[Congressional Record Volume 144, Number 106 (Friday, July 31, 1998)]
[Extensions of Remarks]
[Pages E1502-E1504]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     PATIENT PROTECTION ACT OF 1998

                                 ______
                                 

                               speech of

                         HON. HARRIS W. FAWELL

                              of illinois

                    in the house of representatives

                         Friday, July 24, 1998

  Mr. FAWELL. Mr. Speaker, I would like to take some time to talk about 
some ``good news'' in the area of private health care. So often, the 
news media and Congress will tend to center on what's wrong with 
private health care and ignore the many good things that have happened, 
and are happening in private health care.
  For instance, let us recognize that about 132 million people in 
America are getting their health care in the private market via 
employer provided health care under the ERISA statute! About 80 million 
of these people are receiving their health care from their employers 
under self-insured health plans, that is, where the employer is acting 
as their own insurance company, so to speak. Here, we are talking about 
fee for service plans, PPOs and variations of managed care. But under 
these self-insured plans, in general the employer does not pay 
``premiums'' or transfer the obligation to pay benefits to an insurance 
company or HMO. Instead, the employer takes the place of the insurance 
company and may even contract directly with hospitals, doctors, other 
providers and health care networks The market dynamics of these 
arrangements help to bring the price of health care down. Most of the 
large corporations in the United States use this method to supply 
health coverage to their employees. The remainder of the 132 million 
people who receive their employer provided health insurance from their 
employers do so under standard indemnity insurance policies, HMO 
contracts or other forms of fully-insured health insurance coverage 
purchased by their employers. With the exception of governmental plans, 
all private employer provided health coverage plans are under ERISA, 
although indemnity health insurance policies and HMO policies (referred 
to as ``fully insured'' coverage, as opposed to ``self-insured'' 
coverage) are subject to regulation by the states. That is, while the 
employer provided plan (i.e. the employer benefit plan consisting of 
medical care) is always under ERISA, in those instances where an 
employer buys an indemnity or HMO policy for his employees, the states 
control the issuance, make up and conditions of the policies 
themselves.
  The important point, however is that the employers of America, under 
the ERISA statute are voluntarily providing health insurance coverage 
for their employees. There is no law requiring employers to finance 
health care, fully or partially, for their employees. ERISA, insofar as 
health care is concerned, has functioned over the years--especially in 
the area of self-insurance--with relatively little interference from 
either federal or state laws. It is

[[Page E1503]]

