ERIC Submits Comments on North Dakota’s Reinsurance Program

January 14, 2019

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Legislative Assembly of North Dakota
House Industry, Business and Labor Committee
State Capitol
600 East Boulevard
Bismarck, ND 58505-0360

On behalf of The ERISA Industry Committee (ERIC), thank you for accepting input from interested stakeholders as you explore ways to stabilize North Dakota’s individual health insurance market through a reinsurance program. ERIC is the only national association that advocates exclusively for large employers on health, retirement, and compensation public policies at the federal, state, and local levels. We speak in one voice for our members on their benefit and compensation interests, including many members with employees and retirees in North Dakota.

The business community recognizes the importance of a stable individual insurance market and supports state efforts to increase flexibility, lower costs, and ensure that state residents can obtain affordable health insurance. However, employers already provide stable health care benefits to more than 181 million Americans—the largest source of health coverage in the country. In North Dakota, 58% of the population, almost half a million people, receives health insurance coverage through an employer-sponsored plan. [1] Assessments on employer-sponsored insurance, either directly or indirectly through a third-party administrator (“TPA”), such as the one proposed in in House Bill 1106, penalize businesses that have been a source of quality, affordable health insurance for decades. The result will be higher costs for employers and workers and reduced stability for some employer-sponsored plans.

Targeting TPAs will impact ERISA plans.

Section 1144(a) of ERISA states that “the provisions of [ERISA] . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in [29 U.S.C.] section 1003(a) and not exempt under section 1003(b).” [2] Over the years, the Supreme Court has further distilled the preemption provision’s “relate to” language to include any state law that makes a “‘reference to’” or has a “‘connection with’” ERISA plans. [3] In this case, under H.B. 1106, self-funded, single employer plans are exempt from the definition of “group health benefit plan,” are not members of the reinsurance association, and, therefore, are not subject to the assessment against insurers; however, the legislation indicates that TPAs would be subject to these assessments. Targeting TPAs will indirectly have the same effect that ERISA was intended to prevent. Congress created ERISA to keep employee benefit plans strong and to ensure that they are administered for the exclusive purpose of providing benefits to participants and their beneficiaries. Those covered by employer-sponsored insurance would receive no benefit from the proposed reinsurance program and would likely see their premiums increase as a result of an assessment on TPAs.  In fact, the assessment may constitute an unlawful diversion of plan assets away from the beneficiaries of the plan, and instead into state coffers for the benefit exclusively of non-beneficiaries of the plans.

ERISA also guarantees national uniformity for benefit plans, no matter where a plan beneficiary lives, works, or receives medical care. It is clear that ERISA would not permit 50 different states to design reporting and assessment regimes that would apply to ERISA plans, whether through their TPAs or directly. Many plan sponsors use TPAs to handle the administrative tasks involved in providing health insurance to their employees. Efforts to mandate benefits, levy assessments, or impose new plan requirements upon ERISA plans through their TPAs have repeatedly been found to violate ERISA, thus jeopardizing the entire underlying programs. The bill does not state how much the assessment may be, but even a small per-member per-month assessment can quickly add up to a substantial dollar amount, depending on the number of covered lives a particular TPA is administering in North Dakota. Worse, if plans were required to comply with 50 different assessment regimes in 50 different states, the administrative burden could be even more dangerous than the burden inherent in the assessments themselves. In order to offset that impact, many TPAs will raise the amount charged to the employer, and in turn, employers will need to increase the amount of employees’ contribution toward their health insurance premiums. A small amount passed on to an employee through increased premiums could have a significant impact on some individuals, and it could cause some current plan beneficiaries to forego coverage or to take up coverage but forego needed care.

An assessment on TPAs that in any way seeks to fund a reinsurance program by including ERISA plan beneficiaries in the funding mechanism will cause employer plans and their participants to pay more, with no benefit for our plan beneficiaries. This is not actually reinsurance; it would be a redistribution of wealth from those with employer-sponsored insurance to those purchasing health care on the Affordable Care Act Exchange in North Dakota. Therefore, regarding the assessment on TPAs, we ask that you explicitly exempt those lives covered by an ERISA plan from the assessment on insurers calculation when finalizing the bill’s language. If North Dakota enacts legislation that unlawfully diverts plan assets from ERISA plans, whether directly or through TPAs, ERIC will consider suing to preempt North Dakota’s reinsurance program in federal court.

Thank you for accepting our input on this proposed legislation. If you have any questions or if we can be of further assistance, please contact me at agreathouse@eric.org or 202-627-1914.

Sincerely,

Adam Greathouse
Senior Associate, Health Policy

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[1] Health Insurance Coverage of the Total Population, The Henry J. Kaiser Family Foundation, 2017, https://www.kff.org/other/state-indicator/total-population/?dataView=1&currentTimeframe=0&selectedDistributions=employer&selectedRows=%7B%22states%22:%7B%22north-dakota%22:%7B%7D%7D%7D&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[2] Gobeille v. Liberty Mut. Ins. Co., 136 U.S. 936, 944 (2016) (quoting Egelhoff v. Egelhoff, 532 U.S. 141, 149-50 (2001), quoting Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990)).

[3] Egelhoff v. Egelhoff, 532 U.S. 141, 147 (2001).