rates will skyrocket further, as insurers try to recoup record losses associated

with last month's terrorist attacks in New York and Washington.

Drawing Battle Lines

The bills are now in conference committee, where differences between the

House and Senate versions were to be worked out this fall. But as of press time neither side had named any committee members. Now, with attention

shifted toward combating terrorism, restoring the Pentagon and rebuilding parts of New York's financial district, action on the issue could be postponed until

next year, says Paul Dennet, vice president of health policy for the American Benefits Council, which is lobbying Congress on behalf of Fortune 500

companies.

Congressional sources aren't predicting if patient-protection law will see

daylight this year but also won't rule it out. "Sen. [Edward] Kennedy is hoping

that we won't get sidetracked [this session] from some of these other issues"

including a patients' rights bill, says a spokesman for the Massachusetts Democrat, a co-sponsor of the Senate bill.

People familiar with the situation say that regardless of when Congress returns

to the issue, U.S. corporations, which sponsor health plans for more than 160 million workers, are likely to draw battle lines at cost, liability and enforcement.

"The No. 1 issue should be to expand availability of health care to all those

who need it, while also bringing down the cost of coverage," says Dennet. "The problem with [the Patients' Bill of Rights] is that it accomplishes neither

of those and in fact actually worsens the affordability problems for both employers and employees. Employers should continue to express their

concerns, and when the conferees are appointed, this legislation needs to be reexamined very carefully and conservatively."

For employers, the main concern is a patient's right to sue his health insurers.

A law deemed less friendly to business could expose a company to litigation and raise insurance costs even beyond the already anticipated 2002 hikes,

Dennet and others say. And though both the House and Senate versions include provisions protecting employers from liability, some argue that risk of

exposure remains.

Cost is another worry. Insurance premiums this year have climbed 11%,

according to the latest annual survey by the Kaiser Family Foundation and the Health Research and Educational Trust (see sidebar). Many expected 13% to

15% increases in 2002, patient-protection laws notwithstanding. With the cost associated with last month's terrorist attacks expected to top $40 billion, those

figures could grow sharply.

A Matter of Timing

Diana Lee, a health care analyst at Moody's Investors Service, says that while

it's too early to say what effects the terrorist attacks will have on premium increases, employers are already reducing the amount of benefits they will

subsidize because of double-digit premium hikes and a shriking economy. "As the economy slows [further], employers may be [more reluctant] to pay those

increases," Lee says. "We already are seeing some push-backs in terms of benefit buy-downs."

Dennet also questions whether the timing of this legislation is appropriate. "It's

hard to see why Congress would be taking any action now that would add to double-digit increases and further contribute to the worsening economic

condition for which employers are paying a high price already. This legislation started when the economy was vibrant and strong and health care costs were

3 or 4% annually — about par with inflation. Neither of those conditions exists

today."

Adding to cost burdens will be new disclosure requirements and benefit

mandates, including emergency care for patients who "reasonably" believe their symptoms require it, and coverage for clinical cancer trials — including

hospital stays and X-rays. "Right now a lot of plans don't pay for [clinical

trials] because it's considered experimental," says Kathryn Bakich, national

director of health care compliance at the Segal Co. in Washington. "But that's

a very high cost number." Indeed, Bakich points out that a Congressional Budget Office analysis estimated that health care costs would go up 4% under

the Senate version, with the cost of clinical trials accounting for one-quarter of

the hike.

Assessing the Damages

Also a concern is the two versions' monetary damages, which business

advocates complain are too high. The Senate version sets no limit on economic (medical costs, lost wages, injury- or death-related expenses) or non-economic

(pain and suffering) damages in federal court. In state courts, state law would set damages (even if higher than in federal court), with punitive damages

allowed in most situations.

Meanwhile, the House proposal sets a $1.5 million cap on so-called

pain-and-suffering damages, no punitive damages are allowed except in cases of a plan's non-compliance with external review panel findings (in which case

the limit is again $1.5 million), but economic damages would be unlimited.

Both the House and Senate versions contain language designed to provide

liability protection to companies by allowing firms to set up self-funded plans that would designate third-party decision makers to bear the liability risk. Ann

Marie Breheny, a legislative analyst at benefits consultant Watson Wyatt Worldwide, notes that while the language signals the similarities between the

House and Senate versions, corporations are not completely out of the woods. "I can see there being lawsuits further down the road over whether something

falls into the designated decision maker's role or under the employer's," she

says.

