ERISA addresses preemption principles relevant to state health policy, but simplifying these complicated concepts runs the risk of misleading the reader.

ERISA addresses preemption principles relevant to state health policy, but simplifying these complicated concepts runs the risk of misleading the reader.

Dealing with ERISA Plan

Reimbursement Problems

The federal ERISA, (Employee Retirement Income Security Act of 1974), (more fondly referred to by many as "Every Ridiculous Idea Since Adam") can be a problem when it comes to reimbursement for services rendered to your patients and clients.

The ERISA plans normally don''t have to follow state insurance laws, but instead follow US Department of Labor guidelines. The enjoy pre-emption (different from "exemption") of state insurance laws. A "preemption clause" makes void all state laws to the extent that they "relate to" employer-sponsored health plans. It is helpful for providers and their staff to understand certain things about the ERISA because of its potential negative impact on state health care legislation, including health insurance regulation. Courts have held that the ERISA supersedes some state health care initiatives, such as employer insurance mandates and some types of managed care plan standards, if they have a substantial impact on employer-sponsored health plans.

Several recent U.S. Supreme Court opinions limit the ERISA’s impact on state authority, but many uncertain areas remain. State policymakers face the ERISA issues as they consider proposals to expand access to health care, regulate managed care and other health insurers, prescribe appeal rights of health plan enrollees, and monitor health care costs and quality. Because the ERISA policy is developed through court interpretations of federal law, it is complex and leaves many unanswered questions. This limited overview of the ERISA addresses preemption principles relevant to state health policy, but simplifying these complicated concepts runs the risk of misleading the reader.

To begin to understand the ERISA, lets look at its origin: Congress enacted the ERISA primarily to establish uniform federal standards to protect private employee pension plans from fraud and mismanagement. But the federal statute also covers most other types of employee benefits plans, including health plans.

The ERISA applies to all employee pension, health, and other benefits plans established by private sector employers (other than churches) or by employee organizations such as unions. If they meet certain requirements, employee plans are "ERISA plans" even if they offer benefits through state-licensed insurers. The ERISA does not apply to plans administered by federal, state, or local governments. It does not apply to plans established solely to meet state workers’ compensation, unemployment compensation, or disability insurance laws. The typical ERISA employer has more than 500 employees and operates business activities in more than one state.

For health plans, federal law prescribes fewer substantive standards: administrators’ fiduciary standards (to administer the plan in the best interests of beneficiaries) and requirements for plan descriptions to be given to enrollees, reporting to the federal government, and certain minimum standards ("continuation" health coverage; group plan guaranteed issue and renewability; pre-existing condition exclusion requirements; nondiscrimination in premiums and eligibility; maternity hospital length-of-stay standards; post-mastectomy reconstructive surgery; and limited mental health "parity"). States impose some of these types of standards on HMOs and other insurers, but these laws cannot directly regulate private-sector employer-sponsored plans.

Several of the ERISA’s provisions preempt state law. The ERISA’s "preemption clause," Section 514, makes void all state laws to the extent that they "relate to" employer-sponsored health plans. (This clause states that "the provisions of [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan....") The Supreme Court has interpreted the preemption clause very broadly to carry out the congressional objective of national uniformity in rules for employee benefits programs. The Court has held that the ERISA preempts state laws that either refer explicitly to the ERISA plans (i.e., all plans offered by private-sector employers) or have a substantial financial or administrative impact on them. Consequently, courts have held that the ERISA prohibits both state laws that directly regulate employer-sponsored health plans, such as mandating that employers offer health insurance, and some laws that only indirectly affect plans, such as regulating the provider networks the ERISA plans may use.

How do recent ERISA amendments affect state health policy?

Congress has begun to exercise more control over insurance and managed care, creating new models of federal-state jurisdiction. For example, a 1996 ERISA amendment prescribes minimum maternity hospital length-of-stay, but allows certain specific types of state maternity stay laws. Sections enacted in 1996 and 1998 require insurers to provide both mental health parity (preempting state law that prevents application of federal law) and breast reconstruction for post-mastectomy patients (permitting existing state laws that require at least the same coverage as federal law). Finally, provisions added by HIPAA in 1996 mandate insurance market reforms, prescribing several specific areas where state laws may differ from federal law. The 106th Congress also debated additional types of managed care regulation, some of which might apply to insurers that have been traditionally subject to state law. Proposals for increasing access to and quality of health coverage would use this approach to shared federal-state authority over health insurance.

