What Is an ERISA Health Plan and What Does It Cover?

Employer-provided benefits are shaped by federal legislation. Many employers offer health coverage, and its administration is subject to specific legal frameworks. These regulations establish clear standards for benefit plans, ensuring transparency and safeguarding participant interests.

Defining ERISA and Health Plans

The Employee Retirement Income Security Act of 1974, or ERISA, is a federal law establishing minimum standards for most voluntarily established retirement and health plans in private industry. It protects individuals participating in these plans. The U.S. Department of Labor, through its Employee Benefits Security Administration (EBSA), plays a significant role in administering and enforcing ERISA.

ERISA defines a “health plan” within the context of an “employee welfare benefit plan.” Such a plan is established or maintained by an employer or an employee organization to provide various benefits to participants or their beneficiaries. These benefits typically encompass medical, surgical, or hospital care.

ERISA-covered health plans can include dental and vision care, prescription drug coverage, and benefits in the event of sickness, accident, or disability. Health Reimbursement Arrangements (HRAs) and Health Flexible Spending Accounts (FSAs) are also considered health plans under ERISA.

Employee welfare benefit plans can also cover group life insurance, accidental death and dismemberment benefits, and certain employee assistance programs (EAPs) if they provide medical care. The scope of ERISA applies to both fully insured health plans, where an insurance company bears the risk, and self-funded plans, where the employer assumes financial responsibility for benefits.

Determining if a Health Plan is Subject to ERISA

Most health plans sponsored by private-sector employers are subject to ERISA, regardless of the employer’s size. This includes plans offered by corporations, partnerships, limited liability companies, sole proprietorships, and non-profit organizations.

ERISA applies to both fully insured and self-funded plans. For self-funded plans, ERISA’s preemption clause generally exempts them from state insurance laws, promoting uniformity.

However, several types of health plans are exempt from ERISA. Governmental plans, established or maintained by federal, state, or local governments for their employees, are excluded. This also extends to plans for public school employees and municipal workers.

Church plans also generally fall outside ERISA’s scope. These are benefit plans established and maintained by churches or conventions of churches, provided they are tax-exempt. Church plans have the option to elect to be subject to ERISA.

Plans maintained solely to comply with workers’ compensation, unemployment compensation, or disability insurance laws are another common exemption. Plans primarily maintained outside the United States for the benefit of non-resident aliens are also exempt.

Certain individual health insurance arrangements and voluntary plans may be exempt if employer involvement is minimal. For instance, if an employer merely facilitates payroll deductions for an individual policy without endorsing or contributing to it, that arrangement might not be considered an ERISA plan. Sole proprietor plans are also not subject to ERISA.

While Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) are not classified as group health plans, they are still subject to many ERISA regulations. Group Coverage HRAs (GCHRAs) and Individual Coverage HRAs (ICHRAs) are considered group plans and fall under ERISA’s purview.

Key Protections and Requirements

ERISA imposes protections and requirements on covered health plans, establishing standards for their operation and safeguarding participant rights. It imposes fiduciary responsibilities on individuals or entities that exercise discretionary authority or control over a plan or its assets. These fiduciaries must act solely in the interest of plan participants and their beneficiaries.

Fiduciaries must carry out their duties with the care, skill, prudence, and diligence that a prudent person would use under similar circumstances. Their actions must be for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable plan administration expenses. Adherence to the plan documents is also mandated, unless inconsistent with ERISA.

ERISA mandates disclosure requirements. Plan administrators must provide a Summary Plan Description (SPD), explaining plan features, eligibility, benefits, and how the plan operates. This SPD must be provided within 90 days of an employee becoming covered, or within 120 days for new plans, and updated versions furnished at least every five years if material changes occurred.

A Summary of Benefits and Coverage (SBC) offers an easy-to-understand comparison of a plan’s benefits and costs. Plans are also required to file an annual report, Form 5500, with the Department of Labor, detailing financial and operational information.

ERISA also requires covered health plans to establish a fair and timely claims and appeals process. This procedure allows participants to apply for benefits and challenge denials. Plans must provide specific reasons for any denial and inform participants of their right to access documents relevant to their claim.

Specific timeframes govern claims and appeals. For urgent care claims, a decision must be rendered within 72 hours. Initial determinations for pre-service claims are generally made within 15 days, while post-service claims usually receive a decision within 30 days. Participants generally have 180 days to appeal a denied claim, and the plan must decide internal appeals within a specified period.

Enforcement and Participant Remedies

ERISA includes provisions for its enforcement and outlines avenues for participants to seek remedies if their rights are violated. The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) enforces ERISA provisions related to health plans. The Internal Revenue Service (IRS) also has oversight concerning tax-related aspects.

If a participant believes their benefit claim has been improperly denied or that a plan administrator has breached their fiduciary duties, they typically must first exhaust the plan’s internal claims and appeals process.

The EBSA offers consumer information and compliance assistance, and participants can contact the agency for help understanding their rights or investigating potential violations. Should the internal appeals process not resolve the issue, ERISA provides participants with the right to sue the plan or its fiduciaries in federal court. This legal action can be taken to recover benefits, enforce rights, or clarify future rights.

Fiduciaries who fail to meet their responsibilities under ERISA can face significant consequences. They may be held personally liable for losses incurred by the plan due to their breach of duty. Penalties can also include a 20% penalty assessed by the Department of Labor, removal from their fiduciary position, and in severe cases, criminal penalties.