HMO liability legislation is essential for patients to have state law rights which protect against quality of care violations. The federal Employee Retirement Income Security Act (ERISA) of 1974 was intended to protect working Americans from fraud and mismanagement in their benefit plans. However, in 1987 the U. S. Supreme Court ruled in Pilot Life v. Dedeaux that “state common law causes of action arising from the improper processing of a claim are preempted.” This decision effectively prohibits patients with private-sector, employer-paid healthcare from receiving damages from an HMO or insurance company that harms them.

Patients cannot avail themselves of state consumer protection laws, because ERISA “preempts” state safeguards and remedies. If a patient with private sector health coverage tries to take an HMO to court, the company typically removes the case from state to federal court where patients can receive no damages under ERISA. HMOs found guilty of a federal ERISA grievance must pay only the cost of the benefit denied. If the patient dies before receiving treatment, the HMO pays nothing and the patient’s family has no remedy. Under ERISA, HMOs have no incentive to provide expensive, medically appropriate treatment, because they are not held accountable for the consequences of their denials. If ERISA rules applied to bank robberies, convicted thieves would simply have to give the money back.

Currently, the ERISA loophole affects 125 million working Americans with private sector, employer-paid healthcare. In contrast, individuals who buy their own health insurance, employees who receive health insurance through church or government employers, and Medicaid and Medicare recipients, are not subject to the ERISA loophole. State and local government officials — such as state legislators — can receive unlimited damages against an HMO or insurer that denies or delays treatment coverage.

Congress can amend ERISA and allow all American patients to hold their HMOs accountable. Congressional legislation can guarantee all patients the right to sue an HMO in state courts for damages by simply amending ERISA to make clear that state common law causes of action are not superceded. HMOs and insurers that cover private sector employees would be subject to the same state liability as all other industries.

States can enact laws to expand patients’ legal remedies. State-based HMO liability legislation can hold HMOs accountable for interfering with the quality of care a patient receives. A model Texas law enacted in September 1997 has been upheld on the basis that it provides damages for quality of care violations — which are within the state’s province- instead of damages for coverage disputes, which are clearly superceded by ERISA. In her September 1998 decision, U.S. District Judge Vanessa D. Gilmore stated the Texas law “addresses the quality of benefits actually provided’ERISA simply says nothing about the quality of benefits received.”