ERISA Preemption and State Laws

The HR Policy Association and the Institute strongly support comprehensive preemption under ERISA to avoid administratively burdensome and costly state by state requirements when designing and administering benefits.

The Employment Retirement Income Security Act (ERISA) created preemption principles that are integral to the robust operation of self-insured employer-sponsored health plans. ERISA preemption protects an employer’s ability to maintain national uniformity in benefit design and administration. Without the ERISA law, multi-state self-insured employer-sponsored plans would find it nearly impossible to operate under a variety of complicated and potentially conflicting state-based rules.

ERISA’s preemption provisions offer employers lower-cost, nationwide pricing for health care services, allowing for uniformity of benefits design and equity across an employer’s workforce. It also enables large employers to drive innovation in benefit and plan design, foster new health care cost controls, and improve the quality of care. These innovations have included consumer directed benefit designs, payment reform, provider transparency initiatives, and wellness programs. Any weakening of the foundation provided by ERISA preemption not only increases the cost and complexity of health benefits for employees and employers, but also frustrates further health care market innovation.

A Look Back at History

Since 1995, the courts have significantly narrowed preemption protections. For example, in 1995 the Supreme Court held that ERISA did not preempt a state law imposing cost burdens on a health plan if those burdens only ‘‘indirectly affect what an ERISA or other plan can afford or get for its money.” In 1997, the high court held that ERISA did not preempt a New York State tax imposed on the gross patient receipts of operators of medical facilities, including those operated by ERISA plans. More recently, in 2016, the Sixth Circuit Court of Appeals held in Self-Insurance Institute of America v. Snyder that ERISA does not preempt a one percent Michigan State tax on the benefits paid by ERISA health care plans.

According to a 2018 HR Policy Association survey, when asked to select the top three factors that would serve as “tipping points” for their company to consider dropping health care benefits, 37% selected “Erosion of ERISA such that self-insured plans become subject to substantially differing state taxes and fees.”

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