Health & Welfare
Journal of Pension Benefits
Issues in Administration, Design, Funding, and Compliance
Volume 32 • Number 1 • Autumn 2024
As we celebrate the 50th anniversary of ERISA, this column reviews the impact that this milestone statute has had (and has not had) on health and welfare plans, with a focus on the distinctions between how ERISA affects retirement vs. health and welfare plans and a look towards what we can expect in the future.
by Sherrie Boutwell, Boutwell Fay LLP
The Employee Retirement Income Security Act of 1974 (ERISA) was signed into law by President Gerald Ford on September 2, 1974 (shortly after Richard Nixon resigned). Although it was originally conceived to regulate and protect participants in pension plans, when it was finally enacted, Congress also included health & welfare plans in its coverage, and it now affects nearly every employer-sponsored employee benefit plan in the country.
Prior to the passage of ERISA, there was some federal regulation of health and welfare plans, but it was minimal. See, for example, the Welfare and Pension Plans Disclosure Act in 1959 (mandating the filing of plan descriptions and annual financial reports, which were also to be made available to plan participants and beneficiaries). [P.L. 85-837]
ERISA changed all of that in the health and welfare plan context by mandating the use of written plan documents, instituting federal reporting and disclosure, creating federal causes of action for denied benefit claims and breaches of fiduciary duty, prohibiting self-dealing transactions, as well as creating mandated claims and appeals procedures for all plans, with enhanced processes for disability claims.
The Big Health & Welfare Plan Differentiator: Preemption
In order to prevent employers from having to comply with a myriad of possibly conflicting state laws, ERISA has one of the broadest, if not the broadest, preemption of any federal statute. Section 514(a) of ERISA provides that ERISA “shall supersede any and all [s]tate laws insofar as they may now or hereafter relate to any employee benefit plan.” Section 514(b) of ERISA excepts state laws governing insurance, banking, and securities, as well as criminal laws, from that specific preemption provision (the Savings Clause) and prohibits states from deeming an ERISA plan to be within those exceptions (the Deemer Clause).
This exception from ERISA preemption for insurance is what distinguishes pension plans from health and welfare plans. While most pension plans are self-funded, most health and welfare plans are provided through some type of insurance, such as health insurance, life insurance, or disability insurance. Thus, many of the rules that apply at the state level to insured health and welfare plans are not preempted by ERISA.
In addition, Congress also specifically exempted two types of welfare plans from its specific preemption clause, including both a specific Hawaiian health plan and most multiple employer welfare arrangements (MEWAs). As a result, health and welfare plans (other than self-funded plans) are more likely to be subject to state law than pension plans. For example, a multiple employer pension plan does not raise state regulatory issues, but a multiple employer welfare plan may be prohibited from operating in some states and not in others.
Outside of these specific exceptions, ERISA does still preempt many state laws with respect to health and welfare plans. For example, when Vermont attempted to require the collection of certain health plan information, the US Supreme Court held that it was preempted in part because ERISA imposes its own reporting and disclosure requirements. [Gobeille v. Liberty Mt. Ins. Co., 136 S. Ct. 936 (2016).]
More recently, states have attempted to regulate pharmacy benefits managers (PBMs) with mixed results in the preemption arena. After the US Supreme Court green-lighted an Arkansas statute that imposed additional costs on PBMs in 2020 [Rutledge v. Pharmaceutical Care Management Association (PCMA)], and the Eighth Circuit followed suit [Pharmaceutical Care Management Assoc. (PCMA) v. Wehbi, No. 18-2926 (8th Cir. Nov. 17, 2021)], a number of states enacted laws that directly regulate PBMs. However, a more recent attempt to regulate PBMs at the state level was blocked as being preempted. The Tenth Circuit held that ERISA preempts Oklahoma’s law that mandated certain design requirements for PBMs [PCMA v. Mulready, No. 22-6074 (10th Cir. Aug. 15, 2023)].
The Rise of Federal Health Plan Regulation
Another difference that one notices over ERISA’s 50-year history is the increased regulation protections of health benefits through new legislation directed specifically towards health and welfare plans. While the pension provisions of ERISA also have been updated over the years, these changes generally have been variations on a theme, while many of the legislative changes affecting health and welfare plans have been groundbreaking. Here is a list of just the major changes over the years:
1985: Consolidated Omnibus Budget Reconciliation Act (COBRA) (mandating voluntary health plan coverage after termination of employment) [P.L. 99-272]
1996: Health Insurance Portability and Accountability Act (HIPAA) (establishing privacy requirements for health plans) [P.L. 104–191]
2008: Mental Health Parity and Addiction Equity Act (mandating that health benefits offered for mental health benefits be comparable to medical/surgical benefits) [P.L. 104-204]
2010: Affordable Care Act (mandating employer-provided affordable minimum health plan coverage for certain large employers) [P.L. 111-148]
2020: No Surprises Act [P.L. 116-260] (mandating price transparency for health benefits)
Given that (1) US healthcare is very expensive—in 2022, spending on healthcare in the United States was $4.5 trillion or $13,493 per person and accounted for 17.3 percent of the nation’s Gross Domestic Product [https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical]; and (2) the population is aging rapidly [https://www.prb.org/resources/fact-sheet-aging-in-the-united-states/], this trend of federal and state-level legislatures enacting new or strengthening existing laws affecting health and welfare plans is likely to continue well into the future.
Conclusion
Although ERISA was originally intended to protect retirement plan participants, over the last 50 years, it has arguably had an even greater impact on health and welfare plans and their participants. This is a trend that can be expected to continue as the world changes rapidly: new technologies, new pharmaceuticals, artificial intelligence, and big data are just a few. To keep up, ERISA will need to grow and evolve, just as it has done for the last 50 years. ■