Monday, June 2, 2008

ERISA: Employees’ Nightmare or Employers’ Heaven?

The Employee Retirement Income Security Act of 1974 (ERISA) is federal statute that establishes minimum standards for pension plans and employee benefits, including health coverage, offered by private-sector employers.

The Congress has included in the said law a "preemption clause." This clause essentially provides that state law yields to federal law when it comes to regulating employee benefit.

However, attempts to increase health coverage by including employers as a source of financing remained futile because of said preemption clause.

This comes now to the question of whether the ERISA law prevents states from implementing health care reforms.

Some court rulings prohibited states from requiring employers to cover workers' health benefits. In fact, rulings have led people to believe that ERISA considerably limits California's ability to apply health care reform, particularly any kind of reform that places requirements on employers, like a "pay or play" requirement.

In one case, the U.S. Supreme Court held that California's notice-prejudice rule regulates insurance and is, therefore, not preempted by ERISA.

As I have observed, another manifest loophole of ERISA is this, under the laws of most states, a wrongful denial of benefits can lead to a jury verdict awarding the employee the denied benefits, damages for emotional distress and punitive damages. On the other hand, under ERISA, there is no right to a jury trial, and the most that an employee who has wrongly denied benefits can receive is the denied benefits.

Because of this, insurance companies can just deny benefits as they want it. The most that they can lose, if sued, is the value of the benefits they denied in the first place.

My stand is this, the Supreme Court or Congress should once and for all settle this controversy. Until such time, it is not possible to predict with certainty whether ERISA preempts a specific state law.