a rare oasis of freedom, representative of neither federal or state 
power. It is, rather, a relatively unique example of ``people power'', 
because it is the employer and the employees and unions, who 
collectively determine what kind of health care coverage should be 
provided for the employees, and how the plan will operate. The employer 
makes no profit from his involvement in health insurance as does the 
indemnity insurance company or HMO. It is a not-for-profit health 
insurance obligation that is assumed voluntarily by the employer. And, 
yes, state law is pre-empted, in general, insofar as the administration 
of an employee health benefit plan by an employer is concerned and 
that, I think, reflects the genius of the drafters of ERISA. As a 
result, employers have, over the years, been able to create lower cost 
and high quality health plans for their employees without having to 
readjust to the laws and regulations of the various states in which the 
employer's business may be involved or in which an employee may reside. 
Business people, of course, must be involved wherever the flow of their 
commerce may take them. They cannot very well be expected, in setting 
up health or pension programs for their employees, to readjust these 
programs to meet the laws, mandates, regulations price controls and 
standards of the various states which the flow of their commerce mat 
take them. Indeed, it was this recognition which, in 1974, resulted in 
the creation of ERISA and the necessity for the uniformity of federal 
law relative to employee benefit program.
  As a result, the administration of employer health benefit plans, 
under ERISA, was able to flower in a unique area of relative freedom, 
unimpeded by the regulation of the 50 states (with the exception of the 
states' regulations of health insurance policies per se). And, over the 
years after ERISA, the Congress has also restrained itself from 
micromanaging ERISA employer provided health care, although I will 
admit there are increasing signals that this era of enlightenment may 
be changing. Indeed in this environment employer provided health care--
especially self-insured plans--have been eminently successful. The 
result has been the 132 million people who now secure private employer 
provided health care under ERISA. In addition, an estimated 33 million 
people also receive employer provided health care, outside of ERISA, 
from state and local governments as well as under the Federal Employee 
Health Benefit Act.
  I find it troublesome, therefore, to hear so many of my colleagues 
talk with levity and disapproval of ERISA preemption, as though it 
stands as a mortal threat to states' rights. They seem totally unaware 
of the tremendous success of ERISA in motivating employers to provide 
health care and pensions for their employees. Rather than decry an 
alleged loss of ``states' rights'', I prefer to recognize that a major 
cause for the creation of our Nation's Constitution was the need for 
commerce to flow between the various states unimpeded by conflicting 
state taxes, laws, regulations and requirements. If Congress should now 
become hostile to ERISA and its preemption clause at this late date, 
and if employers are told that their employee benefit plans, including 
health care plans, can no longer flow with their commerce without 
meeting hundreds and thousands of conflicting state laws, taxes and 
regulations, then multiple millions of workers and their families will 
be in for a rude surprise as employers began to opt out of their 
sponsorship of employee health care plans. That, indeed, would invite a 
political upheaval that would make the Medicare Catastrophic Health 
Insurance debate of a few years ago look like a passing inconvenience.
  The need for broad preemption is clearly explained in testimony by 
Mr. Frank Cummings, then Senate Labor Committee Minority Counsel and an 
adviser to Senator Javits, who helped fashion a predecessor of the 
ERISA law. Speaking of the law prior to ERISA, he stated ``The inherent 
limits of state jurisdiction made the system unworkable, and often did 
more harm than good. Technical problems in enforcing benefit rights 
were often unsurmountable under state laws. Those hurdles included: 
inability to achieve service of process on necessary parties outside 
the boundaries of a single state; choice-of-law uncertainty; 
insufficiency of the law of equity since the real decisions were made 
by persons who were not defined as `fiduciaries' (other than the 
trustee). Interstate businesses could not comply with these laws 
separately, and yet benefit plans were most effective and efficient if 
they were company-wide in scope.''
  ERISA, in my view, was one of finest acts passed by the Congress. It 
was a law born ahead of its time! It is 21st Century thinking! It gave 
employers, employees and their representatives the freedom to self-
insure and create not-for-profit health care plans for their workers 
and their families without being subjected to the endless varieties of 
state micro-management, mandates, price controls, and remedies which 
