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Medical/HMO Line ERISA The one crucial distinguishing factor separating employment based plans from others, is that with an employment plan an employee and his/her covered dependants lose virtually all of the rights and leverage you would otherwise have under the consumer protection and insurance laws and regulations of their state. (See ERISA, Glossery Section). How did this come about? First, some background. Over the past several decades each state, through its own laws and court decisions developed protections for insurance policyholders. This happened at the state rather than the federal level because years ago, as described elsewhere on this site, Congress enacted legislation preventing federal regulation of the insurance industry. This Congressional legislation was known as the McCarran Ferguson Act. It provided that any regulation of the insurance industry had to be enacted at the state rather than the federal level. Various “model” state statutes eventually developed and were enacted. These uniform statutes included unfair claims handling regulations and other laws adopted on a state by state basis. These state statutes, along with state court decisions, gave policyholders the right to take legal action against carriers engaging in unfair claims handling practices such as underpayment, misrepresentation, delay or fraud. Consumer groups argued that the right to hold insurers accountable in this way gave policyholders leverage to compel the fair settlement of valid claims. However many insurance companies complained that lawsuits were costing the industry too much money and that the solution was to bar people from suing it. Most states were simply unwilling to do this. In 1987 the US Supreme Court, at the urging of the insurers, did precisely what state legislatures had been unwilling to do. In the case of Pilot Life v. Dedaux, the Court ruled that if a person obtained his or her health insurance through their employer, they could no longer rely on state laws, or state courts, to protect them if their rights were violated. Instead, their rights were to be limited by an existing federal law known as the Employee Retirement Income Security Act (ERISA). Interestingly, this law was not originally enacted with insurance in mind at all. It contained none of the standards or consumer protections afforded by most states in non-ERISA situations. The elimination of state insurance protections for employees who obtain their health benefits at work is called “ERISA Preemption”. There are limited employee exemptions to ERISA preemption (notably for state employers and employees of religious organizations). In addition, a number of efforts have been launched in an attempt to rectify this situation through the enactment of remedial legislation. But the bottom line is that so far, the Supreme court's 1987 Ruling remains the law. And unless you are exempted as a government or other excluded employee you lose all of your rights under your state's laws and protections if you are ERISA Preempted. If you have any choice between purchasing an ERISA governed plan, versus one that is not an ERISA plan, InsuranceConsumers recommends that you select the latter.
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