is correct. Multiemployer plans by law require 50-50 representation. 
29

Obviously if they feel that the liability is excessive, the first situation is going to 

be that you are going to have difficulty finding people willing to assume responsibility 

for being trustees. They do not receive compensation for that responsibility and it could 

be very, very difficult to simply have people assume these roles. 

 The second situation basically is that in collective bargaining it's very, very easy 

to take these employee contributions and in effect return them to the participant's 

paycheck, to simply stop the fund. It would be a very simple operation to do if the parties 

decided to do it. 

 The balancing act is essentially whether the tax consequences to the participants, 

who now will have to buy benefits themselves with after-tax money in many cases, will 

justify the action that they are taking. 

Mr. Boehner. But if multiple employer plans were subjected not only to increased 

federal liability but potential liability in each of the states in which they operate, how 

would a multiple employer plan try to adjust rates and costs given this uncertainty? 

Mr. Harter. Well, that would be answered over time. Do the requirements in a particular 

state cause identifiable additional costs to be factored into the rates for all participants 

working in that state? Variations in benefit plans or the way the insurance protection is 

being provided in effect insulates a group so that their coverage is fundamentally 

different from the rest of the group is going to undercut the basic relationships that are 

going on in a multiemployer plan. 

 The unions are operating from the perspective that they are providing uniform 

benefits to all of their employees, and to the extent they can't do that, the whole union 

relationship will break down. 

 I really don't know how multiemployer plans would tackle that issue, other than 

dealing with insurance companies on a state by state basis to identify the protections and 

the costs associated with them and then trying to incorporate that into their rate structure. 

Mr. Boehner. Thank you, Mr. Chairman. 

Chairman Johnson. Thank you, Mr. Boehner. 

 Mr. Harter, earlier you said that you would have to adapt to the costs state by 

state, but really wouldn't that affect the overall cost for everyone in your plan? 

Mr. Harter. Basically, under the current structure all assets of the plan have to be 

available for all liabilities. 

Chairman Johnson. Right. 

Mr. Harter. So there is really nothing in today's structure that isolates assets for 

particular participants and particular localities. That doesn't mean that if you have an 

unraveling of the ERISA exemption that we couldn't be going in that direction. 
30

If states set up specific reserve requirements for participants working in their 

state, it may in fact require assets to be allocated to particular groups in order to reserve 

and provide the benefits for that group. 

Chairman Johnson. The overall cost is going to go up? 

Mr. Harter. The overall cost is going to go up. In fact, under today's regulations you 

essentially would have to set up multiple plans with multiple filings and all of the work 

associated with a multiple employer being duplicated on a state-by-state basis. It would 

have a tremendous impact on cost. 

Chairman Johnson. Thank you. Let me ask Mr. Ford a question. In your testimony you 

mentioned that ERISA overrides the patchwork of state laws and would subject multistate 

plans to inconsistent regulation. From your experience, can you give us some examples 

of different types of regulations one of your clients might experience without ERISA? 

Mr. Ford. Yes, Mr. Chairman, and it picks up some on what Mr. Harter just said. 

 Imagine you are running a plan, whether as an employer or as a multiemployer 

plan that has operations in 40 or 50 states. There are going to be different benefit 

mandates in each of those states. I think right now half the states have a list of 10 benefit 

mandates. 

 There would be different claims timing rules. There would be different appeals 

rules and the number of appeals and whether an appeal can be raised orally or must be in 

writing. There would be external review in some states but not in others. There would be 

different reporting and disclosure, different damages and so on. 

 I thought about could a multistate plan, whether it is a multiemployer or corporate 

plan, address this by saying we are going to go through the rules and try to do the most 

generous thing in each area and automatically comply with all of these. It doesn't really 

work, if you think about it. What is more generous is having three levels of appeal that 

are slower or two levels that are faster? And you are not going to be able to get a uniform 

approach to benefits even if you are willing to bend over backwards to do the most liberal 

of all the state rules. 

 So to go to your question, in either a multiemployer plan or in a corporate plan, 

there's going to be more overhead as you expand the number of staff and lawyers who are 

busy trying to comply with 51 sets of rules instead of one set of rules. 

Chairman Johnson. Well, that is a “lawyer protection plan.”

Mr. Ford. It is. 

