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B REGULATION OF EMPLOYMENT-BASED HEALTH BENEFITS: THE INTERSECTION OF STATE AND FEDERAL LAW
Pages 293-322

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From page 293...
... The most noteworthy aspect of current federal law, in particular, ERISA, may be the federal preemption of most state regulatory power relating to employee benefits. Federal tax policies, antidiscrimination laws, coordination with Medicare, and concurrent federal regulation of some lIMOs also affect employee health benefits.
From page 294...
... To some extent, state regulation of health insurance and federal regulation of health benefits overlap and at times conflict. ERISA's preemption provisions, which are discussed below, coordinate the relationship between these concurrent systems for regulating health benefits.
From page 295...
... Initially, group health insurance was a tentative experiment at the local level. In the 1930s, hospitals and medical societies began one of the earliest forms of group health benefits, which evolved over two decades into Blue Cross and Blue Shield plans.9 By 1945, Blue Cross and Blue Shield covered 19 million subscribers through 80 plans nationwide.
From page 296...
... This overview summarizes state regulation of insurance company formation and financial matters; insurance contracts and rates; unfair insurance practices; health insurer coverage and mandates; managed care; and so-called anti-managed-care laws. Formation and Financial Matters Through laws on incorporation and laws on the licensing of insurance companies, states regulate the organizational structure and financial affairs of insurance companies.
From page 297...
... Unfair discrimination includes making unfair or unreasonable distinctions between individuals of the same class and essentially the same level of risk.~9 With mixed results, regulators have applied unfair insurance practice laws to accident and health insurance to expand or maintain the availability of insurance for classes of persons to whom insurance is not readily available. One court has held it unfairly discriminatory for insurers to apply individual medical underwriting to small groups while not applying the
From page 298...
... Typically, state laws prohibit any person from offering or establishing an HMO or risk-assuming PPO without obtaining a license.24 Some regulation of HMOs and PPOs has, historically, been intended to protect conventional health care providers and discourage prepaid group practices and network health plans. (See Chapter 2 of this report.)
From page 299...
... Especially when employment-based health benefits are involved, such laws have been challenged on the grounds that state regulators are encroaching upon the activities that under federal law must be left to federal regulation.27 Practical Consequences of Opting for a Fully Insured Health Benefits Plan When an employer provides a fully insured employee benefit plan (i.e., transfers risk to a commercial insurer or Blue Cross and Blue Shield plan) , the insured benefits are regulated by the applicable state insurance laws.
From page 300...
... In general, regulation of employee health benefits under ERISA focuses on process: how employers disclose and report information about their health benefit plans; how employers and others must behave as fiduciaries of these health benefit plans; how special rules on continuation of health benefits must be applied; and how the federal regulatory effort relates to state regulation. Although the statute and associated regulations are quite detailed in many respects, ERISA does not explicitly regulate the substantive content of employee health plans nor require that such a plan be offered.
From page 301...
... Title I begins with legislative findings and purposes.36 It then sets forth controlling definitions,37 reporting and disclosure requirements,38 requirements for fiduciaries and fiduciary responsibilities,39 provisions on administration and enforcement,40 and, finally, requirements dealing with continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (CoBRA) .4i ERISA's important preemption provisions, which govern the relationship between federal and state regulation of employee benefit plans, are a part of Title I's section on administration and enforcement.
From page 302...
... and excludes by omission any reference to welfare plan benefits such as health benefits.5i Other provisions of ERISA state that "vesting" does not apply to "an employee welfare benefit plan."52 Reasoning that Congress would not inadvertently omit employee health benefits (i.e., welfare plans) from the vesting provisions of the statute, the courts have repeatedly ruled that a plan participant acquires no vested or future expectation of a fixed level of health benefits unless the plan specifically provides for it.
From page 303...
... These requirements apply unevenly to welfare plans and pension plans because the latter are required to furnish to the Secretary of Labor considerable additional information.55 With respect to welfare plans, three basic requirements sum up ERISA's disclosure and reporting provisions, although the details may be quite complex and vary for different kinds of plans. First, welfare plans must periodically furnish to participants and beneficiaries a summary plan description.56 The Secretary of Labor has added by regulation a requirement that the description explain what medical benefits are covered by the plan.57 Second, the administrator of a welfare plan must file with the Secretary of Labor the summary plan description and must also file material modifications to the plan.58 Third, plan participants must be furnished with a summary annual report.59 In addition, plans with more than 100 participants, and certain others, must file an annual return (form 5500)
From page 304...
... Beyond "named fiduciaries," ERISA includes other individuals whose duties bring them within the definition of "fiduciary." The touchstone of the definition of "fiduciary" is discretion and the exercise of discretion in plan management, plan administration, and investment of plan assets.64 ERISA's definition of who is a fiduciary turns primarily upon an analysis of the tasks performed by persons involved in plan administration, asset management, and distribution of benefits. Within the context of health benefit plans, sorting out the fiduciary status of trustees, insurers, third-party administrators, case managers, consultants, and others has been left to the courts.
From page 305...
