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CCH® BENEFITS — 10/1/08

ERISA, The States, And The Candidates

From Spencer's Benefits Reports: No vitally important employee benefits issue is as hidden in the presidential candidates’ health reform proposals as is ERISA preemption. However, the proposals from Sens. John McCain (Ariz.) and Barack Obama (Ill.) will dramatically affect how employer-provided health care benefits operate in relation to ERISA.

While a variety of health-related laws have been incorporated into ERISA (COBRA and HIPAA most prominently), the health benefits keystone in ERISA lies in preemption, which creates significantly different treatment of insured and self-funded plans (see below).

McCain Proposal

Several of Mr. McCain’s specific proposals would require significant changes in ERISA:

• States should have the flexibility to experiment with alternative forms of access, coordinated payments per episode should be covered under Medicaid, use of private insurance should be allowed in Medicaid, alternative insurance policies and different licensing schemes for providers should be permitted.
• National markets should permit providers to practice nationwide.
• Families should be able to purchase health insurance nationwide, across state lines.

Each of these proposals would require significant dilution of the ERISA preemption provisions and likely would have adverse consequences to self-funded employer plans.

Mr. McCain also has stated that his plan would enable employees to take their health insurance with them as they went from job to job. For that to be true across state lines, then additional changes to ERISA would be necessary.

Obama Proposal

The health care reform proposal from Mr. Obama in general would retain the principles of ERISA preemption. Nonetheless, several major effects on ERISA would result from the Obama proposal, including these:

Employers would be required to provide a certain level of health care coverage or contribute to the cost of coverage. Maryland, Massachusetts, and the city of San Francisco have attempted to impose similar requirements.

The Maryland law was challenged and struck down under ERISA preemption provisions. The San Francisco plan has been challenged, so far unsuccessfully, under ERISA. The Massachusetts plan has not yet been challenged, but several benefits experts have predicted a lawsuit if employer costs increase.

Despite these disparate results, ERISA preemption would need to be addressed in any federal law that required employer contributions to health care.

In addition, the Obama plan would make available a new national health plan to all Americans, including the self-employed and small businesses, to buy affordable health coverage that is similar to the plan available to members of Congress. The plan would include guaranteed issue and renewal and a specified minimum set of benefits. This provision would significantly dilute the ability of the states under ERISA to devise their own requirements for insured plans.

ERISA Preemption

ERISA Sec. 514(a) provides that ERISA will supersede any state law that “relates to” an employee benefit plan. This preemption of state laws by ERISA is offset by ERISA Sec. 514(b) (“savings” clause and “deemer” clause), which “saves” from preemption state laws that regulate insurance, and provides that no employee benefit plan will be “deemed” to be engaged in the business of insurance.

While insured plans thus are subject to a variety of state laws and mandates, self-funded plans gain the following advantages:

• They don’t have to comply with state health insurance mandates, which makes cost control much easier.
• They can operate a single health benefits plan in many different states rather than offer different health insurance options in each state based upon the states’ insurance laws.
• By accepting the financial risk of self-insuring, they also escape any state taxation of insurance.
• They escape state-initiated lawsuits and financial damages imposed by those suits.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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