otherwise drive up the price of health insurance. And it has worked 
miraculously well for large and mid-sized employers who had the 
economies of size to opt for self-insurance. It allowed employers to 
break away from the monopoly of the regular indemnity insurance 
companies and HMOs and, on behalf of their employees, to bargain and 
discount the price of health care directly with both health care 
providers, including their networks, and insurance companies. Employers 
and employees were thus allowed to determine for themselves what the 
price, cost and terms of their health insurance would be, what would be 
covered, whether preventive care would be emphasized, ad infinitum. In 
short, they were given the right to operate their own health care plan 
free from domination of the states and their for-profit allies, the 
insurance companies and HMOs, and to do so by simply having the 
employers act as their own insurer or, if they got the right price, to 
contract with a regular indemnity insurance company after bartering 
down the price of insurance. Insurance companies and HMOs no longer 
ruled the roost! The market evolved!
  The ERISA statute was born back in 1974 when Congress was blessed 
with a lot of forward thinking people like Senator Jacob Javits of new 
York and Congressman John Erlenborn, of Illinois, and a host of others 
who realized that employers cannot very well sponsor health and/or 
pension plans or other employee benefit plans if they had to readjust 
their rules and operations with each of the 50 states. Obviously, 
commerce needs to flow generally unimpeded over state lines and that 
surely includes employee health insurance programs operated by 
employers. The creators of ERISA were well aware of all this. Thus, the 
concept of pre-empting state laws which ``related to'' employer 
provided employee benefit programs was born! Ahead of its time! Rep. 
John Dent (D-PA), the House floor manager of the ERISA bill, declared 
that the broad preemption provision was the ``cornerstone'' of the 
legislation.
  Mr. Speaker, the ERISA statute has served the nation well in allowing 
employers to provide health insurance for their employees--especially 
for large and mid-sized employers! Professor of Law Sallyanne Payton 
says it well in her presentation to the Conference on Patient-Centered 
Health Care Reform at the University of Michigan Health Policy Forum 
held November 21, 1997. ``These large employee benefit plans have been 
the driving forces behind most of the recent innovations in medical 
service delivery because, being unregulated, they have the power to 
create their own benefit packages and medical care delivery mechanisms. 
For example, despite the health policy community's enthusiasm for full-
integrated closed-panel HMOs, the employee benefit plans responded to 
patient dissatisfaction and resistance by inventing the Preferred 
Provider Organization and have created a market for network-style 
managed care organizations of many different types. Self-insured 
employers have been aggressive in the current effort, through, for 
example, the National Council on Quality Assurance, to develop quality 
standards and measures and to redesign the quality oversight 
function.''
  However, as indicated, small employers who do not have the economies 
of size and who therefore cannot as easily ``self insure'', have never 
had the ability to take advantage of the ERISA statute in providing 
health insurance for their employees. These small employers, in order 
to secure health insurance for themselves and their employees, have to 
go into the small group insurance markets, controlled by health 
insurance companies or HMOs, who of course do not want new competition 
in this market. They didn't want it in the large employer insurance 
market either and were reluctant suitors of ERISA in 1974.
  But anyone who has to go out into the small business group health 
insurance market or even the individual market--alone--knows that 
affordable health insurance can be difficult to find and even more 
difficult to hold onto if any chronic illness develops in the family.
  Mr. Speaker, the existing ``system'' of health insurance relative to 
small employers and the self-employed, controlled by indemnity 
insurance companies and HMOs which are basically under state 
jurisdiction, has, in effect, anti-selected its purchasers of health 
care to the tune of 43 million people who cannot find accessible and 
affordable health care. It is the disgrace of the private health care 
system in America and it must change. And it can change by simply 
allowing small business employers and the self-employed to finally have 
precisely the same advantages long possessed by large and mid-sized 
employers. There is nothing so powerful as an idea whose time has come. 
The idea that small employers and the self-employed should be able to 
band together in bona fide professional, trade and business 
associations to give them the economies of scale of large businesses is 
an idea whose time has come. It

