ERISA and the Massachusetts Health Coverage Law

A number of employers have suggested recently that the Massachusetts Health Care Reform Act is headed to federal court. They say tougher requirements for employees (that take effect October 1st) make the conflict between state law and ERISA (the federal Employee Retirement Income Security Act) worse. ERISA applies to and preempts state regulation of most employee benefit plans. States can still regulate insurance companies and the products they sell. But most large companies are self-insured and the state can not regulate self-insured health plans.

The issue is whether several parts of the Massachusetts law violate ERISA by establishing requirements that employers must follow. Massachusetts says employers with 11 or more workers set up payroll plans so that employees can pay for coverage on a pre-tax basis. It also fines employers that do not pay 33% of the cost of a health plan or cover 25% of full time employees. The Patrick administration plans to change OR to AND on October 1st. Business groups say the change will hurt more employers and will make an ERISA suit more likely.

In January, Massachusetts will establish a minimum standard for health plan benefits.

Taxpayers will have to have insurance that includes prescription drug coverage and other benefits to comply with the Individual Mandate. There is a question about whether this requirement would violate ERISA. While the minimum coverage standard applies to the individual, most Massachusetts residents have insurance through their employer, so the employer will be pressured to provide insurance that meets the minimum requirements.

This is head spinning stuff, but we're laying it out in the event that one of the groups threatening an ERISA suit follows through. Over the next few days, we'll hear from some ERISA experts on whether a lawsuit would succeed.

One more thing, a successful suit would not likely derail the whole law. It would be a political blow and would crimp funding (although some legislative leaders say they would find other employer charges to help fund the law).

Martha Bebinger