INTRODUCTION

With a last-minute agreement between President Bush and Congressman Charles Norwood (R-GA), one of the lead sponsors of the patients bill of rights legislation, the House of Representatives is beginning an historic floor debate on health care policy. This debate, scheduled literally hours before the August congressional recess, will affect the way in which millions of Americans in the private sector (and perhaps the public sector as well) get health care services through their insurance plans. The myriad of detailed provisions of this massive piece of legislation will be finalized in a conference with the Senate.

The Deal.
After an intense and exhaustive process of negotiation between the President and the White House staff and Congressman Norwood, the main points of compromise focus on the nature and scope of litigation in the bill. In substance, the President agreed to provisions to change current law and make it easier for aggrieved insurance plan members to sue in state courts and collect damages, while allowing employers, who sponsor health insurance plans, to take steps to protect themselves from liability in such cases. ^[1] Under the Bush-Norwood compromise, an employer could be sued if the employer directly participated in a decision to deny claims for medical benefits, but an employer could also secure another level of protection from liability by delegating decisions to deny claims to an "independent decision-maker." That independent agency would then assume liability for such decisions.^[2] Under the agreement, federal law would also define the scope of the liability of the insurance plan, and patients could recover damages equal to their economic losses, such as lost wages or medical bills, but non-economic damages, such as pain and suffering, would be limited to $1.5 million. Punitive damages would also be limited to $1.5 million and could be levied against a health insurance plan that did not comply with the decision of external medical reviewers.^[3]

Beyond the Deal.
Like the Senate bill (S. 1052), both the Ganske-Dingell bill (H.R. 2563) and the Fletcher-Peterson bill (H.R. 2315) contain a remarkably similar set of provisions. Both bills, for example, provide for new federal guarantees for access to emergency care; access to specified medical specialists; detailed procedures for the review of the utilization of health services; and processes for appeals, grievances, and internal and external review of claims decisions. Accompanying these new federal guarantees is an extensive set of legal obligations by plans and employers who sponsor such plans, and these will require detailed enforcement through rules and regulations. As veteran New York Times reporter Robert Pear has observed, "The legislation would set the first comprehensive federal standards for health insurance, which has been regulated mainly by the states. States could continue to enforce their laws, provided that they were at least as stringent as the federal standards."^[4] Stringent, in principle, means inflexible. The legislation is not a prescription for innovation in the delivery of health care services.

Welcome to HCFA.
For employers and private health insurance companies, this new regulatory regime is "a brave new world." (For an account of the regulatory regime created by the patients bill of rights legislation, see Robert E. Moffit's, "Importing HCFA-Style Regulation Into The Private Sector Through The Patients' Bill of Rights," A Heritage Foundation Supplement, June 27, 2001.  Not only will employers and private insurance officials have to deal with the Department of Labor, which is given broad regulatory authority under the legislation, but they also will have to cope with the Department of Health and Human Services (HHS), specifically the HHS agency called the Centers for Medicare and Medicaid Services (CMS). This is the new name for the Health Care Financing Administration (HCFA), one of the worst managed^[5] and most bureaucratic and inflexible of all federal agencies; yet the Bush Administration and Congress have deliberately decided to expand the power of this agency over virtually every private health care plan in the United States.

Politics versus Policy.
The "sound bite war" is over. Congressional advocates of the patients bill of rights legislation have won it hands down. While Members of Congress are under intense political pressure to enact a patients bill of rights, they should also recognize that they are creating a powerful regulatory regime that will affect the financing and delivery of health care services, add more layers of bureaucracy and paperwork to an already over-regulated system, and reduce innovation and flexibility in the delivery of medical services through health insurance. Every future change in the insurance system will require private-sector plan officials to check and see whether that change can be accomplished under the new federal regulatory regime, or whether the law must be changed or a rule modified to accomplish their objectives. This is not a prescription for efficiency.

Nonetheless, there are opportunities to create avenues for personal freedom and choice and competition within this new regulatory atmosphere. This can be done by making sure that individuals and families can take alternative routes to get the highest quality care on terms and conditions that seem good to them and their doctors. There are several ways to do this, but changes in the tax treatment of health insurance and health care services would have the greatest impact on the system.

HOW CONGRESS CAN STILL PROMOTE PATIENT FREEDOM IN A PATIENTS BILL OF RIGHTS

While both bills impose substantial federal regulation on the health insurance market, often duplicating state rules and closing off conventional options for change and innovation in the employment-based health insurance system, Members of Congress can make serious changes that would result in systemic improvements in the financing and delivery of medical services. This could be done by creating a parallel system of consumer choice and competition in health care, importing into a distorted market the efficiencies that characterize other sectors of the economy. These changes would also, more importantly, provide for real personal freedom for individuals and families in the troubled health care system.

