The Employee Retirement Income Security Act (ERISA) of 1974 is one of the most important laws governing employer-sponsored health insurance (ESI) and retirement plans. A significant component of the law, called ERISA pre-emption, helps employers keep their health benefit costs low when providing health insurance to their workers.
ERISA pre-emption is a legal concept that overrides state and local regulations of employer-sponsored health plans by superseding state and local laws that relate to employee benefit plans, according to this report from the American Benefits Council (ABC) and Employee Benefit Research Institute (EBRI).
Deeper Dive
When drafting the law, lawmakers wanted ERISA to establish a nationally uniform standard for employee benefit plans to avoid a patchwork of different state-level regulations that could deter employers from offering benefits to their employees, according to the report from ABC and EBRI.
This 2024 KFF report, “Employer-Sponsored Health Insurance 101, shows that in March 2023, 60.4% of non-elderly Americans, or about 164.7 million people, had ESI. Of these, 84.2 million had ESI from through their employers, 73.8 million had coverage as a dependent by someone in their household, and 6.7 million were covered as a dependent by someone outside of their household, the report added.
Employers that self-insure their health insurance plans (also called self-funding) are exempt from state and local regulations and thus have an advantage that employers that purchase fully insured health plans from health insurers do not have. Employers that buy benefits plans from health insurers are subject to state and local laws, because ERISA pre-emption permits states to regulate insurance companies and insurance products, the ABC and EBRI report explained.
Since self-funded, employer-provided health plans are subject only to federal law, employers that sponsor such plans can offer consistent benefits to workers across state lines, the report noted. “Proponents of ERISA pre-emption point to this uniformity as easing administrative burdens and costs for multi-state employers while allowing them to tailor their benefits to the needs of their work force and provide benefits equitably, regardless of where those workers live or work,” the report added.