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There's “Private” and Then There's “Private”: ERISA, Its Impact, and Options for Reform

Published online by Cambridge University Press:  01 January 2021

Phyllis C. Borzi
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Extract

For most of the first two decades after the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), health policymakers did not seem to recognize the full impact that ERISA would have on regulation of health insurance and health care coverage. Perhaps the early court decisions in which the courts clarified that states could regulate insurance companies and the products they sold to ERISA plan sponsors gave them false comfort that because Congress appeared to recognize the role of the states in regulating insurance, ERISA might have only a tangential impact on health care reform efforts.

Type
Symposium
Information
Journal of Law, Medicine & Ethics , Volume 36 , Issue 4 , Winter 2008 , pp. 660 - 669
Copyright
Copyright © American Society of Law, Medicine and Ethics 2008

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References

See, e.g., Wadsworth v. Whalan, 562 F.2d 70 (1st Cir. 1977), cert. denied, 435 U.S. 980 (1978) (New Hampshire law regulating insurers and the content of group health policies they issue not preempted by ERISA even when employers purchased such policies for use by their ERISA-covered employee benefit plans since this was only indirect regulation of employee benefit plans); Metropolitan Life Ins. v. Massachusetts, 471 U.S. 724 (1985) (Massachusetts law requiring group health insurance policies issued to Massachusetts residents to cover certain minimum mental health benefits saved from ERISA preemption as a state law regulating insurance even when policies purchased by ERISA plans).Google Scholar
It is very difficult to obtain data concerning the extent of employee health insurance that existed at the time ERISA was enacted. However, according to the Employee Benefit Research Institute (EBRI), approximately 148.1 million individuals had employment-based coverage in 1994, while 161.1 million individuals were covered in 2006. That translates into 64.4 percent of the full-time non-elderly workforce in 1994 and 62.2 percent in 2006. Fronstin, P., “Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2007 Current Population Survey,” EBRI Issue Brief 310 (October 2007): At 5, fig. 1.Google Scholar
In his account of the various reform efforts of the 1960s and 1970s, Paul Starr describes the focus on the cost and financing side of health care reform, especially with respect to Medicare and Medicaid, that drove the Nixon Administration and key Congressional leaders. Starr, P., The Social Transformation of American Medicine (New York: Harper Collins, 1982): 394–397. Although the 1971 Nixon health care reform plan did include an employer mandate to provide a minimum package of health benefits, that plan was ultimately rejected as a “windfall” to the insurance industry. Id., at 397.Google Scholar
Employee benefit plans are defined under ERISA §3(3), 29 U.S.C. §1002(3)(3) as either employee pension benefit plans (ERISA §3(2)) or employee welfare benefit plans (ERISA §3(1)). An employee welfare benefit plan is “a plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such, plan, fund, or program was established or is maintained for the purpose of providing for its participants, and their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical or hospital care or benefits, or benefits in the event of sickness, accident, disability, death, unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 302(c) of the Labor Management Relations Act of 1947 (other than pensions on retirement or death, and insurance to provide such pensions).” 29 U.S.C. §1002(3)(1).Google Scholar
Gordon was a key Department of Labor pension expert hired by Senator Jacob Javits in 1970 to direct the Congressional efforts to enact reform and is widely considered the single most influential staff person in the shaping and drafting of ERISA.Google Scholar
In 1977, 78.2 percent of civilian employees under age 65 had employer-sponsored health insurance. Gabel, J., “Job-Based Health Insurance, 1977–1998: The Accidental System Under Scrutiny,” Health Affairs (1999): 62–74, Exhibit 1.Google Scholar
Paul Starr describes the problem at the time as follows: The Nixon proposals would have (1) established an employer mandate requiring employers to provide a minimum package of health insurance benefits; (2) established a new federal program for low-income families that provided a less generous package of benefits funded with Medicare cutbacks, and (3) still left 20–40 million people without coverage who were not covered by either programs. See Starr, , supra note 3, at 397Google Scholar
Gordon, M., “Introduction to the Second Edition: ERISA in the 21st Century,” in Sacher, S. J. and Singer, J. I. et al., eds., Employee Benefits Law: American Bar Ass'n, Employee Benefits Law, 2nd ed. (New York: BNA, 2000): At lxvii [hereinafter cited as Introduction to 2nd Edition, Employee Benefits Law]. Gordon's observation is all the more striking considering that Nixon's employer mandate was rejected in part because it was not considered real reform, but rather a sell-out to the insurance industry. See also Starr, , supra note 3, at 397.Google Scholar
