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Can You Sue Your HMO?

Bruce Gottlieb
Posted Friday, July 17, 1998, at 11:53 AM ET

Democrats and Republicans in Congress are arguing about whether a new law regulating health maintenance organizations (which both now favor) should include a provision allowing patients to sue. Why can't you sue your HMO now?

Answer: you can. An insurance policy, including an HMO policy, is a contract like any other. The typical policy promises to pay for medically necessary treatment. If your health insurer denies you a treatment and the court finds that your policy entitles you to it, you can sue and win the cost of treatment. But if your health insurance comes through your employer, as almost all does in this country, you cannot sue your insurer for pain and suffering and you cannot sue for punitive damages. The reason is that while most product liability suits are brought under state laws, employee benefits (like health care) are regulated by a complicated federal statute known as ERISA.

The effect is to make it much harder to sue at all. Why? Personal-injury lawyers, who handle this sort of suit, are typically paid a "contingency fee"--i.e., a piece (typically a third) of what they get for the client. Without pain and suffering and punitive damages, potential judgments are often too small to outweigh the risk of losing and getting paid nothing, lawyers say.

ERISA applies to all employer-paid health insurance, not just HMOs. But when an HMO denies benefits, it usually means the patient doesn't get the treatment, while with traditional health insurance it usually means that the insurer won't pay the bill for a treatment that has already happened. In the latter case, the hospital is as likely as the patient to get stuck with the cost.

In the congressional debate Democrats would allow payments for pain and suffering and punitive damages. The Republican alternative is to replace traditional lawsuits entirely with rulings by independent arbitrators whose decisions would be binding. Republicans argue that patients and insurers would both benefit by saving the money that now goes to lawyers. Democrats say that insurers will routinely deny legitimate benefits unless there's a stiff price for getting caught doing so. Why, they ask, should insurance companies be exempt from the legal system that applies to others (including doctors)? Republicans answer that the entire tort system needs reform along similar grounds.

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Bruce Gottlieb is a law student and a former Slate staff writer.
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