We can simplify how we think about benefit design changes responding to COVID-19 and other public health crisis by thinking about three buckets of regulatory authorities. Each regulatory authority has different powers and flexibility.
- Federal government programs in CMS and Department of Veterans Affairs
- Some Medicaid
- State regulators
- Some Medicaid
- Fully insured plans where the insurance company takes on the risk of bad claims and profits from low claims
- ACA individual market
- BIg chunks of small group employer market
- Small elements of large group employer markets
- ERISA rules them all
- Group plans in Administrative Services Contracts
Nick Bagley, a law professor at the University of Michigan, writing at the Incidental Economist, explains the limits of ERISA:
the directives are more limited in scope than they appear, and will provide no help at all to the approximately 100 million people nationwide who receive coverage through self-insured employers. As with so many problems that arise in health law, the reason is the Employee Retirement Income Security Act of 1974 (ERISA).
When Congress adopted ERISA, it wasn’t thinking very hard about health insurance. It was thinking about pension plans, which many employers had chronically underfunded, leaving retired employees high and dry. So Congress adopted ERISA to offer some basic protections for employees. In exchange, Congress preempted any state laws that “relate to” employee benefit plans.
Congress carved out an exception to ERISA’s broad preemptive scope for laws regulating insurance. That’s a domain that’s traditionally been left to the states. Washington and New York can thus tell private insurers—including those that offer employer-sponsored coverage—to abide by their emergency rules.
But lots of firms don’t actually buy insurance for their employees. Instead, larger firms usually “self-insure,” meaning that they pay for their employees’ health expenses themselves. (Odds are that, if you’re employed, you work at a self-insured firm—61% of people with employer-sponsored coverage do.) And ERISA clarifies that employers, when they self-insure, aren’t to be treated as insurers.
The upshot of this convoluted scheme is that the states can’t regulate self-funded employer plans.
ERISA gives big group employers amazing latitude to do what they want. Self insured plans don’t have to listen to state regulators and the insurers that are sending out member ID cards with their name on it, and running the claims system in the background can’t make employers that actually pay the claims to do anything that the employers don’t want to do.
Cigna says it will cover costs of COVID-19 tests. But I cannot stress this exchange with a Cigna PR rep enough: those in self-insured plans are in purgatory. https://t.co/Nx3fLJsosu pic.twitter.com/jGEm99gkJP
— Bob Herman (@bobjherman) March 5, 2020
Right now, it is a very reasonable bet that employers with ERISA regulated ASO plans will listen to the insurers that they contract to run their plans. This is a reasonable bet just as a means of avoiding really bad PR. However, the regulatory environment places hope in good corporate citizenship or fear of negative PR as a means to generate large public benefiting positive externalities.
Any insurance coverage mandate that touches ERISA regulated plans needs acts of Congress.
We’ve been in a constant state of appeals both with Blue Cross of Michigan and with the local clinic, which is suddenly trying to bill us extra charges for a visit that happened 16 months ago. My experience has been that the state regulators view it as their job to answer the phone and tell you there’s nothing they can do.
“Right now, it is a very reasonable bet that employers with ERISA regulated ASO plans will listen to the insurers that they contract to run their plans. This is a reasonable bet just as a means of avoiding really bad PR. However, the regulatory environment places hope in good corporate citizenship or fear of negative PR as a means to generate large public benefiting positive externalities.”
This sounds like a hunch to me, not too distant from Donald’s hunch. How ironic that the possible lives and death of thousands ride on the goodwill of profit seekers. And guess which these do good enterprises will protect? Until and when the American people internalize that healthcare is a human right and not a system to generate wealth nothing, zero will change.
Hi David– long-time reader, and I love your unabashed wonkiness.
As a fellow health policy person, I’ve long felt that ERISA is part of the original sin of our health care system, or rather, the reason why we can’t have a ‘system’ of any sort. For all we talk about public vs. private coverage, I really think that the biggest issue is that no one body of law can make any across-the-board, coordinated change because of this large, powerful, and mostly unaccountable plurality of covered lives.
My personal view is that states are the logical unit for most decisions on health finance, with the federal government serving as a backstop to enforce quality or coverage standards and redistribute tax dollars. For all our talk of instituting a national ‘Canadian’ system, this is exactly what Canada does. I think people would be amazed at how devolved responsibility really is there. In most provinces, it’s even locally-driven regional health authorities that make the major decisions on meeting care demand and paying claims, not the provincial capital.
