ERISA: A Bipartisan Problem For The ACA And The AHCA

The Supreme Court has once again been called on to mediate the boundaries of a far-reaching, infamously complex, federal employee benefits law. And once again this law may have an important and unanticipated effect on health care.

The main goal of this law, the Employee Retirement Income Security Act of 1974 (ERISA), was to provide uniform, federal regulation of pensions and employee benefit plans (including health care). But the law has had a far more dramatic impact on health policy beyond what Congress ever contemplated. Because ERISA pushes aside state regulation of these plans, it has impeded the states’ ability to partner with the federal government to achieve key health policy goals. ERISA has also stymied some of Congress’s goals under the Affordable Care Act, and may prove an even greater obstacle to Republican efforts to return more authority over health policy to the states.

ERISA and health reform have not meshed well. For instance, the ACA’s attempt to create greater uniformity of benefits is at odds with the way ERISA creates a special class of protected plans and blocks states efforts to regulate them. When you ask yourself why the ACA’s guarantee of essential health benefits applies to some health plans but not to others, the answer is deference to ERISA. When you ask yourself why some health plans are subject to state-mandated benefit laws but some remain exempt, the answer is ERISA.

The US Supreme Court has not helped. The Court decided two important ERISA cases last term and has another one in the term about to conclude. Those interested in health care should watch this case closely. Last term, even as the Court acknowledged ERISA’s tensions with the ACA, it ruled that ERISA blocked Vermont’s attempt, through an all-payer claims database, to partner in the ACA’s efforts to make health care spending more transparent. States, including Alaska for example, struggle in the wake of this ruling to make an all-payer claims database work. In the second case, the Court indicated that ERISA might thwart a compromise in a dispute between the federal government and Christian nonprofit organizations over the ACA and contraception coverage.

This term, the fight involves the intersection of religion, health, and ERISA once again. And again, the Court must say how far ERISA reaches. ERISA exempts “church plans” from its broad regulation. The Supreme Court will decide whether the exemption for church plans, defined as plans “established and maintained” by houses of worship, applies narrowly to plans created by churches or, more broadly, also to those created by church-affiliated organizations. The three plans in this litigation and many plans in question are pension plans for employees at Catholic hospitals and health systems. In Advocate Health Care Network v. Stapleton, consolidated with two other cases, the Court will determine whether Catholic hospitals—which now care for one in six patients in the U.S.—must guarantee the security of their employees’ pensions. Billions of dollars of pension shortfall and the financial security of 300,000 hospital workers are at stake.

We review the recent and upcoming ERISA jurisprudence below and conclude it is time for the Court, or Congress, to cabin ERISA’s reach when it comes to health care.

ERISA—The Basics

Congress enacted ERISA in 1974 to prevent recurring pension plan abuses and impose nationally uniform standards. As an afterthought, Congress included health and welfare benefit plans within a regulatory structure designed to protect pensions. That afterthought has had profound implications for health care.

ERISA regulates most of the private insurance market, specifically health plans that employers directly obtain for their employees. In many of these plans, the employer becomes the insurer. (Many employees do not realize they are in this regime, even though most are: employers frequently hire an insurance company to run the plan, so the insurance card says “Aetna” even though the true insurer may be General Electric.) ERISA’s big intervention is that it requires these “self-insured” plans to be regulated only at the federal level, whereas other private insurance plans remain also subject to state insurance regulation. These state laws place additional requirements on insurers, such as requiring them to cover more benefits than federal law does. But ERISA protects many plans from these regulations.

Before the ACA, the federal courts had been complicit in extending the ERISA’s reach by interpreting extremely broadly its displacement—or “preemption”—of state laws or regulations that relate to employer-provided health insurance plans. Courts further exacerbated matters by being inconsistent and unpredictable in their rulings about which state laws and regulations sufficiently “relate to” employer-benefit plans and so get displaced. (For example, some states and cities have laws requiring employers to pay penalties if they do not insure employees. If these “relate to” an employer plan, ERISA effectively displaces them. In two cases dealing with such laws, the courts have reached opposite conclusions.)

