By Elizabeth McCuskey
For the past 46 years, the Employee Retirement Income Security Act (ERISA) has preempted state regulation that “relates to” employer-sponsored health benefits.
Much has changed in health care and society over that time; but ERISA’s preemption abides — widely maligned, yet unaltered. An ERISA preemption waiver thus presents a long-overdue update to health care regulation with a lot to recommend it to the Biden Administration’s health care agenda: it enables states to “strengthen and build on the Affordable Care Act,” it offers a modest incremental step that could pave the way for bigger structural change, it prompts no federal spending, and it has bipartisan political support.
The preemption provision in 1974 was supposed to entice multistate employers to offer benefits by creating some federal uniformity in benefit regulation. For health benefits, however, that uniformity has been largely deregulatory.
ERISA preemption currently prevents states from fully enforcing a wide variety of health reforms, ranging from claims data collection to state-level employer mandates. And it casts a pall of private litigation challenges over even the ones that should be enforceable, like surprise billing regulation, prescription drug pricing measures, and state and local public option plans.
Because approximately half of all Americans receive coverage through employer-sponsored health plans, ERISA preemption cuts a wide swath out of states’ health care regulatory authority. ERISA’s “Savings clause” exempts state regulation of health insurers from the preemption, but interpretation of the “Deemer clause” has restored preemption for employers’ “self-funded” plans, which look and act like insurance, but use contractors to perform the functions that an insurance company ordinarily would. 60% of covered workers now receive health benefits through these heavily deregulated self-funded plans. Compared to the enormity of its preemptive sweep, ERISA over the years has supplied relatively little in the way of federal law to fill the void.
The ACA embraced the reliance on employer-sponsored insurance in its universal coverage strategy, but obviated some of ERISA’s deregulatory nudges by filling in some of the void with uniform federal regulations applicable to group plans and mandating that employers offer health benefits. More fundamentally, the ACA embraced the concept of federal funding and regulatory infrastructure with flexibility for states to implement and pursue complementary variations through statutory waivers, such as the Section 1332 waiver for “State Innovation.” The ACA, however, stopped short of altering ERISA preemption to give states this final piece of flexibility.
After a decade under the ACA’s uniform federal health insurance infrastructure, the case for adding an ERISA preemption waiver is more compelling than ever. The past four years have witnessed a greater urgency to state health reforms of all magnitudes, in light of stagnation in federal reform and a battle-weakened ACA. During the coronavirus pandemic, the folly of reliance on employer-sponsored health insurance and the race and gender disparities it perpetuates have become more starkly visible. An ERISA waiver is, in effect, an incremental reform that unlocks further increments. A preemption waiver enables states to test health reforms on many levels, and for federal reform efforts to learn from those experiences, much as the ACA learned from model-testing in Massachusetts. At its most transformative, the ERISA preemption waiver increment would make state experiments with single-payer systems more feasible.
This increment will, however, have to come from legislation, because ERISA arguably does not give the Department the authority to waive preemption. And because ERISA preemption does not alter any federal spending, revenue, or deficit, the statutory change likely could not be made during reconciliation. Still, Congress could effectuate this change by simply adding a waiver provision to ERISA’s section 1144. I have even provided draft language for the change here.
The waiver of ERISA’s § 1144 preemption provision would operate as a one-way ratchet, permitting states to add to ERISA’s scant federal protections, but not permitting the suspension of those or any other federal protections. It would preserve ERISA and the ACA as the regulatory floor, while removing ERISA’s ceiling. For this reason, an ERISA waiver would do more to “strengthen and build on” the ACA than the ACA’s own Section 1332 waiver provision does. By committing the suspension of preemption to the Department of Labor, an ERISA waiver imports the upsides and downsides of administrative discretion. The upsides include the nationwide perspective and expertise on the impact of individual waivers that the Department can offer, as well as coordination with the Department of Health and Human Services. For the powerful and well-funded fans of ERISA preemption, the waiver process offers some concessions in that it does not automatically suspend the preemption and affords stakeholders an opportunity to comment on the potential impacts of proposed waivers. Committing the suspension of ERISA preemption to the realm of agency imprimatur could thus limit its ultimate reach, but, by the same token, make the reform more widely palatable.
ERISA preemption reform unites an exceptionally rare bipartisan chorus of support from policy advocates, scholars, state lawmakers, and Supreme Court Justices. Reform by waiver offers a modest increment of state flexibility in the shadow of the broadest preemption in any federal statute. It is a salubrious increment, furthering the ACA’s vision of cooperative federalism and experimentation, enabling states to do more, not less.
Elizabeth McCuskey is a professor at the UMass School of Law.