Minnesota reform faces ERISA challenge - Employee Retirement Income Security Act - State Report

Business & Health, Oct, 1993 by Robert L. Mollica, Patricia A. Butler

The Employee Retirement Income Security Act of 1974 (ERISA) frustrates state policy leaders, challenges state laws designed to achieve universal access, and provides refuge for large employers that believe that they have more control than government over rising health care costs. So claim those who would change the law.

"ERISA is not the problem, it's the solution," counters Janice Gregory, vice president of the ERISA Industry Committee in Washington, which represents 125 large conpanies employing about 10% of U.S. workers. ERISA affects state reforms in two areas--financing and benefit mandates that vary across states, Gregory says, because ERISA exempts companies with operations in several states from benefit mandates that vary from state to state.

In essence, ERISA bars states from requiring employers to provide health insurance, although it does not prevent states from taxing and regulating traditional health insurers. The act also regulates the terms and conditions of employee benefit plans, and taxes or assesses employee benefit plans.

While federal agencies have broad discretion to grant waivers of Medicaid and Medicare requirements, only Congress can grant an exemption from ERISA.

ERISA's provisions on employee welfare benefit plans, including health plans, are brief and vague. In Minnesota, this lack of clarity has resulted in recent court action in which the state's health reform act, passed last year, faces an ERISA challenge in two areas: 1) state provider taxes that are designated for programs covering low-income populations and 2) data-reporting requirements.

Minnesota's challenge

Minnesota's 1992 comprehensive health reform law, the Health Right Act, is being challenged by a group of labor unions. At issue in Boyle v. Anderson, which was filed in the U.S. District Court for the District of Minnesota, are a 2% provider tax enacted to finance subsidized coverage for low-income state residents and the collection of data from self-insured benefit plans.

"The suit was filed to prevent providers from passing along the 2% tax to self-insured plans," says Richard Slowes, assistant solicitor general in the office of the Minnesota Attorney General. "Plaintiffs claim the full pass-along will cause greater variations in costs, but hospital costs vary now among states and even among hospitals in the same state," Slowes says. He also notes that the tax simply adds to the hospitals' overhead, and self-insured plans are not exempt from paying such administrative costs.

But William Cumming, an attorney with the law firm of Lindquist and Vennum in Minneapolis, who represents the Twin City Pipe Trades Welfare Trust, among others in the suit, disagrees. "The tax places responsibility on those people who already choose to provide health coverage and creates economic disadvantages with companies that do not provide coverage," notes Cumming.

Minnesota's House Appropriations Committee estimates that the state's provider tax will raise $85 million in fiscal 1994 and $160 million in fiscal 1995. This increase will allow the state to provide coverage to an estimated 50,000 uninsured children, families, single adults, and childless couples whose incomes are below 275% of the federal poverty level. Coverage will increase to 158,000 uninsured residents by 1997.

But not everyone agrees that taxing providers is the route states should take to provide health coverage for those in need. States tend to turn to so-called sick taxes, those assessed against health providers, says Gregory of the ERISA Industry Committee. Such taxes are more politically expedient than facing the issue that coverage for uncompensated care or for the low-income uninsured is a social issue and "we need to pay for it," she says.

Minnesota legislators contend that the financing method is appropriate. "We are recycling money and we'll be saving money for all plans, including self-insured plans," says Lee Greenfield, chairman of the state's House Appropriations Committee and a key architect of the reform plan.