The unpredictability also arose because two other ERISA provisions have likewise befuddled courts. Out of respect to the long-standing state control of insurance law, ERISA has a “savings” clause that reserves to the states alone the oversight of insurance, but also another clause that prevents states from simply calling something “insurance” in order to regulate it. Together, these three provisions are enormously difficult to understand, but they have typically worked to push aside state law for the special class of self-insured health plans subject to ERISA.

These ERISA complexities were front and center in the courts before the ACA, because ERISA was frequently invoked in cases challenging new health policies that states were pursuing. All kinds of questions, ranging from legal issues around managed care plans to new state laws requiring employers to provide health insurance, implicated ERISA—they raised the tricky but central ERISA question of whether they “relate to” the covered health plans and, if so, whether they were really about regulating insurance and thus “saved.” Then the ACA came, which effectively nationalized much of insurance law, including the kinds of rules that provoked ERISA challenges, such as employer mandates. At the same time, the ACA envisioned the states as frontline implementers and shapers of its reforms. The ACA, as written and before the political turbulence that has since engulfed it, envisioned the majority of states designing and running their own unique ACA exchanges and expanding Medicaid. It seemed ERISA might be quieted by federal fiat.

ERISA After the ACA

The proper division of labor between the states’ and the federal government’s regulatory authority has always been a fundamental and controversial question in health policy. That question is still making headlines today, as many stakeholders are using the opportunity for the repeal of the ACA to argue for a shift of more control over health care to the states. The House’s repeal bill, the American Health Care Act (AHCA), gives states several choices when it comes to regulating both the private insurance markets and Medicaid. But the AHCA does not repeal ERISA, and the latitude the states would have might come into tension with ERISA’s mandates.

The ACA itself was also state friendly, but it did not resolve these federalism questions, nor will its repeal unless the Senate version also amends ERISA. Although the ACA took a major step toward more uniform health benefits, regardless of type of health plan, it held back in some ways, perpetuating the artificiality of ERISA’s distinction between different types of plans. In particular, the ACA explicitly exempted from some of its new requirements the very same self-insured employer plans that ERISA regulates.

As one example, the ACA created sweeping new standards for what benefits health plans must include, called Essential Health Benefits, but exempted many ERISA plans. As another example of how important this is, the ACA prohibited health plans from placing annual and lifetime limits on an individual’s spending on Essential Health Benefits. Yet, many employers with ERISA plans do not have to cover these benefits at all. These exclusions have heightened importance as an increasing number of employers, including smaller employers, establish self-insured plans to avoid this regulation. At the same time, overall, the ACA sought to minimize distinctions across health plans nationwide. Nothing in the AHCA would alter this dynamic.

The Supreme Court Cases

The Supreme Court has exacerbated the problem by broadly favoring ERISA’s displacing power over state health reform efforts. In Gobeille v. Liberty Mutual Insurance Co., decided in 2016, the Court ruled that states could not require ERISA plans to participate in an all-payer claims database (APCD). These databases, which have been created in multiple states, require private and public health plans and their administrators to provide data on medical claims, pharmacy claims, and other information, to allow states to develop ways of controlling health care costs. In blocking mandated participation in APCDs for ERISA plans, Gobeille both reinforces the limits to state health reform efforts, and perpetuates ERISA’s arbitrary distinctions among plans, since non-ERISA plans can still be compelled to report.

In a second case the same term that seemingly had little to do with ERISA on its surface, Zubik v. Burwell, ERISA potentially complicated a section of the ACA that created an accommodation for religious nonprofits if they officially notified of their intention not to cover contraceptives as the statute requires. In Zubik, several religious nonprofit organizations objected to the accommodation procedures. The Supreme Court tried to find a compromise: It asked whether an employer might simply not offer coverage, and this omission could serve as a signal to its insurer to offer a standalone contraception policy. But the Court also suggested that some ERISA plans might not be suited for this remedy (the main reason being that for self-insured plans, where the employer is the insurer, there is no outside insurer who can act simply because an employer does not).

