Saturday, December 10, 2005

Can States Require Individuals to Buy Health Insurance: ERISA Preemption


A little while back there was an interesting discussion on the BENEFITSPROF listserv discussing whether a state can enact legislation which would require all individuals to buy health insurance. 

For instance, under a plan being considered in Massachusetts, employers either have to provide health insurance to their employees or pay a payroll tax; it's a "pay or play" plan. In other words, everyone will either have insurance or enough money to pay for their own health care through a government subsidy financed by the payroll tax. See Romney wants compulsory health insurance and another article here.

Besides the debate over whether such a law would be good public policy, one of the more interesting questions concerns whether such a state law would be preempted by ERISA.  On the one hand, the state law would most likely be considered to have a  "connection with" an employee benefit plan, meaning that even though after the Travelers case there is a presumption against the preemption of state laws that regulate "traditional areas of state concern," there is "too much" interference here (like FMC Corp., Egelhoff)  with employee benefit plans under the "pay or play" plan such that general ERISA preemption under Section 514(a) would apply. 

On the other hand, and taking into account ERISA's savings clause, the dual prongs of  the Miller test would certainly be met ((1) specifically directed towards entities engaged in insurance and (2) substantial affect on the risk pool), meaning that such a law would be saved from ERISA preemption. Indeed, the pay or play plan has a lot of the same hallmarks as the Any Willing Provider laws discussed in Miller. And although the recent Davila case seems to suggest a preemption "override" even when the savings clause applies if there exists conflict preemption and the state law expands the remedies available under ERISA Section 502(a), that doesn't appear to be the case here.

Finally, if the employer in question is self-insured (as an increasing number of employers are these days), FMC Corp. suggests that the state law would still be subject to ERISA preemption under the Deemer Clause of ERISA.

In all, I am of the opinion that under current Supreme Court precedent, a "pay or play" law such as Massachusetts' would not be preempted by ERISA for fully insured health plans (as it would only regulate the relationship between the insurer and third party providers), but would be preempted by ERISA in the case of self-insured plans.

All comments and thoughts welcome.

Hat tip: Jon Forman (who started this thread on the listserv).


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