Chapter 13: Federal Insurance Industry Regulations

History of Insurance

ERISA

The Employee Retirement Income Security Act (ERISA) is the main federal law that governs the regulation of health insurance plans. It also covers pension plans. ERISA covers health plans that purchase coverage from insurance companies and outlines some state regulatory responsibilities. The federal government has sole responsibility for regulating self-insured plans. These are plans in which the employer assumes the financial risk of offering health-care insurance without involving a health insurer.

Prior to ERISA's passage in 1974, employment-based pension and health plans lacked important legal protections for participants. Too often, workers who were promised pensions received little or no benefit when they reached retirement. The most notable case was that of Studebaker company employees. Studebaker, an automobile company, went bankrupt in the early 1960s. The bankruptcy left thousands of workers with little or no pension. The case caught the attention of federal lawmakers and eventually led to ERISA's passage.

While much of ERISA focuses on pension benefits, it was written to cover all employee benefits, including health care plans. Importantly, ERISA governs plans that employers self-insure. Large, multistate employers sponsor the vast majority of self-insured health plans. So that these employers do not have to deal with 50 different sets of regulations, ERISA provides a uniform set of regulations for these plans.

States regulate health insurance plans that are not self-insured. As with other types of insurance, states regulate health insurer solvency and market practices. State laws vary on factors such as required benefits and access to health insurance. The majority of states have enacted laws similar to COBRA that apply to small businesses. As you recall, COBRA covers employers that offer health plans and employ 20 or more workers. Many states also require insurers to cover certain medical conditions and screenings.