Id., at lxix.Google Scholar
See Gabel, , supra note 6, at 62–74, 70–71.Google Scholar
Although ERISA-covered health and other welfare plans are not required to comply with the rules regarding participation, eligibility, vesting, funding, and termination insurance coverage applicable to pension plans, certain types of requirements under ERISA have always been applicable to all employer-sponsored plans, including group health plans. These include reporting and disclosure requirements imposed by Part 1 of Title I of ERISA (29 U.S.C. §§1021–31), fiduciary duties imposed by Part 4 of Title I (29 U.S.C. §§1101–14), the claims and appeals procedures, civil enforcement and remedies rules and certain other provisions of Part 5 of Title I (29 U.S.C. §§1131–48).Google Scholar
Public Law No. 99–272 was enacted on April 7, 1986. The COBRA continuation rules were generally applicable to group health plans for plan years beginning on or after July 1, 1986, but this effective date was delayed for certain collectively bargained plans.Google Scholar
These rules comprise a Part 6 of Title I of ERISA. ERISA §§601–08. 29 U.S.C. §§1161–68.Google Scholar
Public Law No. 104–191 (1996). The HIPAA preexisting condition rules were generally effective for plan years beginning on or after June 20, 1997, but this effective date was delayed for certain collectively bargained plans.Google Scholar
ERISA §§701–07, 29 U.S.C. §§1181–87.Google Scholar
A new Part 7 was added to Title I of ERISA that defined “pre-existing condition” and limited the ability of plan sponsors and health insurance issuers to design group health plans to use waiting periods or preexisting condition limitations to deny or delay coverage for more than 12 months (or in the case of late enrollees, for 18 months) to individuals who had been continuously covered under a variety of health plans arrangements in the past. Any plan waiting periods or pre-existing condition exclusions had to be offset on a day-by-day basis for an individual's prior health plan coverage unless the individual had experienced a break in continuous coverage for 63 or more days. ERISA §§701–07, 29 U.S.C. §§1181–87.Google Scholar
ERISA §702(b)(2) 29 U.S. §1182(b)(2).Google Scholar
ERISA plans are prohibited from reducing the level of coverage of pediatric vaccines below the level of coverage they provided on May 1, 1993. ERISA §609(d). Several other benefits for children are also required. For instance, ERISA §609(a) requires a group health plan to honor a “qualified medical child support order,” an order issued by a state court requiring the plan participant to provide health benefits for a child through the parent or guardian's plan. 29 U.S.C. §§1169(a) (2)-(4). In addition, ERISA requires health plans that provide coverage for dependent children of participants to also cover adopted children and children “placed” with participants for adoption before age 18 under the same terms and conditions as apply to biological children. ERISA §609(c).Google Scholar
Section 711 of ERISA, 29 U.S.C. §1185, prohibits group health plans and health insurance issuers from limiting maternity stays to less than 48 hours after a vaginal delivery and less than 96 hours after a caesarean delivery, unless the treating physician, in consultation with the mother, agree to an earlier discharge. Direct or indirect financial inducements to agree to an earlier discharge are prohibited. This provision was added to ERISA by the Newborns' and Mothers' Health Protection Act of 1996, Pub. L. No. 104–204, §603 and was effective for plan years beginning after 1997. No special deferred effective date rule for collectively bargained plans was included.Google Scholar
ERISA §712, 29 U.S.C. §1185a, prohibits group health plans providing both medical and surgical benefits and mental health benefits from imposing either aggregate lifetime dollar limits or annual lifetime dollar limits on mental health benefits, unless the plan imposes the same limits on the medical and surgical benefits. The provision does not require plans to provide mental health benefits; it does not apply to treatment of substance abuse or chemical dependency; and applies separately to each benefit package within the plan (e.g., to an HMO option separately from a PPO option). If a plan sponsor can demonstrate that the cost of compliance exceeds 1% of cost, the employer can be exempt but must send notice of this exemption to both participants and the federal government. In addition, employers with fewer than 51 employees are exempt. This provision was added to ERISA in the Mental Health Parity Act, Public Law No. 104–204, §§702(c) and 703. Corresponding provisions amending the Internal Revenue Code were adopted in 1997 (Public Law No. 105–34, §1531(b). These provisions were effective for plan years beginning in 1997; no special deferred effective date for collectively bargained plans was included. The provisions were originally set to sunset in 2001, however, each year thereafter, Congress has extended the life of the provisions. In the Emergency Economic Stabilization Act of 2008, signed by the President on October 3, 2008, Congress included major substantive expansions to these mental health parity provisions that would be effective in January 2010. Group health plans offered by most employers and health insurers that provide for mental health coverage would have to put mental health benefits on par with benefits for physical illnesses with respect to hospital stays and doctors visits (including out-of-network coverage), as well as co-payments and deductibles. States could also establish stricter rules for insured products.Google Scholar
