As Professor Amy Monahan, Distinguished McKnight University Professor and the Melvin C. Steen Professor of Law, and colleagues from the Stanford Clinical Excellence Research Center puzzled over how to reduce the cost of health care while maintaining quality, a central question emerged: If employers are the largest purchasers of health care, and research has found faults with employer-purchased health plans, could greater scrutiny of these plans have an impact on cost and quality?
Monahan’s research into that question, conducted with colleague Barak D. Richman from George Washington University Law School, has produced an article that will be published later this year in the Yale Journal on Regulation, the nation’s top-ranked administrative law and corporate law journal.
“Health benefit plans are in dire need of regulatory scrutiny,” says Monahan, one of the country’s leading experts on the Employee Retirement Income Security Act (ERISA), the federal law that imposes fiduciary duties on those who manage and administer employee benefit plans. “With retirement benefits, ERISA scrutinizes plan managers and requires employers to select plan investments with care. But with health plans, there is a regulatory vacuum. ERISA not only imposes few federal requirements, but it also prevents states from ensuring quality plans.”
The impact, Monahan argues, is that ERISA has advanced protections for retirement plans but mostly curtailed protections for the nearly 155 million Americans who receive health insurance from their employer.
Monahan notes that while the cost of health insurance has risen significantly faster than inflation, the generosity of employer-provided plans has thinned. To address escalating costs, employers are increasing cost-sharing, cutting into workers’ take-home pay. In contrast, the efficiency and value of retirement benefits have improved, says Monahan.
She and Richman conclude, “The sorry state of employer-sponsored health insurance is due, in part, to inattention and inadequate probity from the parties subject to ERISA’s fiduciary obligations. There is enormous opportunity to employ ERISA to enhance the value of health benefits for employees, which also means enhancing the value of the nation’s entire health sector.”
Employer Engagement Encouraged
When ERISA was passed in the 1970s, health insurance looked a lot different than it does today. “It wasn’t that long ago that health insurers simply paid for all medically necessary services at reasonable and customary rates,” says Monahan. “Almost all employers bought from state-regulated insurance entities. Today, employers often self-insure, which gets you out of state insurance regulations.”
As Monahan and her co-author dug into the issue, they both concluded that employers should be paying much more attention to cost and quality. “Health benefits involve a purchasing decision,” she says. “And purchasing is a fiduciary act that requires care, skill, and diligence. Our hypothesis is that employers aren’t engaging in that level of care or do not have the framework or skills for evaluating providers. Simply putting some regulatory requirements into that purchasing act under ERISA could have an enormous impact.”
Monahan and Richman argue that the Department of Labor should set forth specific factors that employers would be required to consider in purchasing health benefits. For example, Monahan says they might look at the quality of the network of providers. “They might ask if the doctors are providing good quality medical care or analyze how costs compare to the market,” she says. “This would encourage employers to dig into rates to make sure they are competitive. Simply put, the Department of Labor would give employers a road map that they would be legally obligated to follow on behalf of their employees.”
Monahan notes that until relatively recently, healthcare plans did not have to disclose to employers the reimbursement rates they had negotiated with their network. Various changes over the past decade now require greater price transparency. “If we require employers to look at that information, that gives them leverage in the marketplace and puts pressure on the plans to be competitive price-wise,” she says.
A Large Problem with a Simple Solution
Several pioneering lawsuits have begun to invoke ERISA to subject health benefits managers to fiduciary obligations. “We have neglected health insurance for too long,” says Monahan. “We need the courts to consider what ERISA imposes on health benefits managers. And we need the Department of Labor to exercise its regulatory authority under ERISA to clarify fiduciary obligations.”
One of the most interesting things about Monahan and Richman’s proposal is that it would not require Congressional intervention; it can simply be done under the current statute. “It’s not often that large problems have simple solutions,” says Monahan. “But ERISA is a solution hiding in plain sight.”