With a huge stake in the battle over health care, business groups pushed hard and successfully to defeat state legislation that they feared would increase the cost of health-insurance premiums.

"California employers and their employees spend over $35 billion annually for health care more than one-third of all health care dollars in this state," said Fred Main, vice president of the California Chamber of Commerce. "We oppose all measures which would increase this burden and jeopardize the ability of employers to provide comprehensive medical insurance."

The state chamber is a member of Californians for Affordable Health Reform, which lobbied against measures to allow patients to sue their HMOs, to go outside their HMO for treatment, and to require HMOs to pay for certain treatments and drugs.

A pair of bills (AB 2436 and SB 977) pushed by consumer activist groups would have allowed patients to sue HMOs. Currently, HMOs are exempted from lawsuits under federal law, but states can enact their own liability laws that pertain only to companies doing business in a particular state. Last year, Texas enacted the first law in the nation allowing patients to sue HMOs.

Consumer groups dismissed claims that passage of the bill would increase health care costs.

"HMO liability does not raise premium costs," said Jamie Court, director of L.A.-based Consumers for Quality Care. "With liability for HMOs in place for one year in Texas, not a single lawsuit has been filed and premiums have not gone up more than the cost of inflation. Instead, health plans there are practicing better medicine."

But the coalition, which also includes the California Manufacturers Association, California Retailers Association and other groups, says that allowing patients to file lawsuits when denied treatment would only serve to drive up premium costs.

"HMOs have allowed companies to provide health care at an affordable level," Main said. "Without HMOs, prices would have continued to spiral out of control throughout the 1990s, meaning you would have less coverage paid for by employers today."

For every 1 percent rise in premiums, Main said, up to 40,000 people lose their employer-paid health coverage.

But the cost-containing techniques of HMOs have come under fire from consumer groups and trial attorneys. In Congress, these groups have tried to overturn the 1974 Employee Retirement Income Security Act, or ERISA, which exempts employer-sponsored health plans from lawsuits.

This provision is included in the Patient Bill of Rights put forward by President Clinton and Sen. Edward Kennedy, D-Mass. But the House of Representatives rejected the package in July and it has been put on hold in the Senate.

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