... Courts may impose equitable or remedial relief, including removal of a fiduciary.73 The Supreme Court has limited recovery of losses arising from a violation of a fiduciary duty to the plan entity and denied recovery (beyond receipt of the benefits themselves) to beneficiaries and participants seeking individual relief for improper denial of claim benefits.74 In general, fiduciaries of a welfare plan may not be held liable for extracontractual compensatory damages or punitive damages to a participant or beneficiary.
From page 306...
... Section 514 of ERISA provides for federal preemption of state laws that relate to employee health benefit plans.79 Preemption under ERISA is important because it defines the spheres of federal jurisdiction to regulate health benefits plans and state jurisdiction to regulate health insurance. State and federal jurisdictions coexist because of how Congress both defined and limited preemption under ERISA.
From page 307...
... However, the deemer clause states that no employee benefit plan shall be deemed to be an insurance company or to be engaged in the business of insurance for the purpose of any state law purporting to regulate insurance companies. The threshold question in any analysis of ERISA preemption begins with an inquiry into whether the challenged state law "relates to" any employee benefit planks The Supreme Court has given the phrase "relates to" an "expansive sweeps to apply to state laws that relate to employee benefit plans "in the usual sense of the phrase, if it has a connection with or reference to such a plan."82 The Supreme Court has explained that a challenged state law has a "connection with" a benefit plan if it makes an impact upon it and a "reference to" a benefit plan if it "makes mention of" a plan.
From page 308...
... . a state statute of general applicability directing that all bonds, bills, notes, and contracts for the payment of money shall be assignable.89 In contrast, the following state laws have been held too remote, peripheral, or tenuously related to employee benefit plans to fall to preemption under ERISA: a patient's medical malpractice action against a health maintenance organization.90 a state garnishment statute.9i a state escheat law.92 a common law suit for wrongful termination that did not involve the employer's avoiding paying benefits.93 Despite the breadth of preemption of state law under ERISA, and with it federal jurisdiction over health benefit plans, Congress has carved out an exception that preserves state regulation of insurance, and with it an indirect state role in the regulation of health benefits funded by insurance.
From page 309...
... The Supreme Court has also stated that the savings clause protects state laws that fall within the ambit of the McCarran-Ferguson Act as the "business of insurance."96 In Metropolitan Life Insurance Company v. Massachusetts, the Supreme Court upheld a Massachusetts-mandated mental health benefit requirement insofar as it applied to insurers selling insurance contracts to employee health benefit plans.
From page 310...
... In essence, the deemer clause provides that in the guise of regulating insurance companies and insurance contracts, states may not regulate employee benefit plans by deeming them to be engaged in the business of insurance.~04 The import of the deemer clause rests upon how the Supreme Court explained it and applied it in Metropolitan Life Insurance Company v. Massachusetts.~s The Supreme Court explained that permissible regulation under the savings clause was restricted to insurance companies and insurance contracts.
From page 311...
... states require insurers to maintain reserves and to invest them conservatively; ERISA has no similar requirement for health benefit plans, although plan fiduciaries are subject to certain statutorily specified fiduciary obligations. states require health insurance policies to meet minimum requirements on coverage; ERISA requires disclosure of benefits in summary plan descriptions, but there are, in general, no minimums.
From page 312...
... ERISA allows employers to determine the subrogation and coordination of benefit priorities for their health benefit plans; states frequently favor other types of accident and health insurance through antisubrogation laws.
From page 313...
... Many employers have opted out of insured funding of health benefits and state regulation of insurers and into self-funding and the system of federal regulation of health benefits described above. COBRA Continuation Coverage In 1985, Congress amended ERISA and the Internal Revenue Code to allow qualified health plan participants and beneficiaries who would otherwise lose their benefits due to certain defined events to elect continued coverage.
From page 314...
... Some amendments have been added to broaden and add qualifying events under which continuation coverage will apply.~30 THE MEWA PROBLEM One current jurisdictional problem in the regulation of health benefits that perplexes regulators involves multiple employer welfare arrangements (MEWAs) .~3i As defined in ERISA, a MEWA is an employee welfare benefit plan or other arrangement that is established to offer benefits to the employees of two or more employers.
From page 315...
... FEDERAL LAWS SUPPLEMENTING ERISA This discussion emphasizes ERISA and the nexus between federal and state regulation of health benefits. The scope of federal regulation also includes other important laws that affect employment-based health benefits but do not profoundly limit state regulation of health insurance.
From page 316...
... 621 et seq. Features: Employment practices include health benefits.
From page 317...
... Through ERISA and other federal laws, the federal government retains jurisdiction over employee health benefit plans. The intersection of these competing regulatory schemes is defined by the ERISA preemption clause, a circumstance that, in the eyes of some, leaves important aspects of employee health benefits insufficiently defined in law.
From page 318...
... 23. Health Benefits Letter, No.
From page 319...
... Aetna Life Insurance Company, 777 F.Supp.
From page 320...
... 92. Aetna Life Insurance Company v.
From page 321...
... 112. Metropolitan Life Insurance Company v.
From page 322...
... Id., 420. The language of the legislative history is borrowed verbatim from the NAIC's Model Regulation on Unfair Discrimination in Life and Health Insurance on the Basis of Physical or Mental Impairment, 3.


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