The ERISA’s preemption provisions contain an exception important to state health policy that allows states to continue to regulate "the business of insurance" (authority that Congress gave to the states in the McCarran-Ferguson Act of 1945). Courts have interpreted the ERISA’s insurance regulation "savings clause" to allow states to regulate traditional insurance carriers conducting traditional insurance business. This includes, for example, mandating the benefits that insurers must offer. Some courts have held, however, that states cannot regulate all activities of insurers. For instance, when insurers act only in an administrative capacity, such as administering a health plan but not bearing any risk, some courts have held that states cannot impose insurance requirements, such as health benefits mandates, on them.

What does theERISA’s insurance "savings clause" permit?

Under the insurance regulation savings clause, states can regulate the terms and conditions of health insurance, for example, the benefits in an insurance policy or the rules under which the health insurance market must operate. But through its so-called "deemer clause," the statute prohibits states from regulating plans that "self-insure" by bearing the primary insurance risk, even though by bearing risk they appear to be acting like insurance companies. The Supreme Court recognized that this distinction creates two classes of employer-sponsored health plans. Plans funding coverage through insurance are subject to state insurance regulation, while those that self-insure are completely beyond state jurisdiction. This creates an important distinction between insured and self-insured employer-sponsored health plans. Both types of plans are still ERISA plans, but only the former are subject to some types of state oversight. The deemer clause has implications when considering capitation in a direct contract with an ERISA plan because of the risk transfer. Therefore, unless the Plan pays insurance premiums to an insurance company or other licensed health plan that accepts the financial risk of the cost of claims, typically, the ERISA plan may not contract for capitated services with a provider on a direct basis.

How many of my patients does this really affect?

The number of employer-sponsored health plans that self-insure has grown over the last 20 years. While no detailed data are currently available because of the difficulty tracking it, it is estimated that between 1/3 to 1/2 of employees throughout the country are in self-insured plans, though the number varies among states.

Have Supreme Court interpretations of the ERISA preemption changed in recent years?

While not overruling earlier preemption opinions, Supreme Court decisions in 1995, 1997, and 1999 narrowed the scope of the preemption provisions and broadened the scope of the insurance savings clause. For example, in the 1995 Travelers decision, [New York Conference of Blue Cross and Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995)] the Supreme Court held that the ERISA did not preempt a state’s hospital surcharges that employer-sponsored health plans had to pay, which provides support for other types of state health care taxes that might affect ERISA plans. Consequently, the Supreme Court recently appears more favorably disposed to the exercise of state authority.

In general, what can states do and not do under ERISA?

Based on the ERISA case law, including Supreme Court decisions, states generally can:

  • tax and regulate traditional insurers performing traditional insurance functions;

  • regulate multiple employer welfare arrangements (where two or more employers jointly sponsor health coverage);

  • regulate hospital rates charged to insurers and others who pay health care bills, and by extension, probably tax health care providers; and

  • provide remedies for injuries when a health plan controls medical care delivery (traditional medical malpractice cases).

Court decisions have also made clear that states generally cannot:

  • directly regulate private employer-sponsored health plans;

  • mandate that private employers offer or pay for insurance;

  • tax private employer-sponsored health plans themselves;

  • regulate self-insured private employee plan benefits or financial solvency;

  • indirectly affect employer-sponsored health plans by imposing substantial costs on plans.

The impact of the ERISA on many types of health policy initiatives that states have enacted or are considering is unclear because either lower federal courts have reached inconsistent conclusions, the Supreme Court has not explicitly resolved the issue, or the question has not been litigated. The implications of the ERISA’s preemption provisions will always depend on the precise language of the state law in question. This long, and growing, list of uncertain state authority includes:

  • many types of managed care regulation, such as any-willing-provider laws;

  • independent ("external review") appeals programs;

  • regulation of stop-loss insurance (purchased by employer-sponsored health plans to share the

  • risk of high-cost cases);

  • employer pay-or-play health care programs;

  • employer health coverage tax credits;

  • regulation of third-party administrators (TPAs) that administer self-insured health plans;

  • requirements that public health care access programs coordinate closely with employment-based coverage;

  • requirements that employee plans pay health care provider assessments directly to state agencies; and

  • regulation of non-traditional insurers, such as provider-sponsored organizations, accepting risk from the ERISA plans.

How does ERISA affect state health insurance regulation?

