70 million Americans who get health insurance through their employer cannot take their insurance company to court when the insurer doesn’t provide the benefits it promised, even if the insurer’s decision to delay or deny life-saving treatment results in an employee’s death.

Now the federal health reform law requires every American to prove they have health coverage by the year 2014. We’re about to force even more people to buy health insurance without the legal protections to make sure they get the benefits they pay for. That’s not the quality coverage the President and Congress said health reform would deliver.

No one knows what this loophole in the law means better than the family
of Nataline Sarkisyan, who died hours after the liver transplant she
needed to survive was finally approved after a long fight with her
insurance company Cigna.  Watch Nataline’s story on Dateline NBC.

Senator Max Baucus made the point perfectly in a Finance committee hearing last Tuesday: "An insurance policy is only good if the insurance company actually compensates the consumer, when there’s a loss. And insurance law is only good if it helps to make that happen. It’s time to make sure that the law does that."

The hearing was technically about long-term disability insurance, not health insurance, but so was the case that stripped so many Americans of their right to make insurers provide the benefits they promise.

A 1987 Supreme Court decision, Pilot Life Insurance v. Dedeaux, applied a federal law about pensions called the Employee Retirement Insurance Security Act (ERISA) to employer-provided insurance coverage, despite the fact that was never Congress’s intent. (Read more about the law here.)
ERISA preempts the state laws that insurance policyholders use to sue insurance companies for bad faith under state common law. It moves cases about benefit denials to federal court where a judge must meet an impossibly high standard to find in favor of the consumer. Even then, the most a consumer can get is the coverage they were already entitled to. If the person dies before the case is settled, the insurer owes nothing. Without legal liability, insurers have every incentive to delay and deny care indefinitely. Insurance companies count on the fact that very few consumers have the money to take them to court and, even if they do, the most the insurer will have to pay is the cost of the treatment. That’s no more than they would have paid if they’d dealt honestly with the consumer to begin with. 

The financial incentive is for insurance companies to delay and deny care as long as possible.

Now more than ever, with the requirement that we all have insurance by 2014, it’s time for Congress to close that loophole. Consumers with employer-based health insurance should have the same right that members of Congress, and consumers who buy their coverage direct from the company, have to hold their insurer accountable.

In Tuesday’s (unfortunately sparsely-attended) hearing, Senator Baucus outlined the problem and the solution after telling the stories of two individuals whose disability claims were unfairly denied, one without a company doctor even examining him (download the statement):

How do insurance companies get away with these abuses? Unfortunately, loopholes in the law permit them.

First, ERISA preempts state insurance measures to address these abuses.

That means that claimants cannot get jury trials, pre-trial discovery, or the right to submit evidence to the court. And claimants cannot receive punitive or consequential damages."

Second, companies can include what’s called a "discretionary clause" in their insurance plan document.

In most states, these clauses mean that it’s not enough for a claimant to prove that the company’s reasoning is weak when it decides to deny benefits. To win the case, the claimant has to prove that the company’s reasoning is arbitrary or capricious. That’s a significantly higher standard.

It’s time to close these loopholes. It’s time to end these abuses.

Just as it’s true for disability insurance, it’s also true for millions of Americans who will soon be required to have health insurance under the federal reform law, but will have no recourse if their insurer denies life-saving treatment. It’s time to close the ERISA loophole for health insurance too.

Fortunately in a polarized Washington, this is not a black and white partisan issue. During markup of the recent health reform bill, Republican Rep. Shadegg introduced an amendment to close the ERISA loophole. As Rep. Shadegg put it: "Your doctor may recommend that you receive certain health care treatment, but with the stroke of a pen, an ERISA plan can deny coverage for that treatment.  And, if you are injured or killed because of that denial, the plan can walk away."

No one, Republican or Democrat, can support insurance companies walking away from their obligations to patients like Patrick Gannon, who suffered two strokes and a heart attack, but was denied the timely therapy he needed to have a strong chance at recovery. Watch Patrick’s story on Dateline or download it here.