Health Care's 'Thirty Years War': The Origins and Dissolution of Managed Care
46 Pages Posted: 1 Aug 2011
Date Written: 2004
In 1618, Reformation and the Catholic Church’s Counter-Reformation engulfed Europe in a complex war that lasted until the Treaty of Westphalia in 1648. In a similar manner, the passage of the Employee Retirement Income Security Act (ERISA) in 1974, and the ensuing growth of managed care, have engulfed health care in a holy war between insurers, physicians, and patients over the control of medical decisionmaking. This fight is driven by the increasing cost of health care, both in absolute terms and as a percentage of the Gross National Product (GNP). Private and governmental health care insurers, who pay for almost all health care in the United States, argue that traditional fee-for-service medicine created incentives that increase cost and lead to substandard medical care through over-treatment and inappropriate treatment. Many patients and health care providers counter that insurers want to cut costs without regard to quality of care. The battleground is state legislatures and state courts, where opponents of managed care initiate tort lawsuits and draft state insurance regulations.
Part I of this article reviews the pre-ERISA landscape of medical care delivery and how it was shaped by the issues associated with traditional health insurance. This section further explains how medical inflation arises both from a very real expansion of medical needs and from medical imperialism - the failure of the medical care paradigm in the United States. Part II of this article examines the rise of ERISA-protected Managed Care Organizations (MCOs)and their effects on medical care delivery. Part III of this article analyzes the Supreme Court’s retrenchment on ERISA preemption, beginning with Pegram v. Herdrich and culminating with Kentucky Ass’n of Health Plans v. Miller.
While Kentucky Ass’n of Health Plans may not be the health care Treaty of Westphalia, it will have profound effects on health care insurance. Finally, Part IV of this article discusses how the erosion of ERISA protections and the ever increasing cost of health care will drive market consolidation in health insurance, shifting health insurer management of medical decisionmaking towards a system run in accordance with national guidelines that define “medical necessity” and appropriate medical procedure.
We argue that this brave new world of standardized medical care may improve care in some situations and can lower costs while preserving or improving the quality of care. On the other hand, we argue that the construction and mass utilization of clinical guidelines does not address the failure of the United States to examine the underlying social welfare and environmental issues that lead to poor health and increase the cost of medical care. Moreover, we assert that guideline-driven protocols fail to address universal access to care and the tragic choices implicit in a system based on a paradigm that promises cures and miracles for aging and death itself.
Keywords: managed care, ERISA, torts, medical necessity, Pegram, MCO, managed care organizations, medical care standards, medical care guidelines, medical malpractice, preemption, ACO
JEL Classification: I10, I11, I12, I18, J44, K13
Suggested Citation: Suggested Citation