EBRI Issue Brief

ERISA at 50: No Midlife Crisis for ERISA Preemption

Sep 12, 2024 8  pages

Summary

While the Employee Retirement Income Security Act of 1974 (ERISA) is best known for regulating employer-sponsored retirement benefits, it also applies to employer-sponsored benefit plans more broadly, including employer-sponsored health plans. Significantly, ERISA effectively preempts state and local regulation of self-funded, employer-provided health benefits. The scope of this has generated some degree of debate. Proponents of ERISA preemption point to the creation of a uniform and predictable regulatory environment for employers with respect to their ERISA-governed benefit offerings, while its detractors believe that state and local governments ought to have a greater role in pursuing health care reform beyond their current ability to regulate health insurance. To better understand the value of ERISA preemption to large employers, the Employee Benefit Research Institute and American Benefits Council conducted roundtable discussions with over a dozen benefits executives at large companies.

Key Insights

  • ERISA was enacted, in part, in response to high-profile cases in which workers received substantially smaller retirement benefits than were promised as a result of poorly funded pension plans. However, ERISA does not apply solely to retirement benefits, but also to many employer-sponsored benefits in general, including most employer-sponsored health benefits.
  • An important provision in ERISA — a legal framework commonly referred to as ERISA preemption — effectively renders the federal government the sole regulator of self-funded employer-sponsored health benefits. State and local governments, responding in part to incentives to improve health care outcomes for their constituents and in part to various stakeholders, occasionally pass legislation that may encroach upon ERISA preemption. While these challenges have not completely eroded ERISA preemption, recent court cases have created some uncertainty around the scope of ERISA preemption and the prevailing view that federal law generally should be the sole source of regulation of self-funded group health plans.
  • To gauge the value that ERISA preemption provides for employers, the Employee Benefit Research Institute and American Benefits Council interviewed benefits executives at large employers in a roundtable format.
  • Three main themes emerged in the roundtable discussions. First, under ERISA preemption, there is a uniform landscape of regulations rather than a patchwork of 50 different state-level regulations, which makes it possible for an employer operating in more than one state to administer and offer benefits equitably to their employees, regardless of the state or locality where those employees are located. Second, ERISA preemption reduces administrative costs and burdens, thus enabling employers to deliver richer benefits and lower-cost coverage to their workers. Third, ERISA preemption fosters innovation that would otherwise be stifled by different states requiring different coverages or administrative rules (such as claims procedures or the like).
  • Employers remain committed to providing health benefits to employees and their families. If ERISA preemption were eroded, however, benefits executives would worry about higher costs for providing health benefits and would likely closely watch their competitors to determine next steps.