Chairman Johnson. I can't believe that you stated you are already hiring extra people in 

your law firm to take care of this problem. 
31

Mr. Harter, in your statement for the record, you mentioned the fact that many 

multiemployer plans, like in the Washington, D.C. area for example, which isn't a state, 

cover participants who live in a number of states around here. How does ERISA help that 

situation? 

Mr. Harter. Well, essentially ERISA sets a framework for operating a plan and there is 

no requirement to conform again to state mandates. 

 Even if a plan decides to provide coverage through an insurance carrier for part or 

all of its coverage, generally the only state mandates that apply are for the state where the 

fund is located. Basically you are able on either an insured or a self-funded basis to offer 

a uniform plan, whether employees are working in the District, Maryland or Virginia. 

 As I indicated earlier, even if they move to other states because work isn't 

available in this area, and funds flow back, there are no consequences as far as the plan 

design. The trustees prepare a plan document of uniform provisions and make them 

available to all participants and essentially establish eligibility rules that combine the 

hours worked in any of the states in order to establish eligibility.

Chairman Johnson. Thank you, sir.

Mr. Andrews, I believe you had one follow-up. 

Mr. Andrews. I do. I think it is very important, given some of the statements that are on 

the record, that we refer to the language of the Ganske-Dingell proposal, identical to the 

McCain-Kennedy proposal in the Senate, and that is this. 

 The ERISA preemption is lifted but the ERISA preemption is not lifted against 

employers unless the employers fit into a very narrow exception that is defined in Section 

302 of the Dingell-Ganske bill. A claim is still preempted against an employer unless the 

employer is involved in direct participation in a decision to deny or a decision that 

impacts on a participant. 

 The phrase “direct participation” is specifically defined in the bill as the actual 

making of such decision or the actual exercise of control in making such decision or in 

the conduct constituting the failure to do something. The purpose of that language is to 

specifically disclaim vicarious liability. It is to specifically disclaim principal agent 

liability. It is to specifically disclaim anything short of the actual active participation by 

an employer in a decision. 

 The second point I would like to make is we heard a reference to legislating by 

anecdote. I don't think we are legislating by anecdote. I think we are legislating based on 

a growing national consensus that there is a real problem here. 

 That problem is manifested in litigation that has nothing to do with ERISA, and is 

trying to get around ERISA. There are lawsuits being filed today throughout the country 

in state and federal courts for unauthorized practice of medicine against managed care 

organizations. There are lawsuits being filed for medical malpractice against managed 

care organizations. There are lawsuits being filed under the civil RICO statutes for 

interstate conspiracy to deny someone of life or property. 
32

 I think that we need to consider here, amidst all this testimony that there already is 

a flood of litigation, and I would be interested in the panelists' comments on this 

proposition, and I ask it as a question. 

 Do you think there will be more litigation or less litigation if something like 

Ganske-Dingell is adopted? Now I know your first impulse is to say, ‘Well, of course 

there will be more litigation because we'll have state tort liability.” But given the flood of 

litigation that already exists, based upon medical malpractice, based upon unauthorized 

practice of medicine, based upon civil RICO, based upon lots of new theories, many of 

which as a lawyer I think are rather bizarre, what do you think of the argument that it is 

better to legislate it and have a finite and clear set of standards than it is to simply let a 

multitude of trial courts across the country and a multitude of trial lawyers determine 

which theory is the one that hits the jackpot? What do you think of that? 

Mr. Klein. I could take a crack at that one. 

 I think it is a very thoughtful question, certainly, but I want to first just clarify one 

important point that you made about the direct participation issue in the context of 

answering your question. 

 It should be noted that that direct participation feature, you know, may exist in 

sort of a narrow class of actions initiated under the new remedies prescribed under 

ERISA in the Ganske-Dingell bill, but there is no limit on class actions for other 

provisions of ERISA or, as you pointed out, the RICO statutes. 

 So it is not as complete a protection to the employers that some folks might 

otherwise think, and it is also important to note that what is offered up as a defense by 

somebody being sued is of a different nature than something that just prescribes what 

one's liability is, because you can expend a great deal of effort and resources defending 

yourself against liability. 

 You know, naturally I can't sit here and predict whether there will be more or less 

litigation but I think that even if the point that you note is correct, we are certainly not 

likely to see less litigation under a scenario whereby people can sue in both federal and 

state court. 