[[Page E1504]]

has been held off by fierce opposition of insurers and HMOs who simply 
fear the same competition they must daily face in the large business 
group health insurance market. The Association Health Plan provisions 
are an important and positive answer to the problems challenging the 
private health insurance market. Millions of the uninsured are hoping 
that AHPs will become law as a part of the Patient Protection Act of 
1988.
  I would now like to explain in more detail the rules governing 
association health plans included under Title I, Subtitle D, the Small 
Business Affordable Health Coverage Act of 1998.

  In effect, the proposal implements a current law provision, which the 
Administration has failed to invoke, allowing legitimate association 
health plans (AHPs) to be treated under ERISA preemption in a manner 
similar to single employer health plans. Only ERISA ``group health 
plans''--sponsored by legitimate associations, franchise networks, 
church plans, etc. are eligible to voluntarily apply for certification.
  Association must be bona-fide. An association sponsor must 
demonstrate that it is established as a permanent entity with 
substantial purposes other than sponsoring an AHP, has the active 
support of its members, and collects dues from its members without 
conditioning such on the basis of the health status or claims 
experience of plan participants or on the basis of the member's 
participation in a group health plan.
  AHPs will expand choice of coverage. To be certified, AHPs must allow 
plan participants to choose at least one option of fully-insured 
``health insurance coverage'' offered by a health insurance issuer and 
may also offer non-fully-insured options--such as those found under the 
plans of large employers like CBS, Inc, the New York Times, the 
Washington Post Co., Gannett, Dow Jones Co., etc.--only if the plan 
meets strict solvency provisions.
  AHPs will expand portability. Employees would be more likely to have 
true portability of coverage, since employees and the self-employed 
tend to stay in the same occupation or industry.
  AHPs improve affordability. AHPs can better reach small businesses 
and the uninsured with more affordable and accessible health benefit 
options by removing regulatory barriers--plans are freed from costly 
state mandated benefits and given flexibility to offer coverage that 
employees want and employers can afford, including uniform benefits 
across state lines; plans can achieve administrative economies-of-scale 
and join with coalitions of other ERISA plans to negotiate more cost-
effective and high quality services from providers and insurers; costs 
of coverage can be allocated to employers in a nondiscriminatory manner 
based on plan experience (an employer cannot be singled out for higher 
contributions just because they are in a particular type of business or 
have higher claims experience); in general, AHPs are nonprofit entities 
that can deliver more benefits for the contribution dollar by also 
improving cash flow and earning investment income on reserves.
  AHPs are subject to consumer protections. AHPs are subject to strict 
sponsor eligibility, nondiscrimination, fiduciary, financial, 
reporting, disclosure, solvency and plan termination standards. Also, 
AHPs are already subject to the portability, preexisting condition, 
nondiscrimination, special enrollment, and renewability rules added to 
ERISA under HIPAA. AHPs offering options that are not fully-insured are 
subject to actuarial reporting, reserve, mandatory stop-loss insurance 
and mandatory solvency indemnification standards to ensure participants 
against loss of promised benefits. The standards are enforced by the 
states with a federal backup.
  AHPs offer guaranteed coverage. AHPs must offer coverage to all 
employer and self-employed members and cannot condition coverage on the 
basis of employee health status, claims experience, or the risk of the 
employer's business. AHP sponsors must be established for at least 3 
years for substantial purposes other than offering health insurance.
  Subtitle D stops insurance fraud. The Department of Labor Inspector 
General testified that the enforcement provisions will help stop health 
insurance fraud perpetrated by ``bogus unions'' and other illegitimate 
operators by making legitimate association plans accountable and adding 
new civil and criminal tools to end fraudulent schemes.
  Under Subtitle D, bona-fide Association Health Plans offering benefit 
options that do not consist solely of fully-insured health insurance 
coverage (i.e. self-insured options are available) will be subject to 
strict new solvency protections as follows.
  An AHP must remain a qualified actuary on behalf of plan 
participants.
  AHPs must maintain cash reserves sufficient for unearned 
contributions, benefit liabilities incurred but not yet satisfied and 
for which risk of loss has not been transferred, expected 
administrative costs, any other obligations and a margin for error 
recommended by the plan's qualified actuary. The reserves must be 
invested prudently and be liquid.
  In addition to the cash reserves, AHPs must maintain capital surplus 
in an amount at least equal to $2,000,000 reduced in accordance with a 
scale, to not less than $500,000, based on the level of aggregate and 
specific stop loss insurance coverage provided under the plan.
  AHPs must secure coverage from an insurer consisting of aggregate 
stop-loss insurance with an attachment point not greater than 125% of 
expected gross annual claims and specific stop-loss insurance with an 
attachment point of up to $200,000 as recommended by the qualified 
actuary.
  AHPs must also obtain non-cancelable and guaranteed renewable 
indemnification insurance. To prevent insolvency, the indemnification 
insurance would pay for any claims that a plan is unable to satisfy by 
reason of a termination of the plan.
  To ensure that the indemnification insurance will always be available 
to pay all unpaid claims upon plan termination, AHPs are required to 
make annual payments to an AHP Account which would be used only in the 
unlikely event that a terminating plan is in need of funds to avoid a 
lapse of the required indemnification insurance. These solvency 
protections apply to AHPs in every state, whereas the solvency guaranty 
fund protection for fully-insured options by HMOs and Blue-Cross/Blue-
Shield organizations are only available in six states and 25 states 
respectively.
  To ensure that the solvency standards are uniform, negotiated 
rulemaking is used to receive the advice of the National Association of 
Insurance Commissioners, the American Academy of Actuaries, and other 
interested parties.
  States would enforce the AHP solvency and other standards with a 
federal backup if the state of domicile of an AHP does not choose to 
enforce such standards. States will have more authority to put an end 
of health insurance fraud. If an entity cannot show that it is either 
licensed by the state or is certified as an APH, then the state can 
shut down the entity. To the extent the entity flees a state's border, 
the Department of Labor is directed to assist the state to shut the 
entity down through new ``cease and desist'' authority. Illegal 
entities become subject to criminal penalties if they try to hide their 
operations.

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