HISTORY

In 1974, Congress decided that the need for uniformity of laws relating to the provision of employee benefits was great enough to override the states’ traditional regulatory role.  Congress established new federal standards that would be consistent for employers and unions, many of which operate across state lines.  Enacted in 1974, the Employee Retirement Income Security Act (ERISA) preempts state laws relating to the provision of employee benefits such as health care, unless those laws govern insurance. ERISA has been a dramatic success.  In fact, 60 percent of Americans receive their health care through the voluntary employer-based health care system.

What ERISA means for employers and unions that self-insure or self-fund the health benefits they provide employees is that they are governed only by ERISA.  It contains standards for review of claims, civil enforcement, portability and continuation of health coverage, but minimal mandatory requirements with regard to the type of benefits provided. If, on the other hand, the employer or union purchases health insurance for its employees that is provided by a health insurance company, the coverage is subject to state regulation.

In the 30 years since ERISA was passed, the number of state coverage mandates has risen exponentially, now numbering more than 1,800.  These mandates require employers and insurers to provide certain health care services such as infertility treatment or massage therapy, to cover certain professionals such as chiropractors, or to pay for certain products such as hair prostheses. In some markets, such mandated benefits cause the cost of health insurance to increase by as much as 45 percent.

With costs increasing, employers face increased difficulty in providing health care coverage to workers.  The number of Americans who are uninsured rose to more than 47 million in 2006, largely because small employers eliminated employer-sponsored health coverage for workers.  In 2007, employers endured another year of increases in the cost of providing medical benefits; premiums rose by 6.1 percent in 2007 and are expected to increase again in 2008. The increase in employer costs translates to pared back coverage and increased co-pays and deductibles for workers – with more to come. According to a 2007 survey by the Kaiser Family Foundation, many employers said they expect to make significant changes to their health plans and benefits in 2008, with 21 percent of firms saying they are “very likely” to raise workers’ premium contribution this year.

Despite these rising health care costs, state legislatures and Congress continue to consider legislation that will add to the growing health care cost crisis.  During the 110th Congress, the House and Senate have begun consideration of mental health parity legislation to provide parity to health insurance coverage of mental health benefits and benefits for medical and surgical services. In September 2007, the Senate passed the “Mental Health Parity Act,” by unanimous consent. The legislation was supported by a coalition of employer groups and mental health advocates. By contrast, the three House committees of jurisdiction (Education and Labor, Energy and Commerce, and Ways and Means) reported legislation, H.R. 1424, the “Paul Wellstone Mental Health and Addiction Equity Act of 2007,” that employers opposed. The House was unable to complete action on H.R. 1424 before adjourning in December, in part because of the legislation's cost ($3 billion over 10 years).

Previous Congresses have considered additional mandate legislation.  The 108th Congress considered the “Health Care Parity for Legal Transportation and Recreational Activities Act,” sponsored by Senator Susan Collins (R-ME). This bill, which would have required employers and insurers to cover injuries stemming from certain recreations, passed the full Senate in November 2004. While similar versions of the legislation have been introduced during the 109th and 110th Congresses, they have not been considered.

The states have taken varying approaches to mandates.  Some states have begun to recognize the cost of mandated benefit laws and have established independent mandate review commissions to provide the legislature information about the cost of mandates as a part of consideration of these proposals. 

However, other states, such as California, continue to embrace health care mandates. Then-Governor Gray Davis (D-CA) signed so-called “Play or Pay” legislation in November 2003. It would have required California businesses with more than 20 employees either to provide health insurance or pay a special state tax to finance a government health care system.  This law, estimated by the Los Angeles Area Economic Development Corporation to cost consumers and businesses more than $7 billion, was strongly opposed by California businesses.  A referendum repealing the law narrowly succeeded on California’s November 2004 statewide ballot; however, the law's supporters have resurrected this measure.  Late in December 2007, the California State Assembly passed a health care reform package aimed at providing health insurance to the 3.6 million Californians who currently do not have health coverage.  The plan has an estimated cost of $14.4 billion.  The bill passed the Assembly by a 45-31 vote but failed in the California Senate.  Under provisions in the legislation, employers would be required to "play" by spending 2-6.5 percent of Social Security wages for health care expenditures "or pay" into a trust fund for employees to access health care coverage.

Maryland has also enacted so-called "fair share" legislation to compel large employers in that state to spend a percentage of total payroll on employee health benefits or pay a tax. Because only one company, Wal-Mart, would have been affected, the bill was nicknamed the "Wal-Mart bill." In July 2006, a federal judge struck down Maryland's Wal-Mart bill.  Though Maryland appealed the decision, a higher court agreed that ERISA preempted the law.  Maryland chose not to appeal the decision to the Supreme Court; however, supporters will attempt to revise the law to address the courts' objections. And supporters are advocating "fair share" legislation in more than two dozen states.

Even the highly praised Massachusetts legislation to establish universal coverage for Massachusetts residents includes coverage mandates.  Employers with more than 10 employees are required to provide health insurance coverage. If Massachusetts employers choose not to provide insurance, penalties are $295 annually per employee (so-called “fair share” contributions). In addition, if an employer chooses not to offer health insurance, he may also be required to repay the state's free-care pool for the cost of employees who utilize the pool to pay for health care if expenses are greater than $50,000 (“free rider surcharge”). Last, all Massachusetts employers are required under the law to provide a Section 125 health reimbursement account.  Implementation of the Massachusetts law is being closely watched by many states.  Should it prove successful, other states may follow Massachusetts's lead.

In July, the city of San Francisco proposed providing health care to all uninsured residents through city clinics.  While not a health insurance plan, the proposal included a “play or pay” provision that would require employers to provide health insurance or pay into a fund for the program. Employers challenged this provision in court, and the case continues in litigation.

Since some state health reform laws, such as the "play or pay" legislation in Maryland and San Francisco, have been challenged as violating the federal Employee Retirement Income Security Act (ERISA) law, the House Education and Labor Committee held a hearing in 2007 to discuss modifications to ERISA to assist state reform efforts.  Business responded to this prospect by launching the Coalition on Benefits, a group of employers and associations that will work to convince Congress that employer-provided health benefits, made possible through ERISA's exemption from state insurance regulations for multi-state employers, are an essential component of the current system that should not be undermined in any reform initiatives. The House Education and Labor Committee is likely to consider this issue further.

Many state laws that attempt to reform health coverage laws to cover uninsured individuals are likely to include some components that if challenged would be likely to be preempted by ERISA. This has led some to call for ERISA waivers for state laws that address the uninsured.  This topic, along with legislation, the “Health Partnership for Creative Federalism Act”, H.R. 506, was the subject of a two-hearing series at the House Education and Labor Committee during 2007. At the hearings, supporters of ERISA waivers made the case that such waivers would assist the uninsured.

THE FUTURE

With the change in congressional leadership, Congress is already considering health coverage mandate bills that have been stymied in the past.  Mental health parity legislation is probably the most likely to be completed before the end of the 110th Congress.
 
In addition, it is likely that Congress will begin consideration of legislation to allow states to pass health coverage reform proposals that included some mandates for employers by waiving ERISA's preemptions. As ERISA is strongly supported by employers, such legislation is likely to be hotly debated and opposed by many.

Though proposals to cover that nation's uninsured are of the utmost importance, placing federal or state financial requirements on employers to bear this burden will change the fundamental nature of our nation's voluntary employer-based health care system.  The strength and international competitiveness of our nation's employers may well be at stake and, as such, these proposals should be thoroughly debated before Congress takes legislative action.