While there have been few cases interpreting the ERISA’s insurance savings provisions, it is likely that the ERISA does not invalidate traditional state standards governing insurer solvency, market conduct, advertising, and fair practices requirements unless Congress were to enact federal law in these areas. Court decisions suggest that the ERISA permits states to adopt standards to make the health insurance market function more fairly, as most states had done before HIPAA. In enacting HIPAA, Congress imposed several standards on both insured and self-insured employee health plans, creating a federal floor that states may supplement (in ways specified in the federal law) in regulating health insurers.

States have begun to regulate managed care plans, for example, by adopting standards for provider network structure, enrollee choice of provider, and definitions of services such as emergency care. Relatively few of these standards have been challenged in court, although the courts are split on whether the ERISA preempts any-willing-provider laws (requiring health plans to contract with all providers willing to accept their contract terms) as applied to insured as well as self insured ERISA plans, [see Stuart Circle Hosp. v. Aetna Health Management, 995 F.2d 500 (4th Cir. 1993), cert. denied, 510 U.S. 1003 (1993); CIGNA Healthplan v. State of Louisiana, 82 F.3d 642 (5th Cir. 1996) cert. denied, 519 U.S. 964 (1996; Texas Pharmacy Assoc. v. Prudential Ins. Co., 105 F.3d 1035 (5th Cir. 1997) cert. denied, 118 S. Ct. 75 (1997); Prudential Ins. Co. v. National Park Med. Ctr., 154 F.3d 812 (8th Cir. 1998); American Drug Stores, Inc. v. Harvard Pilgrim Health Care, Inc., 973 F. Supp. 60 (D. Mass. 1997)]. Requirements that regulate the relationship between plans and providers (such as provider selection and termination standards) face a more difficult challenge under the ERISA because they do not resemble traditional insurance regulation. An important ERISA implication for state health insurance regulation is that it establishes a largely unregulated sector, self-insured ERISA plans. Because employers can choose to self-insure if they feel state regulation is too costly or intrusive, states must carefully balance the policy wisdom of enacting health insurance standards against the potential that they will drive more employer plans to self-insure.

How does the ERISA affect state standards for resolving disputes between health plans and enrollees?

Enrollees in traditional indemnity health insurance plans can resolve disputes over payment after they receive services. But managed care coverage disputes may be more urgent, because managed care plans typically decide before expensive services are provided whether to cover them, and a decision not to cover can mean the enrollee may not obtain a physician recommended medically necessary service if forced to pay out of pocket and then fight. State laws may provide several avenues of dispute resolution, from appealing to state insurance regulators, to requiring managed care plans to provide an internal grievance process, to increasingly popular programs using reviewers independent of the health plan. Health plan enrollees injured by coverage denials also sometimes sue health plans for allegedly inappropriate denials of care, and a few states have enacted laws attempting to make it easier for enrollees to bring these suits.

However, these dispute resolution initiatives raise the ERISA preemption issues. For example, while states have long required HMOs to provide grievance procedures, some state standards would conflict with rules proposed by the U.S. Department of Labor in September 1998. States can probably supplement such federal rules as long as there is no direct conflict with them.

In Texas, a district court held that the ERISA preempts that state’s external review law as applied to insured and self insured ERISA plans, [see Corporate Health Ins. Inc., et al. v. Texas Dept. of Ins., 12 F. Supp. 2d 597 (S.D. Tex. 1998)]. And many federal courts, relying on Supreme Court precedent, have held that ERISA preempts lawsuits for damages from injuries due to health plan coverage denials or delays (although the courts generally allow medical malpractice lawsuits against plans that directly control or influence clinicians’ medical practice), [see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)]. Because ERISA plans include all private sector employer plans (not just those that self-insure), ERISA preempts state court damages suits against managed care plans and other insurers — not just against self-insured employee plans — challenging benefit denials.

So how do I find out if an ERISA plan is self-funded or paying premiums to a licensed plan and is insured?

First, find out what kind of plan you are dealing with. While a call to most plans will tell you if you ask, you have to ask the right party. A call to a provider relations representative at your local PPO may not be the most efficient use of your time. The ERISA established that U.S. qualified plan sponsors must file annual pension plan and health & welfare plan reports with the Internal Revenue Service and Department of Labor. Companies have 210 days after their plan year end to file the form 5500 with the Internal Revenue Service (IRS). During the year thereafter, both the IRS and DOL input and process this data before it is made available to the public. Starting with plan year end 1999, the DOL is streamlining its data-capture process which should result in more rapid public disclosure.
One source if information that is more often accurate is checking their form 5500. The ERISA plans are required to file this form with the Department of Labor and it is available on the Internet. Two sources, and will permit access to the forms if you sign up with them for free. At the time of this writing, the PlanetERISA site was not functioning properly and would not permit access or enrollment to use the site.

