OTHER HEALTH CONCEPTS · 6 MIN READ

ERISA Basics: Plan Types, Preemption, Self-Funded Plans

ERISA is the federal statute governing employee benefit plans, and its first task is classification. An employee welfare benefit plan provides benefits like medical, disability, and death coverage; an employee pension benefit plan is one that provides retirement income or defers compensation to termination of employment or beyond. The distinction has teeth: pension plans face ERISA's participation, vesting, funding, and full fiduciary rules, while welfare plans skip the vesting and funding parts entirely. A special carve-out — the top-hat plan, an unfunded deferred-compensation arrangement for a select group of management or highly compensated employees — is exempt from the participation, funding, and fiduciary parts and remains subject only to reporting/disclosure (satisfied by a one-time Labor Department filing) and enforcement. A group health plan, in ERISA's Part 7, is a welfare plan providing medical care to employees or dependents through insurance, reimbursement, or otherwise — the hook for federal mandates like HIPAA portability, mental health parity, and ACA reforms. ERISA's most examined feature is preemption, built from three interlocking clauses. The preemption clause sweeps aside state laws that 'relate to' an employee benefit plan. The saving clause hands back to the states laws that genuinely regulate insurance — the traditional McCarran-Ferguson domain. But the deemer clause then forbids states from deeming an ERISA plan itself to be an insurer: as the Supreme Court held in FMC Corp. v. Holliday, self-funded plans — where the employer bears the claims risk — therefore escape state insurance regulation entirely, including mandated benefits and premium taxes, while insured plans remain indirectly regulated because the state regulates the insurance policy the plan buys. The case law draws the boundary lines. Pilot Life v. Dedeaux held that state bad-faith damage claims against ERISA plan insurers are completely preempted, because ERISA's own civil enforcement scheme is meant to be exclusive — participants cannot sue for punitive damages under state law. Rush Prudential HMO v. Moran went the other way: a state independent-external-review law was saved from preemption because it regulated insurance and added no new cause of action or damages remedy. Aetna v. Davila confirmed the dividing line — states may impose procedural insurance mechanisms, but any state remedy that duplicates or supplements ERISA's remedies is preempted.