Domestically speaking, states have control over benefits mandates, pricing, licensure, certificate of need, and a host of other bread-and-butter decision points in health coverage and delivery that they could do a much better job of managing with more consolidated control. And let’s not forget public/population health, which is on a lot of people’s minds all of a sudden. That said, I wouldn’t want to give Alabama carte blanche on health care without a strong federal partner, but that’s a smaller issue to me than the restrictions that a more progressive state currently faces in taking a comprehensive view of their health system. We can’t even have an all-payer claims database to know who pays for what and how much because Gobeille v. Liberty Mutual means that ERISA plans aren’t required to play ball. Even hardcore market fundamentalists ought to get behind changing that.
The fact that self-insured employers are largely exempt from all but the most basic state functions is highly restrictive, and greatly underappreciated outside a small circle of lawyers and geeks. I’d love to see the next round of health reform take this on. Wherever it falls, this complex mix of payer types and muddled regulatory responsibilities has to be addressed. There’s a lot of unnecessary spending in all that complexity, and a lot of lost opportunities to improve people’s lives.
Hi, David. I’ve long wondered why employers choose to self-insure, and why they are so invested in defending that status quo. It just seems like a big hassle in cost and time to have to deal with insurance issues directly, rather than outsourcing it to an insurance company (or to the government, in an M4A scenario). Do you have any insight? Thanks.
Mai naem mobile
My sister had CIGNA through the Health Exchange last year. They had the equivalent of a donut hole that she had no idea about until she started getting all these $300 doctor visit bills(copays hahahaha.) I used to have CIGNA through work years ago and it was decent insurance if you were basically healthy with minimal healthcare needs.
Good question — the big reason to self-insure is risk selection. Given that catastrophic costs are extreme tail events, most groups average costs of coverage are significantly less than average costs for the entire group.
Throw in customization and control factors, it is not a crazy decision esp. if the typical group can get decent and cheap reinsurance for one-off catastrophic risk.
@David Anderson: I’ve been wondering if the HRA rule that allows employers to give their pre-tax cash to employees to purchase their own plan on the ACA Exchanges would shift this calculation.
At some point, a lump sum has to look easier, better, cheaper than whatever advantage an employer gets out of risk selection, etc., especially if the Exchanges have hefty reinsurance against high claims.
Maybe I’m just underestimating the power of a large corporate buyer’s need to keep their people happy. Maybe that would change the next time unemployment rises.
What I do know is that a nice 80% AV BC/BS large network HMO plan for my family of 3 on the local Exchange runs about $900. That’s not a bad deal compared to the $1900 in COBRA coverage that I was paying for a slightly better large and lucrative corporation’s plan until I shopped around. I’d be thrilled to have $700 in employer contributions to put towards that Exchange plan, and I think my employer would be as well. $200/month in premiums is a lot better than the $600/month I paid for the plan as an employee.
From the corporation’s perspective, that spread has to be right around the break-even point, given tax-deductibility and the employee contribution, not even taking into account administration. The per-member-per-month administrative costs alone of selecting and administering a plan have to be huge, especially for the smaller margin cases of the self-insured groups.
The Big Corp I worked for (90,000 employees) self insured but outsourced health benefit administration to Aetna.
think about it this way: if an employer self-insures, and has a year of really good claims experience, who gets the money that isn’t spent?
@burnspbesq: Hookers and blow dude, hookers and blow
So, states are starting to more or less ignore the feds, which is probably a good sign. This is going to be a good time to live in a blue state with a university system that is known for pathogen science. Testing capacity per day:
Florida is sending tests to WA. Not sure who is sending tests to CA. Stanford is out with a new test today with a faster turnaround time. Most of the tests in the national count (1500) are split between WA and CA. WA has lower testing capacity but got a test out early (somebody give Jay Inslee an extra vote) so they’ve tested more people. CA has higher testing capacity but didn’t have tests to administer. That should be clearing up now as CA makes our own kits but we’re way behind on testing with 10K+ in quarantine.
BTW, almost all of that capacity is from universities, not state or federal labs. Fund your public university systems – not the football teams, they don’t share with research.
Rhode Island is setting up intake centers, smart. New Jersey preparing to close schools. Some in WA are closing. UW is evaluating it. Yashiva U in NYC has closed 2 campuses. A few in CA have closed.
CA has passed a law banning retaliation for employees that self-quarantine.
One rule to ring them all?
Three Rules for the Elven-Schools under the sky…