ERISA's impact on insurance reform

The Employee Retirement Income Security Act (ERISA) is the federal law that governs private-sector retirement and health plans. ERISA pre-empts all state laws relating to employee benefit plans, including health insurance, with exceptions under the commonly called "savings" and "deemer" clauses. (ERISA specifically exempted the Hawaii Prepaid Health Care Act, chapter 393, Hawaii Revised Statutes, in the form it was passed in 1974, a few months before ERISA itself was enacted.) As states are attempting to legislate health insurance reform to cover the uninsured, they have come up against ERISA's pre-emption provision.

The Employee Benefit Research Institute (EBRI) issued a study on the challenges presented by ERISA to such state laws, especially "fair share" laws that require employers who provide little or no health coverage to pay into a state fund. The report concludes, in part:

Given the current pre-emption structure, as states continue to pass incremental regulations and benefit mandates on insured plans, it seems clear that more employers will be forced to consider self-insuring their health benefit plans, simply as a response to the significantly growing regulatory costs. And, as the cost of insured coverage rises, smaller employers may consider dropping coverage entirely.

As the administration of President George W. Bush comes to an end, and the fiscal demands on a deficit-plagued federal government continue to increase, it seems clear that political prospects are slim that the next president and the next Congress will enact a publicly funded universal-care health care system covering all Americans. But the alternative--greater state regulation of employment-based health care, which remains the bedrock of the current system--could ultimately prove to be self-defeating if employers decide to get out of the game.

ERISA Pre-emption: Implications for Health Reform and Coverage (pdf, 16pp/740kB)