This can be done by expanding the access provisions of the legislation, including lifting the restrictions on medical savings accounts (MSAs) enacted into law under the Health Insurance Portability and Accountability Act of 1996; allowing a tax-free rollover of funds in business or corporate flexible spending accounts (FSAs) and establishing a sound economic foundation for the routine purchase of medical services from doctors; and providing refundable tax credits for individuals and families who do not get health insurance at the place of work. Members of Congress can also facilitate the use of State Children's Health Insurance Program (SCHIP) funds for tax credits to enable families to purchase private health insurance, as was originally intended by key House sponsors of the legislation in 1996.

There are a variety of proposals that could improve the substance of the patients' bill of rights legislation in Congress, and these have been detailed elsewhere. (See, for example, Robert E. Moffit, "A Dozen Better Ideas for a Patients' Bill of Rights," A Heritage Supplement, June 20, 2001.

Beyond these proposals, Congress could take steps to broaden dramatically patient choice and personal freedom in key areas of health care decision-making. This would include allowing freedom in the choice of health plan; allowing low-income people to mainstream into the health care system by using funds from unlimited punitive damages to reduce the number of the uninsured; and guaranteeing that no patient is personally forced to finance any medical procedures or treatments, or subsidize the commercial application of medical research, that violates that patient's ethical, moral, or religious convictions. For example:

1. Establish a safe haven for patient choice. The professional literature shows beyond dispute that wherever there is increased patient choice, there is significantly increased patient satisfaction with health plans. During the spirited June 29 Senate debate on the Nickles Amendment applying the provisions of the patients bill of rights to the federal employees' health plans, Senator Edward M. Kennedy (D-MA) noted that federal employees enjoyed a range of choice denied to other Americans, and he even conceded that they did not need the kind of appeals process embodied in the Senate bill because they could choose their health plans.

Popular dissatisfaction with private plans is attributable to the simple fact that employees and their families have no real options outside of employer-based health insurance. Any employers who maximize freedom of choice of plans and benefits should be treated differently from employers who do not give their employees a choice of plans and benefits. If Congress persists in imposing regulations and mandates, it should exempt from all the mandates and procedures embodied in patients' bill of rights legislation:

• Employers who offer employees a choice of health plans, including fee-for-service, managed care, and PPO.
• Employers who give employees an open season, to be modeled on the open season option available in the Federal Employees Health Benefits Program (FEHBP), during which they can fire a plan that they feel has not lived up to its responsibilities.
• Employers who make a defined contribution toward the employee's health coverage, where the choice of the plan is the employees' choice. These plans, personally chosen by employees, should be exempt from all mandates or lawsuits. And employees who get a defined contribution from their employer would be able to sue the plan to uphold their rights under their contract with the plan.
• Employers who allow their employees to participate in a health mart or voluntary purchasing cooperative.

This proposal would also apply to federal employees enrolled in the FEHBP. It is precisely because they enjoy personal freedom of choice in plans that such an exemption for federal employees makes sense. The key issue is to have a set of standards that apply equally to public- and private-sector plans. Anything less is profoundly unfair.

2. Require that a portion of punitive damages for lawsuits against health insurance companies (or employers) be put into a special federal trust fund for refundable tax credits to help persons without insurance pick their own plans. When suits are filed to recover losses, such as medical bills or lost wages, or non-economic damages, such as pain and suffering, the individual is compensated. Individuals and families, of course, should be fully compensated for their losses. Punitive damages are not compensation for economic losses or compensation for pain and suffering or non-economic losses. Punitive damages are designed to punish wrongful action and discourage such wrongful action in the future. They are similar to fines in cases in which society, as a whole, has been damaged by the action of the defendant.

If Congress wants to provide direct help for the uninsured, it could easily do so by requiring that any punitive damages awarded in health care lawsuits (whether under state or federal law) be deposited in special state health insurance trust funds to be used for refundable tax credits to help individuals and families to purchase private health insurance. During the recent Senate debate on S.1052, the Senate version of the patients' bill of rights, Senator Rick Santorum (R-PA) offered an amendment that would have redirected 75 percent of punitive damages to a trust fund for the uninsured. But it failed in a close vote, 50 to 46. As Senator John Breaux (D-LA) stated during the recent Senate debate, this is sound policy, particularly because it does not deprive anyone of the economic and non-economic damages to which they are fully entitled.

