Self-Funding: State vs. Federal Mandates
A Look at the Mandates*
When it comes to health insurance benefits, there are a few thousand federal and state insurance mandates in place. These laws span everything from topics of specific treatment coverage to specialty providers and dependent eligibility.
Laws can vary greatly at the state level. While some states implement few mandates, others have a long list of them. This can get confusing when federal and state mandates overlap and conflict.
Regulation by Plan Type
So who regulates what? Fully funded, insured health plans must adhere to federal and state mandates because there is an insurance carrier involved. This is not the case for self-funded plans as they are generally only subject to federal laws.
The main law that regulates self-funding is ERISA – The Employee Retirement Income Security Act of 1974. It is enforced by the Department of Labor (DOL) with fiduciary duty as a guiding principle. Self-funded plans are subject to other federal rulings, too, like HIPAA, ADA and COBRA. In the case of a private employer self-funding its health care plan, federal requirements preempt state ones. Some states still impose regulations on public employer self-funded plans.
Following Federal Mandates
There are some major advantages that come from having a self-funded plan that is subject to federal mandates instead of the combination of both federal and state. These include:
- More flexibility in designing health plan benefits because of fewer restrictions
- The ability to offer the same health benefits to all employees, regardless of which state they live or work in
- Ease in administering employee benefits at multi-state locations since there is consistency across the board
- Elimination of state premium taxes (states charge up to 5.5% on the premium, with an average of 2.25%)
ERISA is the main federal law that regulates self-funding, and for this type of health plan, state health insurance benefit requirements are almost always preempted. This can have many advantages, especially if a company has operations in multi-state locations and wants to offer its employees the same benefits.
*Please note: the information on this page provides a simplified overview of federal and state health plan mandates. It is not intended as a legal interpretation or advice, nor as a substitute for the advice of legal or health benefits professionals.