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Should Washington Modify the ERISA to Help the States

Since its implementation in 1974, the Employee Retirement Income Security Act (ERISA) has effectively hamstrung state efforts to implement healthcare reform by pre-empting their ability to do so. In recent years, a small number of lawmakers have called for modifying the ERISA in order to give states more latitude. Would that be a wise thing?

Few would argue that healthcare costs continue to rise at an unsustainable pace. Some would argue that the cost of care hasn’t actually gone up. Instead, it is the cost of paying for care that presents the problem. There is a subtle but real difference here.

The fact is that healthcare costs have steadily risen faster than the rate of inflation for decades. This suggests that rate increases and retail prices are more about padding insurance company and provider profits then covering organic inflationary increases. In simple terms, healthcare industry profits continue rise on the backs of consumers and their employers.

States Want to Help

By and large, the states want to help address the problem. State lawmakers are far more in touch with their constituents’ needs than federal lawmakers. They see workers being crushed under the weight of higher health insurance premiums, higher deductibles, and ever increasing out-of-pocket expenses. But federal law preempts them from doing anything meaningful.

The big problem with preemption is its inflexible nature. Preemption is a principal designed to cut lawmakers at lower levels off at the knees. Federal law preempts state law; state law preempts local law. There are cases when preemption actually works in the consumer’s favor. There are other times when it works against consumers. Federal preemption in healthcare definitely does not benefit the average man or woman on the street.

3 Key Pieces of Legislation

The states are currently preempted by three key pieces of legislation: the previously mentioned ERISA, the Affordable Care Act (ACA), and the Health Maintenance Organization (HMO) Act of 1973. Between these three pieces of legislation, federal law controls nearly every aspect of employer sponsored health benefits.

Federal law mandates the types of benefits health plans must offer. It mandates how health plans are funded, how they are administered, and even how much profit certain types of private health plans can earn. All the while, the healthcare industry continues to lobby Washington in an attempt to maintain the status quo. They do not want states to have the flexibility they need to control costs. That would mean lower profits.

States Need More Options

As things currently stand, the states are very limited in what they can do. They only have limited opportunities to regulate the insurance industry within their borders. They have very few options when it comes to Medicare, Medicaid, and ACA-compliant insurance offered through federal exchanges.

In terms of self-funded health benefits, states have almost no say at all. According to StarMed Benefits, a third-party administrator of self-funded plans based in Las Vegas, self-funded plans are not subject to most state regulations. They are regulated almost exclusively at the federal level.

At every turn, states are preempted from making meaningful changes that could lower healthcare costs for consumers. It is so bad that states even need to ask permission to import cheaper prescription medications from other countries. If Washington decides to be stubborn, there is nothing a state can do about it.

A few lawmakers are calling on their colleagues to modify the ERISA in order to give states more flexibility. Is that a wise idea? If it is, they should also consider modifying the ACA and the HMO Act as well. It should be all or nothing.