The Employee Retirement and Income Security Act, commonly referred to as ERISA, is a federal law enacted in 1974 to protect individuals participating in employer-sponsored retirement plans and health insurance plans. The law also protects an employee’s beneficiaries of these plans. The main purpose of ERISA is to protect employees from benefit plan fraud and mismanagement by creating rules and procedures that plan managers and fiduciaries must follow. The provisions of ERISA help to ensure that benefit plan funds are protected and are distributed to qualified participants, even if the company goes bankrupt.
Enforced by the U.S. Department of Labor, the Employee Benefits Security Administration, the Internal Revenue Service and the Pension Benefit Guaranty Corporation, ERISA sets the rules for how employers manage retirement and health plans. Most of the rules set forth under ERISA concern providing and reporting information. While ERISA doesn’t specify the types of benefits or how many need to be offered, it does set forth guidelines for providing and reporting information. Under ERISA, private employers must comply with the following:
- Provide information about plan features and funding.
- Set fiduciary responsibilities for those who manage plan assets.
- Establish grievance and appeals processes for plan participants.
- Give plan participants the right to sue for benefits and breaches of fiduciary responsibility.
- File an annual report with the federal government.
- Meet standards for nondiscrimination in premiums and plan eligibility.
Amendments to Health Benefit Plans Under ERISA
Over the years, there have been several amendments to ERISA that have served to expand protections to employees who participate in health benefit plans. Amendments have included protections for individuals suffering from mental health issues, addiction and cancer, as well as mothers and newborns. Other amendments are more far-reaching and include:
- Consolidated Omnibus Budget Reconciliation Act (COBRA): COBRA allows for employees, their spouse and other family members to continue health plan coverage should the employee lose their job.
- Health Insurance Portability and Accountability Act (HIPAA): HIPAA provides protection for employees and their family members against discrimination in health plan coverage due to an individual’s health circumstances such as a pre-existing condition.
ERISA and Welfare Benefit Plans
Under ERISA, health benefit plans are referred to as welfare benefit plans. ERISA covers employer-sponsored welfare benefit plans with the exception of churches, government employers, publicly subsidized health plans (i.e., Medicaid) and private insurance not purchased in the group market. While states have authority to regulate insurance companies and HMOs, ERISA prevents states from enacting laws on employer-sponsored plans. Self-funded employers do not have to comply with state insurance laws and are not required to provide coverage for state-mandated health benefits. However, they do need to comply with certain federally mandated health benefits, such as breast reconstruction following a mastectomy and a 48-hour hospital stay following childbirth.
ERISA Requirements for Welfare Benefit Plans
ERISA does dictate that all employer-sponsored health plans, even those that are self-funded, must provide plan participants with a Summary Plan Description (SPD). The SPD must include the following information:
- Details regarding premiums, deductibles, coinsurance and copayments.
- Annual or lifetime limits.
- Preventive services coverage.
- Extent of drug coverage, if included.
- Extent of coverage for tests, medical devices and procedures, if covered.
- Provider networks.
- Coverage for out-of-network services.
- Requirements for selecting a PCP and access to specialists.
- Emergency coverage
- Preauthorization requirements.
- Appeal rights if coverage or service is denied.
Employers who do offer health benefits, including those that are self-funded, cannot discriminate against offering coverage to employees based on health status, disability or a pre-existing condition. An employer can exclude an employee with a pre-existing condition for up to 12 months from the effective date of coverage. An employee is subject to this waiting period if they received medical advice, diagnosis, care or treatment for a condition during the six months prior to becoming eligible for their employer’s health coverage. Employees with a pre-existing condition who enroll late for health coverage may be subject to an 18-month waiting period. However, once the waiting period is over, the employee cannot be subject to additional exclusions.
Customized Welfare Benefit Plans
While employers cannot discriminate against offering coverage to certain employees, ERISA allows self-funded employers to create customized welfare benefit plans that address the unique health needs of specific individuals or groups within their employee population. Employers can offer their employees traditional health benefit plans but can add on additional health benefits that are customized to address certain chronic conditions or health concerns. For example, a self-funded employer could create a benefit plan specifically for employees with diabetes. The plan could cover medical visits without copays and all generic diabetes medications. The benefits of the diabetes-specific plan would only be available to employees with diabetes while other employees would receive traditional benefits or benefits of other condition-specific plans.
Opportunities for Hospitals and Health Systems
By offering tailored health plans, self-funded employers can work closely with health systems to more effectively address chronic conditions and deploy early interventions before employees move to a higher risk level. By having the ability to offer flexible benefits that address specific chronic conditions, the employer can decrease absenteeism, enhance productivity and avoid costs that are associated with hospitalization, short-term and long-term disability.
Hospitals and health systems can establish direct contracting relationships with self-funded employers in their local community. They can utilize their resources, services and providers to offer employers a primary and preventive care narrow network within the benefit plan that will improve employee health outcomes and reduce healthcare costs. A direct contracting relationship affords the opportunity for the employer and the health system to share savings that result from tailored welfare benefit plans.
Employers who work directly with a hospital or health system will better understand the health of their employees using technology and predictive analytics. Utilizing Applied Health Analytics’ technology, employers can identify high-risk conditions that are prevalent in their employee population and create tailored welfare benefit plans to address these health needs. Contact Applied Health Analytics to learn more about establishing a successful ERISA initiative.