The Employment Retirement Income Security Act sets minimum federal standards for voluntarily established pensions and other benefit plans for employees. It also contains broad federal powers that block or preempt state regulation of certain health insurance plans. In a recent unanimous U.S. Supreme Court decision, however, the Court apparently reduced some of ERISA’s preemption powers restricting or eliminating a state’s regulation.
ERISA has one of the broadest preemption clauses of any federal law. It prevents a state’s regulation of the administration of employee benefit plans in favor of federal regulatory power.
ERISA also governs employer-health care plans or insurance plans where employers are responsible for the full financial risk of its employee claims for health care benefits that are part of an employee benefit plan. In 2018, 61 percent of workers who had health insurance through their employer were enrolled in plans that fell into this category because they were partially self-funded. Partial self-insured plans require employers to pay claim costs but contain individual and aggregate stop losses limiting their liability.
There are restrictions to preemption. A state law must relate to an ERISA plan if it has a connection to or refers to an employee benefit plan. In the 1990s, the Supreme Court ruled that ERISA does not apply or does not preempt state plans which do not require a plan administrator to adopt certain structures or administrative choices.
This case concerned Arkansas’ Act 900. It was intended to regulate drug pricing by placing requirements on pharmacy benefit managers to ensure that they do not undercut pharmacies by reimbursing them less than their costs for obtaining drugs from wholesalers.
The Court ruled that ERISA does not prevent Act 900’s application to employer-sponsored health insurance plans. It relied on several of its 1990s opinions. In one of those cases, the Court ruled that New York’s 13 percent surcharge on hospitals that used non-Blue Cross and Blue Shield insurers law was just a form of cost regulation which did not violate ERISA.
In this case, the Court found that Act 900 was a form of cost regulation that was not preempted because it did not require providers to structure plans in specific ways. Act 900 applied to all PBMs and pharmacies and did not have an impermissible connection with ERISA. It did not govern central plan administration or interfere with the national administration of the plan.
It has not been absolutely resolved how much New York and other states can reform health care without facing the risk of ERISA preemption. Attorneys can help develop compliant ERISA plans. Their assistance can help assure that the plans are administered properly.