For Healthier Employees and Healthier Businesses

August 4, 2017

One subject that we often hear addressed is the pre-emption of state insurance law by the Employee Retirement Security Act of 1974 (“ERISA”).  We’ve recently come across two articles, that we have re-capped below, to shed some light on this matter:

What is ERISA & why was it enacted?

Congress enacted ERISA primarily to establish uniform federal standards to protect private employee pension plans from fraud and mismanagement.  ERISA applies to all employee pension, health and other benefits plans established by private sector employers (other than churches) or by employee organizations such as unions.  If they meet certain requirements employee plans are “ERISA plans” even if they offer benefits through state-licensed insurers.

Plans that ERISA regulates:

For health plans, federal law prescribes certain substantive standards: administrators’ fiduciary standards (to administer the plan in the best interests of beneficiaries), requirements for plan descriptions to be given to enrollees, reporting to the federal government, and certain minimum standards (“continuation” health coverage; group plan guaranteed issue and renewability; pre-existing condition exclusion requirements; nondiscrimination in premiums and eligibility; maternity hospital length-of-stay standards; post mastectomy reconstructive surgery; and limited mental health “parity”).

Who enforces and interprets ERISA?

The U.S Department of Labor is responsible for administering and enforcing the ERISA law and setting policy for the conduct of employee benefit plans.  The federal courts are the primary source of interpretations of ERISA’s preemption provisions.  Much of the uncertainty about whether ERISA affects a proposed state health care initiative or policy results from differing court interpretations of the preemption provisions across the country.

What self-funded employers need to know:

According to one prominent health law attorney, “Although in its text ‘hospital’ appears only once and ‘physician’ not all, ERISA may be the most important law [prior to the Affordable Care Act] affecting health care in the United States”.  William Sage, “Health Law 2000”: The Legal System and the Changing Health Care Market, 15(3) Health Aff. 9 (Aug. 1996).  Understanding the intricacies of ERISA and its preemption clause can be a challenge for even the most careful attorney.  Courts have held that ERISA supersedes some state health care initiatives, such as employer insurance mandates and some types of managed care plan standards, if they have a substantial impact on employer-sponsored health plans.  The Supreme Court has interpreted the preemption clause very broadly to carry out the congressional objective of national uniformity in rules for employee benefits programs.   The Court has held that ERISA preempts state laws that either refer explicitly to ERISA plans (i.e., all plans offered by private-sector employers) or have a substantial financial or administrative impact on them.  U.S. Supreme Court opinions limit ERISA’s impact on state authority, but many uncertain areas remain.

ERISA’s preemption provisions contain an exception important to state health policy that allows states to continue to regulate “the business of insurance” (authority that Congress gave to the states in McCarran-Ferguson Act of 1945).  Courts have interpreted ERISA’s insurance regulation “saving clause” to allow states to regulate traditional insurance carriers conducting traditional insurance business.  That clause is then qualified by the “deemer clause,” which acts as a kind of escape hatch through the savings clause.  For employers, that escape hatch is key because it allows them to avoid state insurance regulations by self-funding their health plans rather than by purchasing health insurance.

Under the insurance regulation saving clause, states can regulate terms and conditions of health insurance, for example, the benefits in an insurance policy or the rules under which a health insurance market must operate.  But through its so-called “deemer clause,” the statute prohibits states from regulating plans that “self-insure” by bearing the primary insurance risk, even though by bearing risk they appear to be acting like insurance companies.  According to the Society of Professional Benefit Administrators, approximately 75-80% of employees and their dependents receive benefits through self-insured group health plans sponsored by their employers.

Increasingly, however, states are testing the limits of preemption. Recent examples include, leave laws which mandate that employers continue health insurance coverage for eligible employees out on leave. Perhaps the best known leave law is the Federal Family and Medical Leave Act of 1993 (“FMLA”).  The statute, like most other Federal laws applies regardless of the source of insurance.  It requires employers to provide twelve weeks of unpaid, job-protected leave for an employee’s own serious health condition, for the birth or adoption of a child, or to care for a spouse, parent or child with an illness.

When determining whether preemption under ERISA is applicable, the key question to answer is whether the state law at issue  “relates to” an ERISA plan.  The U.S. Supreme Court has said that a state law “relates to” an employee benefit plan covered by ERISA if it refers to or has a connection with that plan, even if the law is not designed to affect the plan or the effect is only indirect.  See e.g., Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139 (1990).

If you have any questions, please do not hesitate to contact me or your Group Resources Account Manager.

If you’d like to review the original articles, please follow the links below:

1. http://www.nashp.org/erisa-preemption-primer/
2. https://issuu.com/sipconlinepub/docs/self-insurer_aug_2017

Andy Willoughby
Senior Vice President & Chief Operating Officer
678 475 3606 – andy@groupresources.com

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For Healthier Employees and Healthier Businesses