Should expanding ERISA be a part of Repeal and Replace? Let’s discuss it!

The Employee Retirement Income Security Act of 1974, known as ERISA,  was enacted on September 2, 1974, and set the rules to establish minimum standards for pension plans for private employers. Probably due to in part to its name including “Retirement Income Security” people often think that ERISA regulates only pension plans, not true. ERISA also provides for the rules that impact employer sponsored employee health  benefit plans.

While its often misinterpreted, especially by legislatures and insurance departments, ERISA also included guidelines for individual employers designed to protect the member’s interests in their employer sponsored health plan. The term ERISA is often overused and misunderstood but ERISA could present a huge opportunity in the effort to reform (improve) our US healthcare delivery & finance system. To do so, it needs clarified, simplified and expanded.

Basically, ERISA made/makes it possible for individual employers to self-fund their employee benefit plans because it provides the regulations for “employee welfare benefit plans” which of course include employer-provided health care plans. Those employer benefit plans are designed to provide, through the purchase of insurance or in this case self insurance medical, surgical,  hospital care and other benefits caused by sickness.

ERISA’s overly broad and general language has made it difficult  for courts to apply the ERISA preemption provisions and provide clarity to employers, insurers, and state regulators. Basically, the preemption authority that ERISA provides says it “shall supersede any and all State laws insofar as they . . . relate to any employee benefit plan.”  There’s more and  I could go on but you get the point which is ERISA has “broad preemption” authority over state insurance commissioners and legislatures that could be both simplified and expanded to help resolve the dilemma of selling across state lines, lack of competition in many regions, cost and access for small employers.

The policy-wonks in Washington, at the direction of HHS, (and us) could easily “wordsmith” the ERISA language to overcome the pitfalls or obstacles that individual state insurance departments and legislatures have created. Here are just a couple ideas for the “wonks” to ponder:

  • Limit individual state’s authority through ERISA to simply monitor insurer financial stability and little else.
  • Prevent individual states from implementing burdensome regulations that stifle competition such as setting minimum or maximum stop loss deductibles.
  • Prevent individual states from regulating how re-insurers determine Aggregate factors in their stop loss plans.

An example of how expanding ERISA could help would be to overcome legislation such as California enacted known as Senate Bill 161. SB161 was created to stifle self-funding for employers with fewer than 100 EEs and push those employers toward the state-run exchange. SB161 mandates both the minimum Specific deductible (minimum of $40,000) and the Aggregate stop loss calculation ($5,000/covered member or 120% which ever is greater) both of which caused stop loss plans to be over priced and not competitive. SB 161 completely shut down the use of self-funding with stop loss on health plans for employers with fewer than 100 EEs. Therefore those employers no longer have access to lower cost opportunities for their employer-sponsored health plans.

There are ERISA experts, far wiser than your author, who may nay-say the ERISA expansion idea. But, why should it be difficult to modify a small piece of IRC code enacted 43 years ago. The healthcare delivery system has changed dramatically since 1974 so let’s simply add a few lines of code specifically aimed at solving the issues we face today.

Expand preemption language and other aspects of ERISA so:

  • Small employers are not arbitrarily restricted access to competitive alternatives.
  • Smaller insurers can compete with the big insurers.
  • More insurers are competing in areas where there’s just one insurer now.
  • Allow fully insured plans to easily sell across state lines.
  • Competition has a serious chance of lowering premium and overall costs

Let us know what you think. It’s a big subject that’s been misunderstood by many for 40+ years, including the courts and scholars, so there is room for discussion.

As I always say, we are all in this together, even though the conversations we hear coming from Washington DC seem to argue against that sentiment.
However, I remain confident that common sense has a chance to prevail because the premium paying public is fed-up with the current status and politicians will need your support in 2018.

BTW, thanks for the emails and positive comments. Talk soon.

Mark Reynolds, RHU
559-250-2000
mark@reynolds.wtf

 

 

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