Administration May Consider Limitations on ERISA Preemption under PPACA

ERISA Preemption and State Laws

This week, the Obama administration issued a request for information on whether new rules are needed to make it harder for small employers to choose to self-insure employee health care, citing concerns that this practice could lead to higher costs for small group plans in PPACA’s exchanges.  While any new rule would not likely be directed at large employers, it would open up discussions to regulate other features of self-insured plans, which could directly impact large employers.  Historically, the vast majority of small businesses have not self-insured because they are unable to bear the risk associated with unpredictable or catastrophic health claims.  However, because self-insured plans are exempted from state insurance mandates and other state and federal requirements by ERISA’s preemption provision, more small employers are considering moving to self-insured plans.  Yet, to protect themselves, they would also need to purchase stop loss insurance, which kicks in at a specific dollar amount covering claims above that amount.  Therefore, the administration is considering whether there needs to be a rule setting a higher dollar threshold before the stop loss insurance takes effect, which would effectively make it harder for small employers to self-insure.  Large employers with self-insured plans will need to follow the progress of this regulatory exercise carefully to ensure that the eventual proposed rule is not broadened to cover large employers, and the Association will keep you informed as new developments occur.