In Advocate Health Care Network, the case coming up this term, we will again see the Court balancing questions of ERISA and religious accommodation, which may provide a chance for the Court to start paring back ERISA’s overreach.

Looking ahead

Are these tensions reconcilable? Our health care system has always been a regulatory push-pull between federalism and uniformity. ERISA itself is about both. It is about uniformity in the sense of sparing large multi-state employee benefit plans the burden of complying with 50-different sets of state regulations; it is also about federalism in its desire to reserve the regulatory terrain over the everyday regulation of insurance to the states.

The ACA, on the other hand, is about uniformity and federalism in almost the opposite way. The ACA’s long-term vision is universal, equal health care, whereas ERISA divides the world of health plans into parts. And the ACA’s federalism is not about divvying up the terrain of health care into state and federal domains. Instead, the ACA’s federalism is about enlisting the states as partners in the ACA’s reforms and encouraging states to innovate with their own forms of insurance-exchange design, service delivery, and payment.

The AHCA’s federalism philosophy might not be so different. If anything it may be more federalist and less universally oriented than the ACA. This is because the Republican plans thus far have not been as committed to the principal of universal care (particularly when it comes to the poor). So it seems the current Congress and Administration might not care so much if ERISA divides health policy into the “haves” and “have nots.” After all, those with employer-sponsored plans tend to be wealthier Americans. And those plans that avoid regulation are for the most part sponsored by large corporations.

On the other hand, Republicans claim their driving philosophy is to return control over health policy to the states. It is hard to see how that can be done with ERISA impeding state regulation of health plans, since regulating health policy typically means regulating these plans. In other words, if the AHCA aims to give states more policy choices, it might be putting those policy choices on a collision course with ERISA.

It seems doubtful that Congress will seek to fully repeal ERISA. It is less clear whether the Republicans could incorporate into the AHCA provisions that push ERISA aside for state policy choices made in implementing the AHCA. Any such efforts are likely to meet serious political resistance from stakeholders, including the powerful corporations who sponsor the plans. Democrats might not want repeal either, depending on their views about whether state governments can even be trusted on matters of health policy in a post-ACA world.

(The House did pass a bill that takes a small step toward curbing ERISA by excluding stop-loss policies—which self-insured plans rely on to limit spending risk—from ERISA’s preemptive reach. If enacted into law, the bill could deter smaller employers from creating this kind of plan to avoid state regulation.)

Change is most likely to come from the Court itself. Several commentators have already noticed that Advocate Health Care Network puts the Court in a particularly tricky position — caught between its past tendency to read ERISA’s reach broadly, which would be more consistent with finding these plans subject to ERISA, and its more recent line of cases that seeks to accommodate religious employers seeking refuge from federal mandates. These cases may thus push the Court toward a narrower reading of ERISA than those from last term.

And when it comes to the Court, there is a special puzzle with ERISA: even as the Court has taken a generous view of ERISA’s reach, the opinions have actually been explicit in interpreting ERISA’s power as narrower—weaker—than the statute’s literal text would allow. The Court has done this on the ground that ERISA’s broad language about displacing state laws that relate to insurance, read to its fullest power, would swallow all forms of state participation in health care, a result the Court seems to view as too extreme. Instead, the Court has tried to read ERISA in light of its ostensible purposes—especially ease of plan administration across state lines—all the while assuming Congress did not intend the statute to extend to the full possible reach of its language.

The real point, however, is that Congress never really intended ERISA’s major effect to be on health care in the first place. Perhaps the current political and legal circumstances will finally create a legal environment conducive to remedying that error.

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