ERISA Pre-emption: Implications for Health Reform and Coverage

February 2008
EBRI Issue Brief #314
Paperback, 16 pp.
PDF, 740 kb
Employee Benefit Research Institute, 2008

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Executive Summary

• ERISA pre-emption of state health insurance regulation—This Issue Brief provides an overview of the issues relating to the Employee Retirement Income Security Act of 1974 (ERISA) and state and local attempts at comprehensive health insurance reform. It reviews the statute and its history, major case law relating to the interaction of ERISA and state law, and the implications of ERISA’s pre-emption of state laws governing health insurance. It also presents the latest data on the number of health plan participants in both insured and self-insured ERISA-governed plans, and the trends related to self-insurance.

• Both federal and state laws govern health benefits—Under ERISA, the regulation of employment-based health benefit plans has evolved into a system in which both federal and state laws play important roles. As a result of a series of Supreme Court decisions, health benefit plans that purchase coverage from insurance companies are subject to regulation directly at the federal level and indirectly at the state level, while self-insured plans are regulated exclusively at the federal level.

• Federal pre-emption of state insurance law was deliberate—Although some argue the original decision by Congress to pre-empt was casually made, historical evidence suggests it was deliberate and essential to the enactment of ERISA.

• ERISA-covered health plan participants—EBRI estimates of the Current Population Survey (CPS) indicate that there were 132.8 million persons covered by ERISA plans (both self-insured and fully insured) in 2006. This population includes workers in private-sector firms and their dependents; workers employed in the public sector with health insurance in their own name and dependents of persons employed in the public sector were excluded from the estimate.

• Self-insured health plans—Overall, 45 percent of workers were covered by a fully insured health plan and 55 percent were covered by a self-insured health plan. Self-insurance has been growing over the years, but it remains much more prevalent in larger firms. In firms with 5,000 or more employees, 89 percent of workers were covered by self-insured arrangements in 2006, up from 62 percent in 1999.

• Massachusetts case—Massachusetts has implemented a comprehensive program aimed at insuring all residents of the state, funded in part by mandatory employer contributions.

• “Fair share” laws are being struck down—Several cases brought in federal court on ERISA pre-emption grounds have resulted in state and local “fair share” laws being overturned. Such laws generally require employers to pay into a state fund if they pay less than a specified percentage of payroll toward health benefits or do not provide health insurance coverage at all. The state of Maryland, Suffolk County, NY, and the city of San Francisco have passed such laws. Federal courts have struck down all of them on ERISA pre-emption grounds, but a panel of the Ninth Circuit Court of Appeals decided that San Francisco could implement its law, pending the decision of the case on the merits, because the city has a “strong likelihood of prevailing” in showing the law is not pre-empted by ERISA.