Once you find the form for the plan you are researching, the form will give you many sources of information. First, accountability for plan coverage decisions is with the Plan Administrator. The ERISA Plan Administrator is liable for all decisions and good or bad faith actions based on decisions on behalf of the plan. Appeals for denials should be directed to the Plan Administrator located in Box 3a. Be polite, professional and businesslike with them and you will most often get the answers you need. Also, direct your patient to them if necessary. They are not as "ivory tower" as one might assume.

If you are researching how many lives are enrolled in the entire program for direct to employer contracting, Box 6 will tell you total enrollment in the program overall. The Plan Administrator may be able to provide information as to how many lives are in your service or market area, and may be able to direct you to the appropriate person to speak with regarding direct contracting.

In order to determine if the plan is insured or funded through a trust, scroll down to Box 9. If it states "trust", the ERISA plan is keeping the risk of claims with the plan and not paying premiums to an insurance company. They may use a familiar face and logo as an Administrative Services Organization (ASO) but the risk of claims payment lies with the Plan Administrator as the fiduciary, as well as the risk of coverage and benefit determination. The ASO only acts as the messenger and claims processor. On January 1, 2003, the U.S. Department of Labor enacted a new benefit claims regulation imposing deadlines by which plans must make decision whether or not to pay claims for certain services. These can be researched at . Keep in mind that the deadlines apply only to when a plan must make a decision on a claim, and does not establish a deadline as to when the plan must actually issue payment. If you have a problem, that''s when you contact the Plan Administrator. The regulations require that the plan pay the claim within a "reasonable" time.

A-10: Do the time frames in these rules govern the time within which claims must be paid?

No. While the regulation establishes time frames within which claims must be decided, the regulation does not address the periods within which payments that have been granted must be actually paid or services that have been approved must be actually rendered. Failure to provide services or benefit payments within reasonable periods of time following plan approval, however, may present fiduciary responsibility issues under Part 4 of title I of ERISA.

Severe liability and penalties are in store for the Plan Administrator that violates their duties under these regulations. Often, a Plan Administrator may actually use the state''s prompt pay law as a guideline for what is accepted as reasonable in a market area, but remember, they deal on a national or sometimes worldwide basis, and you may have to remind them or provide a copy of the state''s prompt pay law if it is enacted - just to be "nice".

Providers should not assume that the new regulation is a solution to their problems, however. As we read the Frequently Asked Questions (FAQs), specifically question A-8, we realize that there is still a tremendous responsibility on the physician, dentist or other provider to negotiation a good contract.

A-8: Do the requirements applicable to group health plans apply to contractual disputes between health care providers (e.g., physicians, hospitals) and insurers or managed care organizations (e.g., HMOs)?

No, provided that the contractual dispute will have no effect on a claimant’s right to benefits under a plan. The regulation applies only to claims for benefits. See questions A-3, A-4, A-5. The regulation does not apply to requests by health care providers for payments due them -- rather than due the claimant -- in accordance with contractual arrangements between the provider and an insurer or managed care organization, where the provider has no recourse against the claimant for amounts, in whole or in part, not paid by the insurer or managed care organization.

The following example illustrates this principle. Under the terms of a group health plan, participants are required to pay only a $10 co-payment for each office visit to a preferred provider doctor listed by a managed care organization that contracts with such doctors. Under the preferred provider agreement between the doctors and the managed care organization, the doctor has no recourse against a claimant for amounts in excess of the co-payment. Any request by the doctor to the managed care organization for payment or reimbursement for services rendered to a participant is a request made under the contract with the managed care organization, not the group health plan; accordingly, the doctor’s request is not a claim for benefits governed by the regulation.

On the other hand, where a claimant may request payments for medical services from a plan, but the medical provider will continue to have recourse against the claimant for amounts unpaid by the plan, the request, whether made by the claimant or by the medical provider (e.g., in the case of an assignment of benefits by the claimant) would constitute a claim for benefits by the claimant. For information on authorized representatives of claimants. See questions B-1, B-2, B-3.

