Archives for 2020

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
  • Medicare
  • VA
  • 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.

Insurance regulators and public health changesPost + Comments (13)