The Failed Jurisprudence of Managed Care, and How to Fix It: Reinterpreting ERISA Preemption

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Most Americans receive their health care from a managed care organization (MCO), which makes state regulation of MCOs a significant policy issue. Most Americans also obtain their MCO membership through an employer-sponsored benefits plan subject to federal regulation. Consequently, courts must determine whether and to what extent federal law preempts state MCO regulation. Over the last quarter-century, two questions have been particularly troublesome for the courts: (1) may patients sue their MCOs for negligence and related state law claims?; and (2) may states regulate the benefits provided by MCOs to employment groups? Judicial attempts to address these issues have resulted in a confusing and doctrinally inconsistent jurisprudence of managed health care, in which like cases are treated differently and Congressional intent is all but forgotten. This state of affairs that has led to substantial scholarly criticism and calls for federal legislative reform. In two recent decisions concerning managed care, the Supreme Court missed opportunities to rationalize this body of law, reinforcing the failures of its jurisprudence. This Article contends that the flaws in the Court's managed care jurisprudence stem from a single mistake of statutory construction; specifically, the failure to recognize that medical benefits promised to patients by MCOs are not employment plan benefits, even when paid for by an employer. Were the Supreme Court to recognize this simple mistake, a new jurisprudence of managed care would emerge that eliminates confusion, avoids doctrinal conflict and inconsistency, and effectuates Congressional intent. The new jurisprudence would also obviate much of the need for federal Patients' Bill of Rights legislation.