Sep 12, 2024
The Employee Retirement Income Security Act (ERISA) just hit the big 5-0, and while it might not have a social media account, it’s still a heavyweight in the health insurance world. Originally aimed at protecting pensions, ERISA’s last-minute switch to also include health benefits has kept health insurance brokers on their toes ever since.
The Birth of ERISA: A Legendary Postscript
ERISA was born in 1974, during an era when bell-bottoms were cool and "Jaws" was making everyone afraid of the beach. President Gerald Ford signed it into law, mainly to prevent pension disasters like the one that hit the Studebaker workers back in the '60s. But here’s the kicker—at the last second, health benefits were tacked onto the bill, making ERISA the unexpected godfather of health insurance regulation. Think of it as the plot twist no one saw coming but everyone has to deal with.
ERISA: The Broker’s Frenemy
ERISA brought with it the “preemption” clause, which makes it pretty clear who’s boss: the federal government. This means self-funded employer health plans get to dodge state insurance regulations like a pro athlete dodging taxes. Great for big employers who want to offer the same health benefits everywhere, but for brokers, it’s like trying to sell Girl Scout cookies in a gluten-free neighborhood.
As Larry Levitt from KFF puts it, this exemption became a big deal as health insurance evolved into a complex game with HMOs and managed care models. Today, 65% of the 150 million Americans with employer-sponsored insurance are covered by these self-funded plans, which means brokers need to know their ERISA inside and out—or at least know who to call when it gets confusing.
Why ERISA Matters: It's the Ultimate Killjoy
Ever witnessed a state trying to set up its own health insurance rules? Well, good luck with that if ERISA’s around. Its preemption clause means states can’t enforce their insurance mandates on self-funded plans, which can be a major headache when trying to get new coverage mandates to stick. This makes ERISA the regulatory equivalent of a strict parent at a teenage party—it’s going to shut things down before they get too wild.
But it’s not all doom and gloom. ERISA’s also kept us all on our toes by getting regular revisions from its cohorts COBRA, HIPAA, and the ACA, just to make sure it’s still relevant. It’s like that one person who insists on doing annual updates in the group chat—annoying, but necessary.
The Pain Points: ERISA’s Not Perfect, But It’s Stubborn
One of the things brokers love to grumble about is ERISA’s enforcement—or the lack thereof. State insurance departments may be all over fully insured plans like bees on honey, but the Department of Labor’s oversight on self-funded plans is more like honey on toast—spread a little thin. This means if something goes wrong with a health plan, employees might be out of luck. And if you’re aware, there’s the first lawsuit on the books of an employer (Johnson and Johnson) by an employee for shirking its fiduciary responsibilities and charging employees more than necessary for coverage. But that’s another story we’ll be covering separately.
And good luck explaining to clients whether their plan is self-funded or fully insured and how ERISA fits in. It’s something we know you understand but when there’s a risk of non-compliance due to lack of grasping the details—it’s complicated and no one’s happy.
ERISA’s Future: Here’s Why You Still Need to Care
As if brokers didn’t have enough to worry about, the workforce is getting more mobile and remote, meaning that ERISA’s preemption is more relevant than ever. Companies love offering uniform benefits across states, which means that brokers need to keep ERISA in mind when they’re trying to land those big accounts. Smaller employers are also jumping on the self-funding bandwagon to save costs, making it even more crucial to know ERISA’s ins and outs.
The Takeaway: ERISA—Still Running the Show
So here we are, 50 years later, and ERISA is still in charge of the party. Sure, it can be a deluge of details to muddle through, but it’s the reason why employer-sponsored health insurance looks the way it does today. Brokers may not love everything about ERISA, but understanding it is key to staying ahead of the game in the ever-changing world of health insurance. So, here’s to another 50 years of ERISA—may it continue to keep us all just a little bit on edge.
Here’s some resources to check out to stay up to speed.
- ERISA | U.S. Department of Labor (dol.gov)
- Happy 50th, ERISA - California Healthline featuring a special episode of KFF Health News’ with KFF Health News chief Washington correspondent Julie Rovner. She discusses the law’s past, present, and future with three experts on ERISA: Larry Levitt of KFF, a health information nonprofit that includes KFF Health News; Paul Fronstin of the Employee Benefit Research Institute, a nonprofit; and Ilyse Schuman of the American Benefits Council, a trade group advocating for employers that sponsor worker benefit plans.
