EBRI: ERISA Regulatory Scheme Working as Planned

February 5, 2008 (PLANSPONSOR.com) - A new analysis from the Employee Benefit Research Institute (EBRI) finds that the Employee Retirement Income Security Act (ERISA) is operating as intended for health care benefits under both state and federal laws.

A key goal of the 1974 federal benefit law that is being realized under the current system is that large multi-state employers can fashion a national level benefits program and not have to comply with multiple state or local level regulatory schemes, an EBRI news release said. After a series of U.S. Supreme Court cases, ERISA takes a bifurcated approach in regulating employer health care plans depending on whether the plan purchases the coverage from a provider or, typically in the case of a large employer, is self insured.

Plans buying the coverage are directly regulated by ERISA and indirectly by state law, while the self insured programs are only federally regulated, EBRI said.

“It is clear from the case law,” the analysis says, “that ERISA puts limits on the states’ ability to carry out health insurance reforms. ERISA pre-emption has prevented individual states and localities from mandating a minimum level of coverage for employment-based plans, and, so far, appears to prevent the states from mandating that employers provide health benefits. For employers operating in multiple states, this is exactly what ERISA was supposed to do – prevent multi-state employers from having to meet potentially 50 different sets of regulations.”

ERISA covers all private-sector health plans, whether they are self-insured or fully insured. EBRI estimates that 132.8 million people in the United States were in ERISA plans in 2006. Of the 132.8 million, some 73 million (55%) were in self-insured plans, which have grown in recent years.

Effects on Health Care Reform

EBRI said the ERISA-based regulatory scheme and the extent to which ERISA is deemed to preempt local ordinances is increasingly coming into play during the ongoing health care reform debate. The study acknowledges claims by some critics that the preemption practice effectively blocks efforts by state and local lawmakers to institute health care changes.

The research mentions several recent efforts to expand health coverage that have ended with federal courts striking down local or state proposals on ERISA pre-emption issues. These cases have involved “fair share” laws which generally require employers to pay into a state fund if they paid less than a specified percentage of payroll toward health benefits or did not provide health insurance coverage at all.

Courts have thrown out such “fair share” laws in Maryland (See MD Abandons ‘Wal-Mart’ Health Care Bill Fight ), Suffolk County, New York (See ERISA Preempts New York Health Care Law Targeting Wal-Mart ), and the city of San Francisco on ERISA pre-emption grounds, although San Francisco’s law has been upheld by the 9th U.S. Circuit Court of Appeals (See Appellate Court Clears Roadblock to SF Health Care Law ) and appears headed to the U.S. Supreme Court.

However, researchers cautioned in their report that the tension between local health coverage reform and the long-term ERISA regulatory goals could lead some employers to self-insure and others to drop coverage entirely.

The cost of state mandates significantly lowers the probability that small firms will offer health benefits, the analysis said. Roughly 18% of businesses that are without coverage would likely sponsor coverage but for state mandates, according to data the analysis cites .

The report is here .