That could make for an acrimonious relationship between third-party

administrators and corporates. Larry Levitt, vice president of health insurance at the Henry J. Kaiser Family Foundation, says that while "there is a gray area

where employers review the decisions made by their third-party administrators," corporate legal liability is small. "The greater impact will be

that the role of those employers will change as they seek to diminish their review role and

expand the role of the third-party administrator."

A Deal's a Deal?

From an employer's point of view, experts say the House bill may be

preferable to the Senate's because of an agreement struck between the Bush administration and Rep. Charles Norwood (R-Ga.) just before the House

version's final vote. That pact limits a patient's right to sue to cases in which

the denial of care results in injury or death and applies the stipulation to suits

filed at both the state and federal levels.

Still, some say even Norwood's amendment doesn't go far enough.

Dennet, for example, welcomes setting remedies and legal standards at the federal

level but worries about inconsistent and conflicting interpretations of federal

law in state courts.

And doubts have risen whether the amendment will even get to the President's

desk at all. Last month Norwood showed signs of backing off his plan, says

Dennet, particularly in areas related to the burden of proof. After proposing that lawsuits could proceed only if an independent panel determined that

a

plan's actions were the proximate cause of a patient's death, Norwood now says he wants the conference committee to look into changing the language

to

read "a cause of proximate harm," effectively lowering the burden-of-proof hurdle.

"Congressman Norwood is moving away from his previous agreement with the

president, especially over the issue of state versus federal jurisdiction," Dennet

says. "He has made statements about needing to take another look at the agreement he made and started to question whether certain elements . .

. are

provisions that he will stick with in conference committee."

Not so, counters Norwood spokesman John Stone, who says the congressman

still supports "the framework he agreed to" with the president. But he has said

from the beginning that the agreement needs refining, and that he remains open to comments. "It should have been a cause, not the cause," argues

Stone. "That was a

technical mistake–the kind of thing that happens when you're working on legislation at 5:00 a.m."

There Could Be Health to Pay

Employer-sponsored health insurance premiums jumped 11% in 2001 to an

average of $2,650 for individual coverage and $7,053 for families, just when a growing number of companies say they plan to raise the premiums employees

pay, says a survey released last month by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust.

According to the study of 2,734 companies, large firms (defined as having

200-plus employees) posted a 10.2% rise in premiums, compared with 7.5% in 2000. Smaller companies saw premiums rise 16.5% in 2001. The 11% overall

increase was the largest since 1992, and compared with an 8.3% rise in 2000 and a 4.8% rise in 1999.

Sixty-four percent blamed the hikes on prescription drugs, followed by hospital

care costs (57%), physician care (45%), insurance company profits (31%), medical technology (29%) and richer benefits (14%).

After years of absorbing premium increases, the cooling economy is prompting

75% of large companies surveyed to raise employee premiums on top of already higher deductibles and co-payments.

Battle Lines

Business advocates say that the House version of the patients' bill of rights

appears to be more friendly to corporations than the Senate version because it has a higher burden of proof on which lawsuits can be filed and because it

contains lower caps on lawsuit damages, which in turn limits the severity of anticipated premium hikes companies would pay. Here are some key

differences in the House and Senate bills.

LIABILITY

House

Medical judgment suits proceed in state courts only under new federal rules

Plan's actions must be the proximate cause of wrongful injury or death

Plaintiffs need clear and convincing evidence of plan's failure to exercise

"ordinary care"

Senate

Medical judgment suits proceed in state courts under state statutes or common

law

Plan's action must be a proximate cause of wrongful injury or death

Plaintiffs need to show that plan's negligence more likely than not caused the

harm

DAMAGES

House

o No limit on economic damages

o Cap of $1.5 million on non-economic damages

o No punitive damages allowed except for plan's non-compliance with

reviewer's reversal, in which case capped at $1.5 million

o States permitted to apply lower limits than under federal law but not higher

Senate

o No limit on economic or non-economic damages in federal court

o Statutory limit of $5 million in federal suits if plan found to disregard

patient's rights and is a proximate cause of injury or death

o Economic damages for state cases set by state law, with some limits on

punitive damages higher