ERISA Attacks Threaten Self-Insured Health Benefits (Risk and Insurance)

States wrestling with health reform issues increasingly are tapping employer-sponsored health plans to help subsidize new government programs for the uninsured. This means new state fees and taxes, as well as costly assessments, added to the plan costs for employers who already cover more than half of all individuals in private plans. The Self-Insurance Institute of America Inc. and other employer organizations contend these state programs conflict directly with the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that pre-empts state laws or rules that attempt to regulate self-insured employee group health plans.

Over three decades, this federal framework has produced cost savings and administrative efficiencies that have proven valuable for more than 72 million Americans who receive health benefits from self-insured health plans.

Without ERISA and its pre-emption provisions, many self-insured employers would be forced to choose among increasing the employee share of health coverage, switching to higher priced insured plans or eliminating coverage completely.

State-By-State Action

A number of recently enacted state "fair share" laws require employers to offer health coverage to their employees--or pay a share of their payroll to help government provide health coverage for the uninsured. Feeling threatened by this trend, employers argue that these laws mean new cost and administrative burdens, which add significantly to the overall cost of their health plans.

A short-lived law in Maryland, for example, would have required employers with 10,000 or more employees to spend at least 8% of payroll for their health plans. Firms spending less would have had to make up the difference by paying into a state fund. Vigorously opposed by employers in the retail industry, the law was struck down by a federal appeals court last year. The court ruled the state law was preempted by ERISA.

Massachusetts and Vermont have passed their versions of "fair share" laws, and similar bills are pending in California and Pennsylvania. The Massachusetts Taxpayers Foundation estimates that employers will increase their health care spending by $150 million a year as more employees accept coverage, and this is before expected increases as the legislature seeks ways to balance expected program shortfalls.

A recently enacted San Francisco city ordinance requires minimum "health spending expenditures" for employers operating in the city, which are based on a per-hour, per-employee rate. Otherwise, the employer must pay into a government fund. In response to a challenge by a San Francisco restaurant association, a California federal court ruled the ordinance was pre-empted. The association argued that the ordinance seriously interferes with the ability of covered employers to maintain a uniform companywide plan for employees. The issue is now on appeal before the 9th Circuit.

Several employer groups, including the California Chamber of Commerce and the ERISA Industry Committee (or ERIC, an employer group of Fortune 200 companies), have filed amicus briefs in support of ERISA pre-emption--an issue certain to come before the U.S. Supreme court later this year.

In another initiative, several state legislatures looking for ways to fund their high-risk pools for the uninsured have called for assessments on carriers that provide stop-loss insurance coverage to employer self-insured health plans. Usually passed along to employers, these charges can add as much as 5% to employer costs for self-insured plans.

While SIIA has successfully opposed assessment bills on employer stop-loss insurance in North Carolina and Georgia, assessment bills have been put on the books in New Hampshire, Texas, Indiana and Oregon. Self-insured employer plans in New Hampshire, for example, are assessed through their stop-loss policies $8.49 per covered life (employees and dependants) each month.

Challenging ERISA's Pre-emption

As courts block some state initiatives that violate ERISA, some policymakers have responded by launching campaigns to water down ERISA pre-emption language. Rep. Robert Andrews, D-N.J., chair of the Health, Education, Labor and Pensions subcommittee of the House Education and Labor Committee, was quoted in hearings and interviews classifying ERISA as a "barrier" to state reforms.

Some legislators are studying an exception (or waivers) to ERISA pre-emption for individual states. Others would totally eliminate ERISA protection for self-insured plans.

These views totally ignore the significant contributions and cost efficiencies made by employers to the current voluntary employment based health system, which covers more than 130 million individuals and should be strengthened and preserved.

It is not surprising that employers have turned their attention to issues before state legislatures and in Washington that impact the self-insurance and alternative risk transfer industry. At the top of the list is protection of ERISA's federal pre-emption provisions.

ERISA is Essential for Multi-State Employers

The federal regulatory framework is essential for employers that operate in multiple jurisdictions across state lines. Without federal pre-emption, employers would have to adopt different health benefits programs for each state and comply with up to 50 different state laws--a costly and inefficient requirement.

At the same time, state efforts to impose costly assessments on employer stop-loss insurance raise important pre-emption issues. Concerned that state actions can add millions of dollars to costs for self-insured plans, employers can be expected to oppose these ill-advised assessments. These assessments are an inappropriate source of funds to finance government-mandated coverage for the uninsured. While government has a role to play, such government programs should be funded from state general revenues rather than by employers that already provide health coverage to millions of individuals.

Yet state efforts to impose new costs on employers are likely to persist because of the search for solutions to the serious problem of uninsured people, particularly during this period of growing budget deficits. As state legislatures address this issue, the outcome will have a significant impact on the future of the current voluntary U.S. healthcare system and self-insurance.

On behalf of self-insured employers that cover millions of Americans, we can only remind legislators and regulators that good deeds should not be punished.

The author, Dick Goff, is president of the Self-Insurance Institute of America Inc. (SIIA) and managing member of The Taft Companies, a captive insurance consultant and manager active in many captive domiciles. Contact Dick at dick@taftcos.com.