ERISA Health Plans
The main function of ERISA is to protect and regulate pension plans. The ERISA provision dealing with health insurance was passed by Congress to allow large multistate companies such as automobile manufacturers to sign uniform labor agreements across all state lines. Prior to ERISA, an employer could not offer the same health insurance plan to all employees because state laws regulating insurance differed from state to state. Even if the terms of the plan could be worked out, there was a substantial cost in getting the plans approved in 50 different states. ERISA provides that health insurance plans that meet certain organization requirements are exempt from most state regulation. Since there is little federal regulation of insurance, this means that ERISA plans are essentially unregulated. The insulation from state regulation gives ERISA plans a competitive advantage so they are displacing non- ERISA plans for most employers.
ERISA plans are under more direct pressure to limit benefits than other types of health plans because they are not traditional insurance policies. To qualify under ERISA, the costs of the employee medical care must be self-insured by the employer. The plan is often administered by an insurance company and the care is provided by either an owned or a contractor MCO. The role of the administrator is to process the claims and manage the care. The employer pays the administration fee and all the costs of the medical care. There is only a limited insurance component. If there are huge unexpected costs, then they are passed on to the employer. This puts pressure on the employer to limit coverage for expensive procedures and conditions.
Because employers attempt to limit losses, exempt treatment for given conditions, and limit options for conditions that they do cover, plans may fail to provide coverage that treating physicians believe is medically necessary. While ERISA plans are not insurers, if they do not keep the employer’s medical care costs low, then they risk losing the management contract to a competitor that promises greater savings. Thus, ERISA plans, like all MCOs, are under pressure to discourage unnecessary medical care if they are to make money.