ERISA §713, 29 U.S.C. §1185b, was added by The Women's Health and Cancer Rights Act of 1998, Public Law No. 105–277, §902(c) (1998). This provision requires group health plans and health insurance issuers that provide medical and surgical benefit for mastectomies to provide additional benefits when requested by the patient (in consultation with her treating physician), including breast reconstruction, surgery and reconstruction on the other breast to provide a symmetrical appearance, and any prostheses and coverage of physical complications. These benefits may be subject to the normal co-payments and deductibles applicable to other plan benefits. These provisions were effective for plan years beginning on or after October 21, 1998 (no special deferred effective date for collectively bargained plans was provided). Before January 1, 1999, a special notice describing this benefit was to be provided to all plan participants and beneficiaries, and this notice is also required to be provided annually.Google Scholar
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For example, the Supreme Court has held that state HMO liability laws that allow patients to sue HMOs for failure to exercise ordinary care in making coverage decisions was completely preempted by ERISA. Even though the decision may involve medical judgment (such as whether the treatment is medically necessary or experimental), the Court concluded that ERISA governs. Aetna Health Inc. v. Davila, 542 U.S. 200 (2004).Google Scholar
29 U.S.C. § 1003(a). This subsection includes all employee benefit plans established or maintained by employers engaged in any industry or activity affecting commerce, by employee organizations representing employees engaged in commerce or in any industry or activity affecting commerce or by both.Google Scholar
29 U.S.C. § 1003(b). This subsection exempts the following plans: Governmental plans; church plans that have not elected under section 410 of the Internal Revenue Code to be covered under the vesting; participation and funding rules; plans maintained solely to comply with applicable workers compensation; unemployment compensation or disability insurance laws; plans maintained outside the U.S. primarily for the benefit of persons substantially all of whom are non-resident aliens; or unfunded excess benefit plans. The subsection also excludes health insurance issuers from ERISA's part 7 requirements (relating to health insurance requirements) if the group health plans to which the issuer provides services are excluded from Title I of ERISA.Google Scholar
29 U.S.C. § 1144(a). (Emphasis added.)Google Scholar
ERISA § 514(c)(2), 29 U.S.C. § 1144(c)(2).Google Scholar
Id., at § 514(c)(1), 29 U.S.C. § 1144(c)(1).Google Scholar
Id., at § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A).Google Scholar
Id., at § 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B).Google Scholar
Id., at § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A).Google Scholar
Id., at § 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B).Google Scholar
See Gabel, , supra note 6, at 62–74, 70.Google Scholar
See Gordon, , supra note 8, at lxix.Google Scholar
According to Census tabulations, in 2006, only 59.7 percent of the population was covered under employer-sponsored health plans. Ginsburg, P., “Employment-Based Health Benefits Under Universal Coverage,” Health Affairs 27, no. 3 (2008): 675–685, at 677.Google Scholar
See, e.g., The Maryland Fair Share Health Care Act (Maryland Act), Md. Code Ann., Lab. & Empl. §8.5–101 et seq., (2006) (giving large employers in Maryland the option of spending a designated percentage of payroll on a variety of heath expenditures or paying the equivalent amount as a tax); Suffolk County, New York's “Fair Share for Health Care Act,” as amended, N.Y. Reg. Local Law §§ 325-1-7 (2005) (giving covered employers the option of making minimum employee health care expenditures through a variety of mechanisms or paying a fee); San Francisco's Health Care Security Ordinance, S.F. Admin. Code §§ 12W.6, 14.1(b)(3) and 14.1(b)(7) (2006) (giving covered employers the option of making minimum employee health care expenditures through a variety of mechanisms or paying into an existing public program for the uninsured); and the Massachusetts Mandated Health Insurance Act, Chapter 58 of the Acts of 2006, An Act Providing Access to Affordable, Quality, Accountable Health Care (2006) (requiring, among other things, individuals to be covered by insurance through their employers, the Connector, or various other public programs if they meet the eligibility criteria).Google Scholar
514 U.S. 645, 19 EB Cases (BNA) 1137 (1995).Google Scholar
