How States Are Trying To
Expand Employer Sponsored
Health Coverage
John M. Colmers
Secretary
Department of Health and Mental Hygiene
Percentage of All Firms Offering Health
Benefits, 1999-2007*
Background
• Majority of individuals get their health insurance from
their employers
• Recent declines in employer sponsored insurance (ESI)
account for much of growth in the uninsured
• ESI still centerpiece of nation’s health financing system
• $200 billion in federal tax incentive to purchase
insurance through employers
• ERISA has made it difficult for states to mandate
employer coverage
• Voluntary measures to increase number of individuals
who get ESI have had limited success
ERISA
• Adopted in 1974 to allow multi-state employers
to offer comparable benefits across state lines
• Preempted state regulation of employee benefits
plan
• Federal DOL did not issue regulations for health
coverage as it did for pensions
• Net effect: exempted health benefits offered by
self-funded employers from any regulatory
oversight
• Does not allow for state waivers
ERISA Legal Framework
• Preemption
– ERISA preempts any state law that either refers explicitly
to ERISA plans or have substantial financial or
administrative impact
• “Savings” Clause
– States can regulate the terms and conditions of health
insurance among traditional insurance carriers
conducting traditional insurance business
• “Deemer” Clause
– Statute prohibits states from regulating plans that “selfinsure” i.e. bearing primary insurance risk
Employer Mandates
• Most unlikely to withstand an ERISA
challenge
• Border issues
• Massachusetts and Vermont have modest
“fair share” assessment
Pay or Play
• Requires an employer to pay an
assessment (whose proceeds partially
finance a publicly-administered health
coverage program).
• But will provide a credit against that
assessment for the amount of employee
health care costs.
• Doesn’t bind plan administrators to a
particular choice
Maryland Fair Share Share Health
Care Fund Act
• Gave employers with 10,000 or more employees
a choice:
» Spend at least 8% (6% for non-profits) of payroll on health
insurance costs or
» Pay the difference into a fund that supports Medicaid
program
• Challenged in court by Retail Industry Leader
Association (RILA)
• Struck down by federal district court and upheld
by fourth circuit
– Retail Industry Leaders Ass'n v. Fielder, 4th Cir., No.
06-1840 (January 17, 2007).
Massachusetts and Vermont
• Employers with more than 8-10 employees
must set up tax code section 125 plans
• Contribute “fair share” assessment if do
not offer fair and reasonable amount
toward employee health insurance
• Pay free rider surcharge for
uncompensated care costs their
employees or dependents incur
Recommendations for
Modifications to ERISA
1. Explicitly allow states to apply premium taxes
to employer plans.
Recommendations for
Modifications to ERISA
• Allow states to collect data from ERISA
plans.
Recommendations for
Modifications to ERISA
3. Set a federal floor on benefits. Because
of ERISA preemption states are not able
to define the scope of benefits provided
by ERISA plans.
Recommendations for
Modifications to ERISA
• Strengthen consumer protections for
those covered by ERISA plans.
State efforts to increase ESI
through subsidies
• Most other state efforts to increase ESI
have spotty record
• Key points
– Any subsidy must be significant
– Subsidy must be seen as secure over time
– Program design must be simple and
straightforward
– Minimize impact on current distribution
system
What is Maryland Doing?
Working Families and Small Business Health
Coverage Act
• Assist very small low wage firms to offer insurance
• To be eligible for a subsidy to purchase insurance, the
employer must be:
•
•
•
•
A very small firms (2-9 full time employees)
Have average wages below about ~$50K
Have not offered insurance to their employees in the previous 12 months
Willing to offer health insurance benefits that include the wellness benefit
design and Section 125 premium-only plan so that the employee’s
contribution to premium is excluded from income and not taxed
• Benefits
• Maximum premium subsidy for each low wage employee will be the lower of
$2000 or 50% of the premium
• Subsidy will be divided between the employer and the employee based on
the contribution each makes toward the premium
• Enrollment is capped to stay within a budget of $30 M
What is Maryland Doing?
Working Families and Small Business Health
Coverage Act
• Expand Medicaid Coverage for very
poor adults
• Year 1: Expand coverage to parents with family
incomes up to 116% FPL ($20K/family 3)
• Year 2-3: Expand services to Primary Adult Care
program – childless adults under 116% FPL ($12K
for individual)
• Year 4: Full Medicaid coverage for all poor adults
to 116% FPL
Final Remarks
• More employers are moving to self-funded
plans
• Increase in the number of individuals who
are in plans that have no state and limited
federal regulation
• ERISA makes health reform strategies all
the more challenging
• All eyes on MA and VT