More information on employer sponsored health care

Employer Based Health Coverage: Healthy Workers and Employee Retention

Employers want healthy workers, and that providing them with the access and resources needed means to support good health, seek preventative care, treat illnesses and injuries, and take their prescribed medication. Health benefits that provide access to affordable care and medication are also powerful employee retention tools. This is why employer-based health insurance is foundational to American health care as well as our economy.​

There are at least 177 million Americans with employer-based health coverage, compared with 120 million with other coverage and 28 million uninsured.​

Employer-based health insurance can be either fully-insured or self-funded.

Fully-Insured Plans & Self-Funded Plans

Both fully-insured and self-funded plans are used by employers to support good health among employees and as a job recruitment and retention tool.

In a fully-insured health plan, the employer pays a premium to a health insurance company. The health insurance company administers the plan and assumes the risk for large claims.
  • Potentially higher costs for employers
  • Less risk to employers
In a self-funded health plan, an employer uses its own funds to provide health coverage. A self-funded plan can reduce costs to an employer, especially if employees are relatively healthy and do not use the plan benefits very much. It also assumes a level of risk for the employer. Of the 177 million Americans receiving employer-based health coverage, over 60% are on self-funded plans.
  • Potentially lower costs for employers
  • More risk for employers

Self-funded Plans: History & Implications of ERISA Law

Self-funded plans are traditionally governed by federal, not state law.

Self-funded health plans have traditionally been governed by the provisions of the Employee Retirement Income Security Act (ERISA). According to the U.S. Department of Labor, the provisions of ERISA “were enacted to address public concern that funds of private pension plans were being mismanaged and abused. ERISA was the culmination of a long line of legislation concerned with the labor and tax aspects of employee benefit plans. Since its enactment in 1974, ERISA has been amended to meet the changing retirement and health care needs of employees and their families.”

Employers often choose self-funded ERISA-governed plans to provide savings, stability, and consistency across multiple states.

Because self-funded plans are governed by federal ERISA law, they are exempt from many new mandates and red tape proposed by state lawmakers and regulators. For larger companies with younger, healthier workforces, ERISA plans can offer pronounced savings over fully-insured options.

Companies with self-funded plans operating in multiple states have been able to operate under one regulatory framework governed by federal ERISA law. Multi-state companies with fully-insured plans, on the other hand, must navigate a complicated patchwork of state laws governing health insurance requirements. This can present compliance challenges, introduce significant variance in costs from one state to another, and create an environment where employees in one state receive significantly richer benefits than employees in another.

ERISA & Self-Funded Plans are Under Attack

For nearly 50 years, ERISA has prevented state legislators from preempting federal laws governing self-funded plans. This means employers with self-funded plans could expect consistency across state lines. However, a 2020 U.S. Supreme Court decision in Rutledge v. PCMA has jeopardized those federal protections. The Rutledge decision upheld an Arkansas law that required PBMs to reimburse pharmacists at certain levels. The decision has emboldened a wave of state-level activism driven by lobbyists for Big Pharma and independent pharmacists who are looking to increase their profits. Today, those lobbyists are pushing legislation aimed at boosting their profits by undermining self-funded plans, further diminishing ERISA law, and undercutting a PBM’s ability to negotiate lower drug prices.

Some examples of these proposed policies include:

In states where these attacks on private health insurance and prescription drug coverage are successful, the cost of prescription drugs could increase by billions of dollars in the next decade. Those costs will be borne by employers and their employee policyholders.

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Save our Benefits Maryland is a coalition of Maryland leaders dedicated to keeping health benefits affordable and accessible for employers and employees.

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