 Clearly, as we have discussed today, it goes against the whole nature of the 

federal framework of ERISA. It is quite a different matter to say that one can go to court 

to enforce the decision of a properly structured independent external review decision that 

a benefit should have been provided, and to enforce that through litigation than it is to 

invite litigation at the front-end and not even require one to exhaust the independent 

external review process, as unfortunately is the case under the Ganske-Dingell bill. 

Mr. Andrews. Anyone else? That is my last question. 

Mr. Ford. Mr. Andrews, excuse me, I might just add to that. 

 I think there really may be two parts to the question: first, will there be more 

litigation, and second, will it cost more? 
33

On the first question, I think there will be more litigation if there are states 

remedies available in addition to federal remedies. There will be more litigation of a 

particular type. That is the kind that offers a potential big judgment at the end and is a 

very expensive system. You can look at the medical malpractice system. It is a very 

expensive system to work one's way through so smaller medical malpractice claims often 

don't get compensated. I think the more moderate and smaller claims cases probably 

won't balloon, but the ones that portend a bigger payoff in the state system probably will. 

 The second point is whether I am right that abandoning the notion of a uniform 

federal forum in federal court for ERISA claims for parallel state actions is necessarily 

going to be more complicated. Some of the bills propose a stay in federal court and 

action in state court, then on to federal court if you lose all the way up through appeals, 

and then back to state court if you lose on appeal. It's going to be slower. 

 That is not only a cost factor for people who sponsor plans. It is a major 

disincentive to people who have been harmed to take their claim into that system unless 

they get a big dollar payoff at the end. 

Mr. Andrews. I'm sure Ms. Weiss would like to respond. 

Ms. Weiss. Thank you. I have just a couple of points for clarification of the record. 

Mr. Klein suggested that the Ganske-Dingell bill does not include any protections 

against class action litigation, but I would refer him to Page 168, Section 303 of the 

Senate version of the bill, which includes a provision called “limitation on actions” and 

does specifically limit the types of class actions that could be brought under the bill with 

respect to the new protections that are created. 

Mr. Klein. That's what I said. 

Ms. Weiss. May I? Thanks. 

 The bill does not, however, include the types of broad-based preemption or 

barring of class actions that might exist as Mr. Klein was suggesting with respect to the 

other rights that exist under ERISA or with respect to the RICO actions. I would 

respectfully submit, following on your wise comments, Congressman Andrews, that after 

the creation of a more meaningful remedy for individuals there would be less of a need 

for class actions. 

 And the second point of clarification that I wanted to make was in response to a 

point that Mr. Ford had made before regarding the concerns about ERISA plans being 

subject to inconsistent regulation under the 50 states. I would just suggest that with 

respect to fully-insured plans, these are already indirectly subject to state regulation in the 

50 states, and they are managing just fine. 

 Under the Supreme Court's decision in 1985, Metropolitan Life Insurance v. 

Massachusetts, the Supreme Court clarified that state insurance benefit mandates do 

apply to the insurance companies that are providing benefits to ERISA covered, fullyinsured, employer-sponsored plans. Thanks. 
34

Chairman Johnson. Thank you.

Mr. Boehner, do you have a follow-up question? 

Mr. Boehner. Yes, Mr. Chairman, thank you. 

 Mr. Andrews, my good friend and colleague from New Jersey, pointed out the 

alleged employer carve-out in the Ganske-Dingell bill. He did in fact read it correctly, 

that if you directly participate in a decision that you are in fact held liable. 

 Any one or all four of you can take a crack at this, but explain how to preserve 

your fiduciary duty to protect all beneficiaries in the same manner. How do you do that 

without directly involving yourself, other than the case of a fully insured plan? Do you 

just lay it off on someone else? Under the fiduciary duty outlined in ERISA, no selfinsured plan would ever be carved out by the language that currently exists in that bill. 

Am I correct or wrong? 

 We'll start with you, Mr. Ford. 

Mr. Ford. I'll try to be brief. 

 The “directly participates” language reflects an effort to make it clear, but I don't 

think it is there yet. It is pretty amorphous as to what constitutes direct participation in a 

decision. One doesn't have to be a fiduciary, Mr. Boehner. 

 The question for the Committee and Congress is do you want a rule that sends 

people running in the other direction from that responsibility? I think what one would 

have to do as a business person is get out of that role and totally hand it to someone else 

to make those decisions for fear of the potential liability. 

