Hiding in Plain Sight: ERISA's Cure for the $1.5 Trillion Health Benefits Market

53 Pages Posted: 15 Mar 2024 Last revised: 11 Apr 2024

See all articles by Amy Monahan

Amy Monahan

University of Minnesota Law School

Barak D. Richman

Duke University School of Law; CERC, Stanford Univ. School of Medicine; George Washington University - Law School

Date Written: February 22, 2024

Abstract

Since 1974, the Employee Retirement Income Security Act (ERISA) has imposed fiduciary duties on those who manage and administer employee benefit plans. But for the largest employee benefits – retirement benefits and health plans, which together constitute 13% of total national compensation – ERISA’s fiduciary duties have played very different roles. For retirement benefits, ERISA scrutinizes plan managers and requires employers to select plan investments with care. For health plans, there is a regulatory vacuum, as ERISA imposes few federal requirements yet preempts state efforts to ensure quality plan offerings. In short, ERISA has advanced protections for retirement plans but mostly curtailed protections for the nearly 155 million Americans who receive health insurance from their employer.

The tragedy is that health benefit plans are in dire need of regulatory scrutiny. The costs of health insurance have risen dramatically faster than inflation, cutting into worker take-home pay and inflicting disproportionate harm on middle- and lower-income workers, while the value and quality of covered benefits have thinned. The sorry state of employer-sponsored health insurance is largely due to inattention and inadequate probity from the parties subject to ERISA’s fiduciary obligations. In sharp contrast, the efficiency and value of retirement benefits have improved over that same period.

Because of what ERISA requires, and because of what managers of employee health benefits have failed to do, there is enormous opportunity to employ ERISA to enhance the value of health benefits for employees, which also means enhancing the value of the nation’s entire health sector. A handful of pioneering lawsuits have just started invoking ERISA to subject health benefits managers to fiduciary obligations, and many more are certain to come. Now is the time for ERISA jurisprudence to confront the consequences of neglecting health insurance, for courts to consider what demands ERISA imposes on health benefits managers, and critically, how the Department of Labor should exercise its regulatory authority under ERISA to impose fiduciary obligations that the statute authorizes and the market sorely needs. This article documents and explains this trend, counsels how ERISA should meet this moment, and offers guidance on how the Department of Labor could establish regulatory safe harbors to bring accountability and predictability to the enormous health benefits marketplace.

Keywords: ERISA, health benefits, health care reform, employer-sponsored insurance, fiduciary duties

JEL Classification: I13, J32, K29

Suggested Citation

Monahan, Amy and Richman, Barak D., Hiding in Plain Sight: ERISA's Cure for the $1.5 Trillion Health Benefits Market (February 22, 2024). Yale Journal on Regulation, Forthcoming, Minnesota Legal Studies Research Paper No. 24-05, Duke Law School Public Law & Legal Theory Series No. 2024-20, Available at SSRN: https://ssrn.com/abstract=4735763

Amy Monahan (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

Barak D. Richman

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7244 (Phone)
919-613-7231 (Fax)

CERC, Stanford Univ. School of Medicine ( email )

United States

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

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