This is not a new idea. Eight states already allocate punitive damages, or a percentage of punitive damages, to various funds, for purposes of medical assistance to low-income persons, to the state treasury, or to special compensation funds for victims of criminal negligence. In 1992, Congressman John Dingell (D-MI) sponsored the Health Choice Act (H.R. 5514), which provided for redirection of 50 percent of the amount of punitive damages in medical malpractice claims to states that work to prevent medical injuries. Likewise, Congressman Christopher Cox (R-CA) proposed in his Health Insurance Choice and Protection Act (2000) to dedicate amounts awarded in punitive damages to help finance a Medicare prescription drug benefit by earmarking the punitive awards for the Medicare Trust Fund for that purpose.

3. Protect patients' right of conscience in health insurance. Ready or not, Americans will be faced with unprecedented ethical challenges posed by advances in biomedical research. Already, the House of Representatives recently completed a major debate over legislation on the daunting subject of human cloning. The President of the United States will soon make a decision concerning the use of federal funds for embryonic stem cell research. Within the next few years, the first products of applied research from the breakthrough in the human genome-mapping project will start to make their way into commercial markets.

America is in the forefront of a major biomedical revolution, and the ethical consequences of that revolution are certain to present challenges to public officials on a level never before even imagined. Whether or not Congress is ready or able to face up to these challenges and address them in a rational manner is one issue. A separate, and in many respects far more important, issue is the freedom of conscience of millions of Americans who are not engaged in public policy debates, who participate in insurance programs, and who are directly or indirectly affected by the impact of the biomedical revolution that is now underway. The freedom of conscience of these patients is not now protected.

Many patients do not realize that they are often paying premiums for medical treatments or procedures that violate their personal religious, ethical, or moral convictions. As a public policy, especially where patient choice of plans and benefits is restricted by government law, regulation, or tax-supported employer-based health insurance arrangements, Americans should not be compelled to render financial support for medical treatments or procedures that violate their rights of conscience.

Abortion, sterilization, contraception or other such medical services are the most common services (though not the only ones) to which persons have moral or ethical objections. Moreover, they are only the proverbial tip of the ethical iceberg. Therefore, Congress should provide that, in any case where employers or health plans offer such services, persons be informed of that fact and be allowed to purchase an alternative package of benefits which does not include such services, or, alternatively, that employers, upon employee request, should be required to offer an employee a defined contribution equal in value to the health plan providing such services.

WHY CONGRESS SHOULD NOT CLOSE OFF DEBATE: THE LESSONS OF THE LAST DEBATE ON THE PATIENTS BILL OF RIGHTS

The last House debate on the patients' bill of rights in 1999 holds a lesson for the current debate. If one does not define the terms of the health care policy debate, one is left battling on the ground cultivated by one's opponents. In the 1999 debate in the House of Representatives on the patients bill of rights legislation, the congressional leadership not only did not engage the Clinton Administration on the issue of patient freedom in the health care system, but even cut off debate on serious policy alternatives and ended up with bad legislation. The result was an unproductive, two-year gridlock.

In 1999, the House Republican leadership's attempt to craft a superior alternative to the then Norwood-Dingell bill failed. For example, the Coburn-Shadegg bill, backed by the House leadership, which would have provided for tough external review of HMO claims denials and prescribed a tighter avenue for litigation, was defeated by 238 to 193. Likewise, the Boehner substitute, drafted by Congressman John Boehner of Ohio, Chairman of the Workforce Employer-Employees Relations Subcommittee, provided for an external review mechanism for managed care plans, but no new avenues for lawsuits. It also failed by a vote of 284 to 145.

Lost Opportunities.
In 1999, with the Coburn-Shadegg and Boehner floor substitutes out of the way, House members had no amendments to the Norwood-Dingell bill. It was not as if there were no solid policy proposals available for the 1999 debate. The House Rules Committee received, just before the Norwood-Dingell bill went to the floor, dozens of amendments, including some very sound policy proposals. The powerful House Rules Committee did not allow them to come to the floor. For example:

• Triggering a Protection of Insurance Coverage.
  Representative Thomas Bliley (R-VA) offered an amendment that provided that the terms of the law would be limited by its impact on the nation's level of uninsurance, ensuring that premiums would not increase and that the number of uninsured would not increase by more than 100,000 as a result of the passage of the bill. The amendment was not offered.
• A Choice of Liability.
  Representative Bliley also offered an amendment that would have given health insurance consumers a choice to pay a lower rate for lower liability rates, just as consumers can do today in the purchase of auto insurance. The amendment was not offered.
• A Medical Malpractice-Style Limitation on Pain and Suffering.
  Representative John Boehner (R-OH) proposed an amendment providing for a limitation of damages from "pain and suffering," capping pain and suffering damages at a total of $250,000 (the amount long favored by the medical profession in pursuing medical malpractice reform) while allowing patients to recover all medical expenses, lost wages, future earnings, and out of pocket expenses. The amendment would also have established a uniform statute of limitations of two years and a reasonable limitation on the fees that attorneys could charge plaintiffs in the health care suits. The amendment was not offered.
• Choice of Legal Remedy.
  Representative Christopher Cox (R-CA) proposed an amendment to give patients enrolled in ERISA covered plans a choice of legal remedy. The amendment was not offered.
• Application of "Patients Rights" to Government Health Programs.
  Representative John Peterson (R-PA) offered an amendment to apply the provisions of the patients bill of rights legislation to Medicare, Medicaid, and other government health care programs and require that the penalties and provisions, including the provisions for liability, would be available to all patients enrolled in government health care programs. The amendment was not offered.

