Examining the Role of ERISA in the State Based System of Insurance Regulation: Can Meaningful State Reforms be Achieved in an ERISADominated Marketplace? Professor Jon Forman University of Oklahoma College of Law for the National Council of Insurance Legislators Annual Meeting (Health General Session) Oklahoma City, OK
December 6, 2018 1 Overview What is ERISA? What is preemption? How did we get here? Where are we now?
2 What is ERISA? The Employee Retirement Income Security Act of 1974 (ERISA) is the Federal law that regulates most pension and health plans in private industry Codified at 29 U.S. Code 1001 et seq. 3 What is ERISA?
ERISA is mostly about pensions Rules about plan participation, coverage, vesting, benefit accrual, contributions and benefits, nondiscrimination & funding But ERISA also has general rules about Reporting & disclosure Fiduciary duties & plan administration Claims procedures & appeals Enforcement & remedies 4 What is Preemption?
Federal law supersedes State law Federal law takes the place of State law Supremacy clause of the U.S. Constitution dictates that Federal law is the supreme law of the land. (art. VI, 2) Commerce clause, too (art. 1, 8, cl. 3) Moreover, ERISA 514 expressly preempts most State laws that relate to pension and health plans (29 U.S. Code 1144) 5
ERISAs Preemption Clause ERISA 514(a) provides that ERISA shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . . (emphasis added) Sweeping general preemption language but there are several exceptions 6 ERISAs Savings Clause ERISAs savings clause saves from
preemption any State law which regulates insurance . . . . nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities. ERISA 514(b)(2)(A) 7 ERISAs Deemer Clause But ERISAs savings clause is itself subject to an exception The deemer clause provides that an employee
benefit plan is not to be considered insurance (even if the plan bears and spreads risk) An employee benefit plan shall not be deemed to be an insurance company or other insurer ERISA 514(b)(2)(B) 8 ERISA and Health Plans: Semi-Preemption States can regulate insurance companies and policies, but States cannot regulate selfinsured health plans By self-insuring, an employer can avoid having
to pay for State-mandated benefits In 2016, 40.7 percent of private-sector establishments reported that they self-insured* Small employers can buy stop-loss insurance, which insures them against high costs (e.g., health care costs exceeding $20,000 per beneficiary) * Paul Fronstin, Self-Insured Health Plans: Recent Trends by Firm Size, 19962016 (Employee Benefit Research Institute, Issue Brief No. 442, Feb. 27, 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3160036. 9 Legislative History ERISA was a deal between big business &
big unionsmostly to regulate pensions In one of his first official acts, new President Gerald Ford signed it on Labor Day, September 2, 1974: Today, with great pleasure, I am signing into law a landmark measure that may finally give the American worker solid protection in his pension plan.* * Pension Benefit Guaranty Corporation, President Ford Signing ERISA of 1974, https:// www.pbgc.gov/about/who-we-are/pg/president-ford-signing-erisa-of-1974 (last visited Dec. 3, 2018). 10
Legislative History* The preemption language was expanded late The last expansion was made at the final meeting of the Conference Committee (July 21) Deemer clause had already been finalized (June 24) Nobody in the health industry really understood the implications of preemption The chief lobbyist for the Health Insurance Association of America was recovering from coronary bypass surgery * James A. Wooten, A Legislative and Political History of ERISA Preeemption, Part 4: The Deemer Clause, 22(1) JOURNAL
OF PENSION BENEFITS 3 (Autumn 2014), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2576419. 11 The Motivation for Broad Preemption Big business & big unions did not want to comply with different laws in 50 States Initially, business and labor did not want their employee benefit plans regulated at all But Federal regulation and uniformity was far preferable to State regulation Hence the preemption language
12 Then-Current Events Led to Broad Preemption A Missouri trial court held that Monsantos self-insured health and disability plan was an insurance business that needed approval from State insurance department Companies also worried about State health insurance premium taxes Unions did not want their pre-paid legal
services plans regulated by State insurance departments or State bar associations 13 Alessi v. Raybestos-Manhattan, Inc. 451 U.S. 504 (1981) New Jersey law prohibiting pension plans from offsetting benefits by the amount of workers compensation awards they receive after retirementPREEMPTED 14
Shaw v. Delta Air Lines 463 U.S. 85 (1983) New York disability and pregnancy discrimination laws, as applied to benefits under a planPREEMPTED 15 Metropolitan Life Ins. Co. v. Massachusetts 471 U.S. 724 (1985) Massachusetts statute requiring insured
plans to provide minimum mental healthcare benefitsNOT preempted 16 Pilot Life Ins. Co. v. Dedeaux 481 U.S. 41 (1987) Mississippi tort claim for bad faith denial of benefitsPREEMPTED State insurance laws that provide an additional remedy beyond that found in ERISA PREEMPTED Exclusiveness of ERISA remedies
Recover benefits due No punitive damages No juries 17 FMC Corp. v. Holliday 498 U.S. 52 (1990) Pennsylvania law that prohibited health plans from collecting from people injured in automobile accidents who recovered from a third party tortfeasorPREEMPTED 18
Rush Prudential HMO, Inc. v. Moran 536 U.S. 355 (2002) Illinois law, that required an independent medical review before certain health insurance benefits could be deniedNOT preempted But that law did not provide for any additional claim or remedy outside of ERISA 19
Aetna Health, Inc. v. Davila 542 U.S. 200 (2004) Texas State law tort claims related to benefits decisions made under health care plansPREEMPTED But medical malpractice claims against doctors, etc.NOT preempted 20 States Rights?Not So Much Are the States laboratories of democracy? U.S. Supreme Court Justice Louis Brandeis
(dissenting in New State Ice Co. v. Liebmann, 285 U.S. 262 280, 311 (1932)) Massachusetts Romneycare survived What about repealing ERISA preemption? Not likely Just look at the Affordable Care Act Even more Federal intervention & control Waivers? 21 About the Author
Professor Jonathan Barry Forman is the Kenneth E. McAfee Centennial Chair in Law at the University of Oklahoma College of Law, 300 Timberdell Road, Norman, Oklahoma, 73019; 405325-4779; [email protected]; http:// www.law.ou.edu/directory/jonathan-forman. He teaches courses on tax and pension law and is the author of: Removing the Legal Impediments to Offering Lifetime Annuities in Pension Plans, 23(1) CONNECTICUT INSURANCE LAW JOURNAL 31 (Fall 2016), http://insurancejournal.org/wp-content/uploads/2017/03/2-Forman-1.pdf; Tontine Pensions, 163(3) UNIVERSITY OF PENNSYLVANIA LAW REVIEW 755 (Feb. 2015) (with Michael J. Sabin), http:// www.pennlawreview.com/print/index.php?id=468; and MAKING AMERICA WORK (Washington, DC: Urban Institute Press,
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