October 3, 2005
SELF-INSURED BENEFIT PLANS AND INSURANCE MANDATES
By: Janet L. Kaminski, Associate Legislative Attorney
You asked why self-insured benefit plans do not have to comply with state insurance mandates, including the laws mandating insurance coverage for infertility treatment and wigs for chemotherapy patients.
In most cases, a state insurance law does not apply to a company's self-insured benefit plan because the federal Employee Retirement Income Security Act (ERISA) pre-empts the state law for self-insured plans. ERISA preemption has been the subject of tremendous amounts of litigation. One thing that is clear from these cases is that state benefit mandates (like Connecticut's recent laws mandating insurance coverage for infertility treatment and wigs for chemotherapy patients) do not apply to self-insured plans.
A self-insured plan is one that is not backed by an insurance policy. The employer instead funds and administers its benefit plan (i.e., pays claims covered by the benefit plan from its own money). It may outsource or delegate the administration of the plan to a third-party administer (TPA) (often an insurance company), but this TPA does not provide the employer with any financial backing or assume any financial risk associated with the claims.
Self-insured companies tend to be large, financially-sound companies. Small employers tend to not have the financial ability to self-insure, so they purchase insurance and rely on the insurance company to pay claims per the terms of the insurance policy. As a result, when state mandates are passed, they impact mostly small employers.
ERISA prohibits states from "deeming" self-funded plans to be subject to state insurance requirements. This "deemer" clause says:
Neither an employee benefit plan...nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer...or to be engaged in the business of insurance...for purposes of any State purporting to regulate insurance companies [or] insurance contracts....
As a result, the Connecticut Insurance Department does not have jurisdiction over self-insured plans. Such plans are under the U.S. Department of Labor's jurisdiction. Information about ERISA is found on their web site at http://www.dol.gov/dol/topic/health-plans/erisa.htm.
If a person wants to know if his benefit plan is self-insured, he should contact his plan administrator or human resources contact.
ERISA was enacted in 1974 as a federal regulatory scheme for employee benefit plans, including health care plans. It sets forth requirements for benefit plan participation, funding, and vesting of benefits. It also establishes uniform standards for reporting, disclosure, and fiduciary duties, generally freeing multi-state employers from inconsistent state regulation in these areas. ERISA does not apply to governmental plans; church plans; plans maintained solely for the purpose of complying with workers' compensation, unemployment compensation, or disability insurance laws; foreign plans; and unfunded excess benefit plans (29 U.S.C. § 1003).
For health plan benefits, ERISA's substantive provisions relate to: (1) administrators' fiduciary standards (to administer the plan in the best interest of beneficiaries) and requirements for plan descriptions to be given to enrollees, (2) reporting to the federal government, and (3) certain minimum standards (e.g., continuation of health coverage; group plan guaranteed issue and renewability; pre-existing condition exclusion requirements; nondiscrimination in premiums and eligibility; maternity hospital length-of-stay standards; post-mastectomy reconstructive surgery; and mental health parity).
ERISA does not require employers to provide or maintain a minimum level of health benefits or to set aside funds to pay expected claims. If an employer does offer benefits, the U.S. Supreme Court has found that Congress intended for ERISA to be the dominant regulatory authority. The Court has also found that Congress also intended to preserve the states' regulatory power over the “business of insurance” through a specific three-part provision in the act.
ERISA (1) preempts state laws that “relate to” employee benefit plans, (2) saves from preemption those state laws that regulate insurance, and (3) “deems” employee benefit plans to be neither insurers nor engaged in the business of insurance for purposes of state regulation (ERISA § 514, 29 U.S.C. § 1144). The preemption provision is typically referenced in terms of its preemption, savings, and deemer clauses.
The Court has held that ERISA does not preempt state laws that have “only a tenuous, remote, or peripheral connection with covered plans, as is the case with many laws of general application” (District of Columbia v. Greater Washington Board of Trade, 506 U.S. 125, 129 n.1 (1992)). However, when the state law in question regards plan administration (e.g., claim processing, eligibility determination), the Court has held that ERISA preempts it, in line with Congress' goals to minimize plan administration burdens and encourage employers to offer employee benefit plans.
The Court has also held that Congress intended for ERISA's civil remedies to be exclusive (Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)). Under ERISA, a plaintiff is only allowed to (1) recover benefits due under the terms of a plan (e.g., have a claim denial reversed and coverage provided), (2) enforce rights under a plan, and (3) receive a clarification of rights to future benefits under a plan (ERISA § 502(a), 29 U.S.C. § 1132(a)).