The Battle over Self-Insured Health Plans, or

Abstract

Enacted in 1974, the federal Employee Retirement Income Security Act (ERISA) has been a major roadblock to advocates of increased regulation of health insurance benefits in the era of "managed care." Originally drafted as a pension law, ERISA, as enacted, applies to all fringe benefits provided by private employers to their employees. The statute shields benefit plans, including health insurance, from state regulation in two ways. First, ERISA's "preemption" clause prohibits state laws that "relate to" employee benefit plans. Second, although ERISA's "savings clause" exempts state laws that "regulate insurance" from the statute's preemptive force, this exception is in turn limited by the "deemer clause," which prevents state insurance regulations from reaching employer health care benefits plans (EHBPs) that are self-insured, as opposed to those that purchase insurance coverage from a third party. Put another way, ERISA obstructs state regulation on two levels: The statute partially shields all EHBPs from state regulation, and self-insured EHBPs enjoy an enhanced level of protection. A large chorus of critics has lodged two different types of complaints about ERISA. On one hand, critics contend that managed care arrangements threaten consumer health and that the expansion of these insurance systems requires the government to police health insurers more closely. ERISA preemption impedes possible state regulatory efforts. On the other hand, to the extent that ERISA's savings clause enables state regulation of managed care to avoid preemption, critics complain that ERISA creates an inequitable two-tiered regulatory system, in which employees in "insured" plans receive protections of state law denied to employees in "self-insured" plans.