Therefore, in the event you negotiate a term of your HMO or PPO agreements that specify a "Look Only to the Plan" provision, whereby the provider cannot seek payment beyond the co-payment or co-insurance, the regulation may not apply. It is vital to your reimbursement that you maintain the right to have recourse against an ERISA claimant (your patient or their parent or guardian) for amounts due for services rendered that were not covered by the plan! Make sure this is addressed when signing "All Products" contracts that lump HMO, PPO and other products all together in the same paper.

In summary

Employers may choose to offer health benefits under a traditional health insurance plan whereby they pay a premium on behalf of the employee and transfer the benefit decisions and claims payment risk to an entity engaged in the business of insurance, or to a licensed health plan such as an HMO. One other possibility is that they may find it more prudent and economical to establish a 501(c)9 trust account, or voluntary employees'' beneficiary associations (VEBA''s), which are tax-exempt trusts designed within prescribed guidelines to provide for the payment of life, sick, accident, or other welfare benefits to employees or their dependents or designated beneficiaries. Advantages include; tax free accumulation of funds for VEBA benefits and a deduction for employer contributions that are not taxable to the employee at the time of contribution. Always check Form 5500, Question 9, to see if the plan is insured or self-funded and has established such a trust.

If they chose to establish the 501(c)9 trust in order to pay claims, they establish or hire a Plan Administrator that has fiduciary duty to the plan and its members. The ERISA imposes high standards of fiduciary duty upon administrators of an ERISA plan. The ERISA''s fiduciary duty encompasses three components. First, the duty of loyalty requires that all decisions regarding an ERISA plan must be made solely in the best interests of the participants and beneficiaries. Second, a plan fiduciary must exercise his duty with the care, skill, prudence, and diligence that a "prudent person" would use under the circumstances. Finally, the ERISA requires fiduciaries to act for the exclusive purpose of providing benefits to plan beneficiaries. However, these broad descriptions of a fiduciary''s duties under the ERISA do not completely define the scope of an administrator''s duty to inform a plan participant or beneficiary of his rights and/or obligations.

Plan Administrators are duty bound to answer your questions, if you ask the right ones. The Plan Administrator''s failure to provide information about the availability of specific benefits may be breaching its duty to disclose and inform if it fails to give complete and accurate information in response to a participant''s or the participant''s representative''s questions. Providing the participant with a written summary plan description, an employee handbook and an individual meeting with a representative who explained the plan benefits may not be sufficient as has been held in various recent cases involving such deficiencies of information. The courts have held said that providing a summary plan description several years before the request for information does not excuse the Plan Administrator or Employer from its duty to respond fully and accurately to later inquiries regarding benefits. A fiduciary must give complete and accurate information in response to participants questions. A fiduciary may breach its duty by materially misleading plan participants, regardless of whether fiduciary statements or omissions were made negligently or intentionally. A misrepresentation is material if there is substantial likelihood that it would mislead a reasonable employee in making an adequately informed decision about pursuing plan benefits. Other circuit courts of appeal have held that, once an ERISA beneficiary has requested information from an ERISA fiduciary who is aware of the beneficiary''s status and situation, the fiduciary has an obligation to convey complete and accurate information material to the beneficiary''s circumstance, even if that requires conveying information about which the beneficiary did not specifically inquire.

Employers who sponsor an ERISA benefit plan may not be subject to state insurance law mandates, prudent layperson definitions with regards to emergency care, mandated referral guidelines, pharmacy benefits and formulary decisions, off-label prescribing allowances, pre-existing condition limitations, and a myriad of other state-legislated patient protection acts. This means that physicians, dentists and other providers should not assume that simply because the logo is present on an identification card, that a service will be covered as it may be for others who possess the same type of identification card with coverage through a different employer, as the logo may only denote ASO services with benefit decisions made solely by the Plan Administrator and not by the entity whose logo appears on the card.

Always check with the Plan Administrator listed in Question 3a of the Form 5500 if you have questions on coverage and payment decisions rather than with a PPO or HMO or TPA service representative. If you have extenuating circumstances, the Plan Administrator may find it more prudent to allow a service than face a threat of a bad faith claim by a plan participant for denial of coverage. Learn when and how to make your appeals appropriately. Remember that claims processors only follow established rules and do not make coverage decisions for ERISA plan participants.

ERISA plan sponsors are not permitted to contract directly with physicians and other providers for capitation without channeling the deal through a licensed entity with the proper credentials to undertake such financial risk. Colorado and California are two states that have addressed these issues in detail. Many other states may have enacted some provision for such deals. Check with your attorney.