ERISA Liability Adds New Public Option Obstacle

While there are significant concerns with public option healthcare legislation, the potential ERISA liability may be the most significant.

ERISA, the Employee Retirement Income Security Act, regulates non-wage benefits provided by private employers, including employer-provided health insurance coverage.

The federal law allows plan participants to bring a civil suit to recover benefits, enforce rights, and clarify future rights under the terms of the plan, in addition to being able to bring a breach of fiduciary duty claim.

Generally, public sector health plans—such as Connecticut’s state employee healthcare plan—are not regulated by ERISA.

Warning

However, public option plans—as proposed in HB 7267 and SB 134 —likely fall under the jurisdiction of ERISA as they are provided or administered by an employer.

Both SB 134 and HB 7267 allow small businesses access to the state employee healthcare plan.

The legislature’s non-partisan Office of Fiscal Analysis warns that the state employee plan will lose its ERISA exemption if it is opened to small businesses, as both bills provide.

As OFA noted in its analysis of each bill:

Under ERISA, the state would have to comply with fiduciary standards, reporting and disclosure requirements. Failure to comply with ERISA could subject the state to financial penalties and “gives participants the right to sue for benefits and breaches of fiduciary duty.”

Single-Payer Concerns

While there is limited administrative guidance on how ERISA applies to a public option program, there is more certainty surrounding its application to a single-payer system.

ERISA was enacted to encourage employers to sponsor benefit plans and to minimize conflicts with the state law.

ERISA generally preempts state laws that relate to employee benefit plans offered by employers.

A public option is an inevitable progression towards a single-payer system, which would be preempted at the state level by federal law.

A single-payer system, which involves terminating all existing ERISA plans and requiring employers to contribute to a state-administered health program, would be found impermissible and preemptable under ERISA.

Unless Connecticut can obtain a federal exemption from ERISA, the single-payer option would be subject to challenge in court.

A public health insurance option is an inevitable progression towards a single-payer system, which would be preempted at the state level by federal law.

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For more information, contact CBIA’s Michelle Rakebrand (860.244.1921) | @MRakebrand