The courts continue to delineate what state actions are allowed or preempted under ERISA. 1). The number of individuals enrolled in self-funded plans appears to be growing. With these changes, states are concerned that they cannot provide consumer protections to self-funded health plan participants and that their ability to tax and collect data on health plans is eroding. ERISA Restricts State Efforts Regarding Employer Health Plans

In addition to states’ concerns about the loss of regulatory oversight due to the increase in self-funded plans, states view ERISA as an obstacle to enacting comprehensive reforms and to adopting the more modest administrative simplification and insurance regulation proposals on which many states are focusing. Employers View ERISA as Critical to Their Ability to Efficiently Provide Health Care Coverage

Many employers, particularly larger self-funded firms, view ERISA preemption of state regulation of employer health plans very differently from the states: they view it as a fundamental strength of a voluntary employer-based health care system. Employers Concerned That ERISA Changes May Reduce Their Cost-Containment Ability

Employers maintain that ERISA preemption provides the framework for them to manage the cost of their employees’ health care coverage. They believe that their increased reliance on managed care has been integral to lowering their health care costs. ERISA History and Court Interpretations

The Employee Retirement Income Security Act of 1974 (ERISA) and its implications for health plans are often misunderstood. All employers with at least 100 employees that provide employee benefits are required to report to the Department of Labor, using a Form 5500.Unfortunately, the Department of Labor acknowledges that the data from this form are of limited value in estimating the number of self-funded health plan participants because the form is primarily designed for pension plans, the data are not reported consistently, and the data may be prone to filer errors and errors introduced in the data processing.Despite these limitations, an analysis of the Form 5500 filings by Mathematica Policy Research, Inc., for the Congressional Research Service estimated that, for employers with more than 100 employees in 1991, 42 percent of participants were in fully insured plans, 26 percent of participants were in partly self-funded plans, and 32 percent of participants were in fully self-insured plans. This represents about 16 percent of the U.S. population.
Why GAO Did This Study

Pursuant to congressional requests, GAO provided information on the: (1) Employee Retirement Income Security Act's (ERISA) relationship to the current system of employer-based health coverage; (2) implications of the trend toward employer self-funding on the oversight of employees' health care coverage; (3) kinds of state actions preempted by ERISA; and (4) advantages of ERISA preemption to employers that offer health care coverage to their workers.

What GAO Found

GAO found that: (1) although courts have historically interpreted ERISA to broadly restrict state regulation of employer health plans, recent Supreme Court decisions may allow states greater flexibility under general health care regulation provisions; (2) self-funded employer health plans appear to be increasing, but many employers are moderating their risks by using stop-loss coverage or managed care arrangements; (3) about 40 percent of ERISA plans, which cover about 44 million people, are employer self-funded plans which states are preempted from regulating and taxing because they are not considered to be insurance; (4) other ERISA plans cover an additional 27 percent of the U.S. population; (5) states believe that ERISA impedes their ability to ensure adequate consumer protections and enact health cost reduction reforms; (6) states also believe that they should be able to tax and collect data on all health plan participants uniformly; (6) employers believe that ERISA has made it possible for them to offer their employees health care coverage tailored to their needs and thus reduce their costs; and (7) employers fear that changes to ERISA that would give states greater regulatory flexibility would increase their costs and jeopardize their ability to provide employee health coverage.