MOST AMERICANS think they have little in common with John McGann, a music store worker whoeffectively lost his health insurance after telling his employer he had AIDS. Most workers, in fact, believe their group health plans are fairly solid and not subject to such cutbacks.
They're wrong, and they should be told differently. Almost two-thirds of U.S. workers with health coverage work for employers that self-insure rather than buy coverage from an insurance company. Those self-funded plans operate under a federal law that allows employers to cut coverage almost at will.That policy may seem harsh, but there's a good reason for it: Employers are under no obligation to provide health insurance in the first place, and some are forced to cut benefits to survive. But there is something wrong with a system that allows so many people to believe they have nearly ironclad protection when in fact they do not.
There's no legal dispute over whether employers can cut coverage: The Supreme Court last fall refused to review a lower-court ruling that decided in favor of Mr. McGann's employer. But that hasn't put the matter to rest. Last month, trade groups representing life and health insurers said the law should prohibit employers from excluding coverage for AIDS treatment. In a similar vein, Rep. William Hughes, a New Jersey Democrat, last fall proposed a bill that would prohibit employers from stopping payments for medically necessary treatment already under way.
Mr. Hughes argued eloquently that workers have a false sense of security about their benefits. The federal law governing self-funded insurance was passed before employers switched in droves to such plans. That switch, he said, means "state insurance consumer protection laws are inapplicable, leaving these workers unprotected."
But most workers don't know that, and typically confuse their employer-paid benefits with state-regulated insurance contracts. The waters are further muddied when a self-funded plan hires an insurance company to process claims. Workers receive reimbursement checks and correspondence from the insurer and might logically assume their benefits are paid by the insurance company.
That is not to say self-funded plans are seat-of-the-pants operations. They are legal structures that must comply with federal law, which requires sponsoring employers to tell workers when they change benefits. But overall, Mr. Hughes is right: Workers covered by self-funded plans have fewer legal protections than workers covered by most state-regulated insurance policies. That's why he wants to require employers to continue paying for treatment if an illness started while coverage was in effect.
There's a problem with that approach: Adding potentially costly liabilities to self-funded plans would cause many employers either to deny certain benefits in the first place or stop offering health coverage altogether.
Nevertheless, Mr. Hughes suggested a useful remedy that would avoid the kind of rude surprise that greeted Mr. McGann. Under his bill, an employer that wants to cut benefits would have to tell workers clearly their plan "is not a policy of insurance" and is not backed by a state guaranty fund. Employers also would have to inform workers they are responsible for the difference if the plan does not pay all the costs of a covered illness.
Such changes would let workers know where they stand. Those who prefer the greater security of a state-regulated insurance policy could bargain with their employer for a change or, failing that, consider another job.
Ultimately, the solution to shrinking insurance benefits lies in a major overhaul of the health care system. But until that happens, most Americans will rely on the current system and should have a clear sense of how much protection they have. There's no excuse for a legal framework that allows so many workers to live in a fool's paradise.