The Battle Over Self-Insured Health Plans, or 'One Good Loophole Deserves Another'

Abstract

One of the most perplexing consequences of the Employee Retirement Income Security Act's (ERISA) preemption provisions is the differential regulatory treatment afforded to employer-sponsored health care benefits provided directly to employees by the employer's plan and to benefits provided by a third party that sells an insurance policy to the employer. Under ERISA's clause, states may regulate insurance contracts, thus allowing regulators to guarantee insured employees a menu of state-mandated health-insurance benefits. But under ERISA's clause, self-insured plans are immune to such requirements. Since ERISA's passage three decades ago, there has been an explosion in the number of employers choosing to self-insure their health benefits plans and then purchase insurance for the plan in order to avoid both state mandates and insurance risk. Critics cry foul at the use of this regulation-avoidance tactic. This Article defends employers' exploitation of the deemer clause on the grounds that it is consistent with ERISA's clear language, structure, and delicate balance of underlying goals. But it argues that ERISA contains a complementary savings clause that state regulators can exploit by regulating stop-loss insurance companies, thus using a self-help remedy to close the clause loophole substantially. One good loophole deserves another.