See, e.g., FMC Corp. v. Holliday, 498 U.S. 52, 12 EB Cases (BNA) 2689 (1990) (state anti-subrogation law, which interfered with plan design and calculation of benefit levels relates to a plan and is preempted); Ingersoll-Rand v. McClendon, 498 U.S. 133, 12 EB Cases (BNA) 2737 (1990) (state wrongful discharge claim based on allegation that employer wrongfully discharged employee to avoid contributions under pension plan was preempted because it relates to a plan); Alessi v. Raybestos Manhattan, Inc., 451 U.S. 504, 2 EB Cases (BNA) 1297 (1981) (N.J. law that prohibited workers' compensation benefits from being used to offset pension benefits relates to ERISA-covered pension plans and is preempted).Google Scholar
See, e.g., Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 6 EB Cases (BNA) 1545 (1985) (Massachusetts statute requiring health insurers to include mental health benefits in any contract or policy covering Massachusetts residents was not preempted, because it was saved under the insurance savings clause).Google Scholar
See, e.g., New York State Conference. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 19 EB Cases 1137 (1995); California Division of Labor Enforcement v. Dillingham Construction, 519 U.S. 316, 20 EB Cases 2425 (1997); De Buono v. NYSA-ILA Medical & Clinical Services Fund, 520 U.S. 806, 21 EB Cases 1041 (1997).Google Scholar
See, e.g., UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 22 EB Cases 2745 (1999); Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 27 EB Cases 2921 (2002); and Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329, 30 EB Cases 1129 (2003).Google Scholar
See, e.g., Riegel v. Medtronic, 128 S.Ct. 999 (2008) (the Medical Device Act preempts New York common law negligence and other claims challenging the safety or effectiveness of a medical device marketed in a form that received premarket approval from the FDA).Google Scholar
California Division of Labor Standards Enforcement v. Dillingham Construction, N.A., 519 U.S. 316, 20 EB Cases (BNA) 2425 (1997); DeBuono v. NYSA-ILA Medical and Clinical Services Fund, 520 U.S. 806, 21 EB Cases (BNA) 1041 (1997); Boggs v. Boggs, 520 U.S. 833, 21 EB Cases (BNA) 1047 (1997).Google Scholar
519 U.S. 316, 20 EB Cases (BNA) 2425 (1997).Google Scholar
514 U.S. at 662.Google Scholar
See, e.g., Hadley, J. and Feder, J., “Hospital Cost-Shifting and Care for the Uninsured,” Health Affairs 4, no. 3 (1985): 67–80; Book, E., “Health Insurance Trends Are Contributing to Growing Health Care Inequality,” Health Affairs, Web exclusive, available at <http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.577v1?maxtoshow=&HITS=10&hits=10&RESULTFORMAT=&fulltext=cost+shifting&andorexactfulltext=and&searchid=1&FIRSTINDEX=20&resourcetype=HWCIT> (last visited September 19, 2008).CrossRefGoogle Scholar
Some courts have upheld prevailing wage laws in the past in the face of ERISA preemption challenges. See, e.g., WSB Elec. Inc. v. Curry, 88 F.3d 788 (9th Cir. 1996) (California law requiring employers to pay the prevailing wage and permitted employers to meet this requirement either by paying the designated wage amount in cash or through a combination of cash wage and certain specified benefit expenditures (up to a cap) was not preempted by ERISA).Google Scholar
See, e.g., Retail Industry Leaders Ass'n v. Fielder, 475 F.3d 180, 39 EB Cases (BNA) 2217 (4th Cir. 2007) (since the only rational choice employers have under the Maryland Fair Share Law is to meet minimum spending threshold by improving their ERISA plans, law effectively mandates that employers provide a certain level of benefits; and therefore law held preempted because of impermissible “connection with” plans); Retail Industry Leaders Ass'n v. Suffolk County, Steve Levy, County Executive et al., 497 F.Supp. 2d 403, 41 EB Cases (BNA) 1129 (E.D. NY 2007) (Suffolk County, Ny's “Fair Share for Health Care Act,” requiring covered employers to make minimum employee health care expenditures held preempted by ERISA because it had a “connection with” employee benefit plans).Google Scholar
Golden Gate Restaurant Ass'n. v. City and County of San Francisco, — F.3d. —, 2008 WL 4401387 (9th Cir. September 30, 2008) (San Francisco ordinance requiring medium and large business to make minimum health care expenditures on behalf of their employees not preempted because ordinance had neither a “connection with” nor “reference to” an ERISA plan). This decision on the merits was unsurprising since the same panel of the circuit court, in a procedural decision issued several months earlier on the narrow issue of whether to lift the stay against the ordinance imposed by the district court when it held the ordinance preempted had stated that the City was highly likely to prevail on the merits of its appeal. 512 F.3d 1112 (9th Cir. 2008). The district court's decision is Golden Gate Restaurant Ass'n. v. City and County of San Francisco, — F.Supp.2d —, 2007 WL 4570521, 42 EB Cases (BNA) 2185 (N.D.CA. December 26, 2007), motion for stay pending appeal denied, 2007 WL 4591729 (N.D. CA December 28, 2007) and stay granted, 512 F.3d 1112, 42 EB Cases (BNA) 2193 (9th Cir. January 9, 2008).Google Scholar
29 U.S.C. §1144.Google Scholar
There is much speculation as to why no ERISA challenge has been mounted, but no one really knows the answer to that question. It is possible that employers saw sufficient potential benefit to them from reform that they decided not to challenge it or that the burdens imposed by the Massachusetts law were not sufficiently great to justify the expense of litigation.Google Scholar
Golden Gate Restaurant Ass'n v. San Francisco,— F.3d. —, 2008 WL 4401387 (September 30, 2008).Google Scholar