Health care reform

An Employee Retirement Income
Security Act (ERISA) pre-emption
clause that normally gets very little
attention may come under discussion as
part of the legislature’s 2009 health care
reform agenda, posing the potential for
significant cost increases in employer-sponsored group health care. ERISA preemption allows employers to provide uniform health benefits to employees in different states and jurisdictions. Without it,
employers could be subject to state and
local benefit mandates, premium taxes, systems and other requirements.

“Congress has been setting the stage for
this debate and the outcome has huge implications for employers because more than
100 million employees are currently covered by ERISA-governed health insurance
plans,” says Travis Brashear, Group and
Health Care Practice Leader for Watson
Wyatt Worldwide. “A recent decision by the
9th Circuit Court has caught everyone’s
attention and heightened the need for
employer vigilance and action.”

Smart Business asked Brashear about the
potential impact from ERISA pre-emption
reform and the steps employers should take
to monitor and influence the outcome.

How does ERISA pre-emption benefit
employers?

Companies with employees in multiple
states can offer a single group health plan
because ERISA pre-empts any state or local
laws that might dictate different coverage
requirements. Plan consolidation saves on
administrative costs and also reduces premiums because it allows a company to
leverage its entire employee population for
experience purposes. In addition, ERISA
pre-emption affords employers the autonomy to design health care plans and wellness
programs that fit the company’s budget and
employee population. Today, employers are
encouraging employee wellness because
doing so reduces claims and costs. A key
design feature calls for customizing the program and incentives based upon the demographic profile, claims experience and motivation of each employee group. Employers
could lose these valuable cost management
tools under ERISA pre-emption reform.

How could ERISA pre-emption reform impact
employers?

Besides having to comply with differing
state and local requirements, ERISA preemption reform could have the biggest
impact on employers with self-insured plans
because it would give states more authority
over those plans. Employers could also be
impacted by pay-or-play statutes, similar to
the one in Massachusetts, which leverages a
minimum per employee insurance contribution on employers. While we can only estimate the financial impact of eliminating the
pre-emption clause, we can look to Texas
for some indication of the potential cost.
Texas currently has more than 55 mandates
relating to health insurance and compliance
is costing in-state employers an additional 5
to 7 percent per year. The complete impact
may be hard to estimate because cost
increases often result from a measure’s
unintended consequences.

What are some of those unintended consequences?

Beyond the impact of direct costs,
Congress may not realize the negative
impact of eliminating ERISA pre-emption
on two of the Obama administration’s top
priorities: reducing the uninsured and
improving the health of the population. For
example, employer dollars invested in
improving the health of the work force may
now have to go towards additional administrative costs, or to subsidize the claims cost
associated with complying with each state’s
mandated benefits. Or worse, faced with the
task of attempting to comply with thousands of mandates across the country, many
large employers could opt to drop health
insurance altogether.

What’s the impact from recent court decisions?

Recently, the 9th Circuit Court ruled that
ERISA did not pre-empt San Francisco’s
Health Care Security Ordinance, which
requires local employers to make specific
health care expenditures on behalf of their
employees. Employers should monitor the
ultimate ruling, which will be rendered by a
full panel of judges from the 9th Circuit
Court of Appeals, because it may influence
how other courts view ERISA pre-emption.

What actions should employers take now?

The debate has just begun, so employers
have time to monitor the situation and
potentially influence the outcome by taking
these steps:

  • Be aware and be involved.

    Talk with your company’s advisers, consultants, professional associations and trade
    associations about the impact of ERISA preemption reform. Let your voice be heard.

  • Calculate the impact.

    Understand how reform might impact
    your business and the bottom line.
    Communicate your findings to your representative and be sure to point out any unintended consequences Congress may have
    overlooked.

TRAVIS BRASHEAR is the Group and Health Care Practice Leader for Watson Wyatt Worldwide. Reach him at (713) 507-1747 or
[email protected].

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