How to Fix ERISA Waivers to Pursue Employer Sponsored Health Plan Reform

Preemptions in the Employee Retirement Income Security Act (ERISA) present barriers to healthcare reform in employer-sponsored health plans, but Congress can take steps to rectify these barriers, a Commonwealth Fund issue brief found.

ERISA contains an exemption that prevents states from regulating employer-sponsored health plan benefits. ­­­­ The law has been leveraged, successfully and unsuccessfully, to thwart states’ attempts to require employers to contribute more to employee healthcare.

“Because nearly 155 million people get coverage through employer-sponsored benefits, ERISA preemption impedes state health reforms, from incremental measures such as claims data collection all the way to comprehensive proposals for state single-payer systems,” the report explained.

Due to its structure, the only way to reform ERISA would be through Congressional action. Past efforts to reform ERISA and allow states to regulate employer-sponsored health plan benefits include attempts to repeal the preemption and empowering the US Department of Health and Human Services (HHS) to waive the preemption.

Since these efforts failed to produce significant change, the report outlined three ways Congressional policymakers can address the ERISA exemption.

First, state innovation waivers could allow states more flexibility since ERISA plans are not under the Affordable Care Act’s employer mandate requirements. States have leveraged innovation waivers primarily for reinsurance. The Trump administration introduced ways to use innovation waivers to undermine Affordable Care Act policies.

However, states can also use the innovation waiver to waive the employer mandatory coverage requirements. After waiving the mandate, they could choose to tax employers who do not provide health insurance under the Affordable Care Act.

The researchers noted that this approach has been tested and, in some cases, it still triggered the ERISA preemption.

Second, states may soon be able to leverage an experimental universal coverage design waiver. The proposed State-Based Universal Health Care Act, originally introduced in 2015, would allow states to pool federal funding and waivers to create single-payer systems. This would include the ability to waive the ERISA preemption.

Under the proposed waiver, all residents must have access to comprehensive, affordable coverage through the state. This option is not bipartisan, which means it would face—and has faced—significant challenges in the legislative branch.

Finally, policymakers could amend the ERISA statute itself. The National Council of Insurance Legislators (NCOIL) proposed this path forward in 2019. If amended, the Secretaries of the US Department of Health and Human Services (HHS) and of the Department of Labor would have the authority to waive ERISA preemption to make way for health reform.

The researchers differentiated between an ERISA preemption waiver and a statutory waiver program, which does not change the preemption law directly. The former is budget-neutral. The latter would give certain departments more authority to determine who receives a waiver.

“Permitting a waiver of ERISA’s preemption provision also would allow states to add to existing federal protections while preserving ERISA and the ACA,” the researchers noted.

As a result of these protections, this option could be bipartisan. Furthermore, the current pressure from high and rising healthcare costs could create an environment where this solution is more attractive than in previous years.

If policymakers maintain the status quo, the ERISA preemption will make it difficult to achieve reforms in a variety of areas, including expanding all-payer claims databases.