HEALTH INSURANCE ASSOCIATION OF AMERICA: THE INSURER

Testimony of Chip Kahn, President of Health Insurance Association of America

Mr. Chairman and Members of the Committee, I am Chip Kahn, President of the Health Insurance Association of America (HIAA). As the nation's preeminent health insurance trade association, the Health Insurance Association of America (HIAA), based in Washington, D.C., is the industry's most influential advocate for the private, free-enterprise health care system. HIAA has a strong presence within the industry, with unmatched resources, historical memory, and clout.

With 294 members from a multitude of different companies involved in financing, delivery and provision of health services and insurance, HIAA represents a large portion of the healthcare sector. Included among its members are commercial health insurers, HMOs (and other managed care plans), and Blue Cross/Blue Shield carriers. Services provided consist of medical expense and supplemental insurance, as well as long-term care insurance and disability income protection, covering over 100 million Americans. With HIAA's strong presence in the political arena, our organization is devoted to supporting federal and state policies which will build our health care system's quality, affordability, accessibility and responsiveness.

I am pleased to have this opportunity to discuss the current status of the Bipartisan Patient Protection Act of 2001, and to share with you many of our concerns.

The Bipartisan Patient Protection Act of 2001, S. 283, has been proposed to supposedly protect patients. However, this legislation which allows patients to sue their health plans under some restrictions, will actually hurt the very consumers it is intended to protect, adding to our escalating health care costs.

By giving patients the right-to-sue their health plans, we are effectively diverting money from patient care straight to the trial lawyers. In order to pay for costly litigation, HMOs and other health plans will be forced to raise their premiums in order to account for increased law suits and legal costs. According to a study by the Barents Group accounting firm, they demonstrated that in Louisiana, allowing people to sue their HMOs would raise premiums up to 8 percent. Moreover, if employers fired workers in response to these increased rates, they found that 3,500 people would lose their jobs. Or if all employers decided to make up the premium increases by dropping employee health benefits, more than 34,000 people would lose coverage. Ironically, the very bill that is supposed to "protect patients" will more likely protect the legal profession and exacerbate the nation's uninsured crisis.

Rather than paying lawyers at the cost of patients, we need to bring the focus back to patient care. We need to concentrate on the most important issue facing the healthcare industry - the plight of the uninsured. An estimated 43.5 million citizens lack coverage at the present moment, projected to hit more than 53 million by the year 2007. Furthermore, as studies suggest the strong correlation between access to health care and insurance coverage, targeting the uninsured clearly should be our number one priority. "This so-called 'patient protection' legislation is simply the wrong bill at the wrong time. Rather than being a step toward constructive compromise, it is instead an extreme measure that would hurt the very consumers it is intended to help - families who rely and depend upon affordable health coverage to help meet their health care needs. It is a retread of failed legislation of the past Congress, advancing the interests of trial lawyers instead of patients and diverting dollars away from health care and toward costly litigation" (Chip Kahn Press Release 2/6/2001).

As our nation's health care expenditures continue to skyrocket, the answer to our healthcare dilemma does not lie in frivolous and costly litigation. Health Maintenance Organizations were designed to maintain costs. With this proposed legislation, we are simply putting any cost savings into fighting court battles. We need to reexamine our priorities, and refocus our efforts. I am confident that this year, we will have the opportunity to create a balanced and effective solution, but we need to clarify the facts of this proposed runaway liability system.

There are four fundamental misunderstandings about the Kennedy-McCain bill which have been elucidated by Karen Ignagni, president of the American Association of Health Plans (AAHP).

1) Contorts Principles of Texas Law - The Kennedy-McCain bill imposes liability on health plan decisions specifically not covered by Texas law. It would blow the lid off of the Texas standard for liability, creating a volatile and unpredictable system.

2) "Caps" Still Permit Unlimited Damages - The bill permits new causes of action, creating the potential for unlimited lawsuits with unlimited economic and non-economic damages, plus unlimited punitive damages under state law and up to $5 million of unprecedented punitive damages for contract claims under federal law.

3) Class Action Suits Are Actually Expanded - The Kennedy-McCain bill would actually expand the ability to file class action suits under ERISA and RICO.

4) Completion of External Review Is Not Required - Kennedy-McCain creates "exceptions" that would make the external review system virtually ineffective, by allowing claims for unlimited damages to go straight to court if there is simply an allegation that harm occurred or may occur. The bill also would allow claims for unlimited damages to proceed in state court even when an independent review organization has upheld the health plan's decision.

With this legislation's fundamental flaws, America's working families will be most hard hit. Both the AAHP and HIAA are committed to improving the health care system for consumers, including external review, however not at the cost of patient care.

I am confident that this year we will have a new opportunity to create a balanced, and effective solution. But, let us not rush into this endeavor with fundamental misconceptions, only to realize our mistakes too late. We have waited long enough to establish these patient protections, let's do this right.

Mr. Chairman and members of the Committee, I appreciate having this opportunity to share HIAA's perspective on the Bipartisan Patient Protection Act of 2001. HIAA remains eager to assist federal and state officials to adjust crucial mistakes that this legislation proposes in order to ensure that patient care presides over frivolous lawsuits.

I would be happy to respond to your questions.