The Case for Personal Freedom.
Patients do not have real freedom in a system where they are, for all practical purposes, locked into either government or employer-based health insurance programs. They are forced by circumstance to either take it or leave it, and in the case of certain government programs, even their ability to leave is curtailed. In 1999, none of the policies to correct these structural deficiencies was even discussed on the floor of the House of Representatives. In 2001, it remains to be seen whether Congress will address these crucial issues, which are the real heart of patients' problems with the current system.

The Case for Common Sense.
The rising cost of health insurance and the growing ranks of Americans without insurance are the most serious issues in the health care policy debate. As critics of the legislation in and out of Congress have been saying, and still are saying, the regulatory and litigation provisions of the patients bill of rights legislation would aggravate cost problems in the system, leading to an increase in the those without health insurance. If that was a genuine concern in 1999 and is still a genuine concern in 2001, it is not at all clear why Congressman Bliley's proposal to cap the number of the uninsured, or at least something like it, was not in order then and is not equally relevant today.

Health policy is invariably a process of making difficult trade-offs. It is not at all clear, then, why Congress should not clarify the trade-off between the patients rights provisions, however desirable they believe they are, and the likely increases in premiums. It was, and is, a real trade-off. There is no real dispute that higher premiums can price individuals and families out of the health insurance market. The only debate is how much of a loss of coverage Congress is willing to accept. Congress should make that determination,, and not run from the consequences of its handiwork or pretend that the consequences are unintended.

The Case for Fairness.
Then there is the question of elemental fairness. During the House debate on the Congressional Workplace Compliance Act of 1995, Congressman Christopher Shays (R-CT) declared, "If a law is right for the private sector, it is right for Congress."^[6] There was virtually no congressional opposition to the 1995 law, nor did any Member of Congress make a forceful argument against Congressman Shays' point.

The patients' bill of rights debate once again gives House members an opportunity to act on this principle of fairness rather than just restate it for public consumption. If patients can sue private plans, why should not Medicare patients be able to sue the successor of HCFA or its contractors for personal injury? Why should not the successor of HCFA be required to meet all timeliness requirements on appeals, grievance procedures, and reviews for denials of claims? In 1999, Congressman John Peterson of Pennsylvania made a fair and reasonable proposal to do just that. In 2001, Congressman Thomas Tancredo of Colorado is making a similar proposal. Fairness is not a "poison pill." (For a discussion of this issue, see Robert E. Moffit, "Why Federal Unions and members of Congress Want To Escape The Patients' Bill of Rights," A Heritage Foundation Supplement, July 23, 2001.

CONCLUSION

The recent Bush-Norwood compromise addresses the limited, but most highly publicized, aspect of the patients' bill of rights legislation: the right to sue. It does not address the broader issue of the imposition of an unprecedented level of federal regulation and its nature, scope, and consequences, embodied in both versions of the legislation before the House of Representatives. That issue, not litigation, is the most important aspect in terms of overall health care policy.

Members of Congress should recall their 1999 experience with the patients' bill of rights legislation. Instead of forcing the debate on the terms of patient freedom, the congressional leadership let President Clinton define the terms of the debate for them. The result was not surprising. House Members, including those who had grave misgivings over the content of the measure and its impact on the health care system, felt compelled to vote for the bill on final passage. It is hard to be "against" patient protections, especially given the masterful way the Clinton White House orchestrated its public relations campaign.

The debate is far from over. Members of Congress can still take steps to give individuals and families the right to pick plans that are best for them, spend their health care dollars in ways that best meet their personal needs, and take advantage of the efficiencies of genuine market competition. It is not too late. But, regardless of what Congress does or does not do, taxpayers can rest assured that the American health care system will not improve simply because more Americans are suing each other.

Robert E. Moffit, Ph. D., is Director of Domestic Policy Studies at The Heritage Foundation

[1] Robert Pear, "Deal Is Reached on a Bill to Set Patients' Rights," The New York Times, August 2, 2001, p. A1.