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ERISA Preemption Redux

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In a recent post, Mark Hall raises an interesting issue regarding ERISA preemption and the proposal in HR 3962, the recently enacted House of Representatives’ health reform bill. Mark suggests that: “1) for insurance sold outside of the exchange, ERISA law and its preemption remains the same; 2) for insurance sold inside the exchange, ERISA preemption is rolled back, and state law applies – even if the coverage might be employer-sponsored in some fashion.”

In response, attorney Richard Johnston counters that “HR 3962 preserves ERISA’s malignant scheme.” As Mr. Johnston notes, he is a plaintiff’s attorney and can be expected to characterize ERISA as malignant. (As my previous post on ERISA preemption suggests, I largely agree with Mr. Johnston’s depiction.) But Mr. Johnston goes further and seems to suggest that Mark’s second point is not correct and that ERISA preemption remains in force.

Who’s right? As Mark correctly notes, “one can’t be sure.” This is, after all, ERISA preemption where nothing is what it appears to be—sort of the Alice in Wonderland of health law! My own take is closer to Mr. Johnston’s.

Before examining why, I would like to compliment the House bill for one particular achievement. The convoluted language brilliantly upholds the tradition of the original ERISA legislation in defying rational and straightforward analysis. That we’re already trying to parse whether ERISA preemption is being relaxed is an indication that Congress isn’t sure what to do. (Worse, it suggests that much in the bill will be subject to similar difficult parsing of the language.)

That said, I read the provision somewhat differently than Mark does. I agree that for individual insurance sold within the exchange, state remedies apply. But for employer-sponsored plans, I don’t think the provision rolls back ERISA preemption. The first sentence in Section 251(a)(1) states that “in the case of employment-based health plans, the requirements do not supercede [sic] ERISA.” Section 251(a)(2) states that “nothing in paragraphs (1) or (2) shall be construed as affecting the application of section 514 of the Employee Retirement Income Security Act of 1974).”

Then the final sentence in Section 251 reverts to suggesting that ERISA still applies within the exchange as applied to “arrangements which are treated as group health plans under section 802(a)(1) of the Employee Retirement Income Security Act of 1974.” Equally importantly, as Mr. Johnston notes, HR 3962 defines an employment-based health plan in Section 100(c)(6) as “a group health plan (as defined in section 733(a)(1) of the Employee Retirement Income Security Act of 1974).”

It is certainly possible to read ambiguity into several of the other phrases in Section 251 that would support Mark’s second proposition. If so, a court could say that Congress intended to permit state regulation over all health insurance purchases within the exchange. But everything we know about the judicial interpretation of ERISA preemption suggests that courts will want explicit congressional language that ERISA preemption does not apply before reading ambiguity into the provisions.

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  • Sam Hough says:

    Classifying ERISA as malignant is definitely a considerable depiction considering the power that would be granted under the reform bill. My question however, is how would this power throw off the vertical separation of powers that the framers intended to make by separating state and federal governments?

    I remember watching the David Rivkin and Michael Seidman debate and being struck several times by Rivkin’s argument that the federal government is one of limited and enumerated powers, and that to grant such a–to borrow the term–malignant reform would not only be unconstitutional but would create an irreversible deterioration of the structure of our national and state governments.

    I recall several people dismissing this argument during- and post-debate. Is there anyone who would like to comment on it now that the smoke has somewhat cleared?

  • Richard Johnston says:

    Professor Jacobson,

    I think my explanation of where I come down on this was less than clear (as is the bill itself of course). The comment I posted to Mr. Hall’s post does a better job than does the post on my own blog which I believe you are referencing.

    Summing up, as I read the bill “employment-based health plans” are still completely subject to ERISA, per section 251 (a) of the bill. Subsection (a)(2), however, states by its terms that “nothing in paragraphs (1) or (2) shall be construed as affecting [ERISA section 514].” So I read that as applying specifically to those paragraphs (in fact just paragraph (1), as there is no paragraph (2) to refer to; the provision under discussion is itself paragraph (2).

    Then section 251(b) separately addresses coverage obtained through the Health Insurance Exchange, and subsection (b)(2) says individual rights and remedies under State laws shall apply. That seems very straightforward to me, and I think that would apply to any Exchange-purchased coverage.

    The final sentence of subsection (b)(2) is the one you cite in your post, but note it precludes state law rights and remedies only with respect to “employers or other plan sponsors.” I think, therefore, that any Exchange-purchased coverage would entail state law remedies as against the insurance company, but not as against the employer or sponsor. There would appear to be a gaping hole there respecting self-funded plans, except that I don’t believe self-funded plans would be something secured through the Exchange in the first place.

    Bottom line is “employment based health plans” would be treated just as they are now insofar as ERISA is concerned. But Exchange-purchased coverage, regardless of employer subsidies or contributions, would entail state law rights and remedies as against the insurer.

  • Peter Jacobson says:


    One can argue that ERISA’s malignancy is in its incursion into the states’ traditional regulation of insurance coverage. That is, ERISA preemption is a perversion of federalism in shifting power from the states to the federal government.

    Since I tend to favor a federal role in health care, I borrowed Mr. Johnston’s phrase for a different set of reasons. I have long opposed ERISA preemption because it prevents injured patients from litigating legitimate claims of delayed or denied care in state courts. The result is that there is no accountability when a health insurer wrongly denies or delays a claim and the burden of liability then falls on the treating physician. I suspect that part of the reason for increased liability insurance premiums is the shift of liability from the insurer to the physician.


  • kia says:

    Okay, so I dont know much about this topic,. But I do know that one way to make employers, and employees happy, and help them both cut costs and save money, is for employers to self fund, go with a high deductible health plan, and pair the plan with an aggregate wrap as well as a HSA/ HRA.I also read about a medical travel plan.
    Below Is a link to a video I found on you tube. I hope this info helps…

    Youtube link:

    • Peter Jacobson says:

      This is a fine solution for people who are healthy and reasonably well paid. But it has certain well-known problems, including fragmenting risk pools and discouraging primary care visits. It will probably save employers money, but some employees will not be happy with it.

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