Mr. Harter? Mr. Klein? Ms. Weiss? 

Mr. Harter. I guess I would comment that there's really two parts to the decision-making 

process that an employer goes through. 

 One is simply the contractual arrangement that's been set up. The plan document 

that has been established on which claims are being paid is seldom specific enough to 

deal with every situation that might arise. 

 Experience shows that when appeals come to boards of trustees or to employers, 

they are frequently appalled with the decision that they are faced with under the plan 

document that has been drafted. They in fact look for opportunities to correct the 

situation, either by approving the appeal, although the plan document did not clearly 

approve it, or immediately amending the plan of benefits so that the circumstance is 

covered.
35

It raises a lot of questions in my mind, as I'm sure it does yours then, as to the 

extent they suddenly start participating in medical decisions? They are really deciding 

coverage issues and unless these categories are very clearly separated, you are always 

faced with a situation where someone else in another situation is filing suit. 

 I think again the complexity of this situation is mind-boggling. 

Mr. Klein. I can answer it just very briefly, echoing both of those points, of course, by 

saying that we often get immersed in this discussion with the premise in mind that the 

decision to grant the coverage of the benefit is necessarily the right decision. You ask 

how one balances the responsibilities under ERISA as a fiduciary, and we have to 

recognize that sometimes of course the right decision under the terms of the plan or under 

the terms of even the medical judgment provided may be to not cover something. That is 

a very difficult position for anyone to be in. 

 I think what we can all agree on, whatever else we might disagree on is that what 

we want to achieve is a situation whereby if a mistake is made in making that 

determination that it can be dealt with and rectified quickly. 

 I just can't underscore enough that I think the way that you envisioned it in your 

legislation of the last Congress, whereby through a properly and fairly structured external 

review process that is dealt with at the front end, we can overcome what will be natural 

human mistakes that will happen. This will allow people who are qualified to make those 

decisions, to render the final judgments. Then whoever refuses to provide the coverage, if 

in fact the right decision was that something should have been covered, can go to court to 

enforce the external review decision, but not deal with it at the front end by inviting 

litigation and not providing a mechanism to deal with what is obviously are very difficult 

questions.

Ms. Weiss. In response to your question, Chairman Boehner, I basically think that many 

have suggested that fiduciary responsibility would necessarily subject health plans to 

being involved and directly participating under the language of Ganske-Dingell. 

 I think that to the extent that the fiduciary responsibility flows to all plan 

participants and the interests of the entire plan as opposed to the individual participants, I 

think employers could very persuasively argue that unless they directly participated under 

the language of the bill that they would be protected from liability. 

 But I would just want to make a larger point about fiduciary liability generally, 

because I think there has been some suggestion that fiduciary liability under ERISA is so 

strong and so protective of ERISA participants. I would respectfully submit that it has 

done very little to protect the interests of participants and beneficiaries in the managed 

care plans that are currently suffering from the problems caused by a wrongful delay or 

denial where they have no redress. Thanks. 

Mr. Boehner. Thank you, Mr. Chairman. 
36

Chairman Johnson. Thank you, and I want to thank the witnesses for their valuable time 

and testimony. I think this is kind of a good summary at the end, and I appreciate the fact 

that in America we can agree to disagree sometimes. Isn't this a great nation? 

 Thank you all for being here. If there's no further business, the Committee stands 

adjourned.

Whereupon, at 12:19 p.m., the Subcommittee was adjourned. 
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Table of Indexes 

Chairman Johnson, 1, 5, 7, 9, 12, 14, 15, 17, 19, 20, 21, 22, 23, 24, 26, 27, 29, 30, 31, 34, 

36

Dr. Fletcher, 23, 24 

Mr. Andrews, 15, 16, 21, 31, 32, 33 

Mr. Ballenger, 17, 18 

Mr. Boehner, 27, 28, 29, 34, 35 

Mr. Ford, 18, 21, 22, 25, 30, 32, 34 

Mr. Harter, 8, 23, 24, 28, 29, 30, 31, 34 

Mr. Kildee, 19, 20 

Mr. Klein, 9, 15, 16, 18, 22, 26, 27, 28, 32, 33, 35 

Mr. Tiberi, 14 

Mrs. Roukema, 20, 21, 22 

Ms. Weiss, 12, 16, 19, 20, 23, 24, 26, 33, 35