Court Cases;

OLR Research Report

The Connecticut General Assembly


December 27, 1994 94-R-1069


FROM: Jerome Harleston, Senior Attorney

RE: Employee Retirement Income Security Act (ERISA) Waivers

You want to know how states go about obtaining a waiver from ERISA requirements and which states have obtained such a waiver.


There is no existing procedure for states to obtain a waiver from ERISA. Since ERISA is a federal law Congress must modify it in order to give states legislative relief. Several proposals to give individual states waivers in order for them to implement various health care reform proposals have been submitted to Congress but no action on them has been taken. One proposal that would have allowed Hawaii, Maryland, Minnesota, and New York to continue some existing programs was passed by the House of Representative but deleted from budget reconciliation legislation by the U.S. Senate. Hawaii's Prepaid Health Care Act of 1974 is the only state plan exempt from ERISA's preemption clause.


Congress enacted ERISA in 1974 to remedy problems of pension fraud and mismanagement. The law established a comprehensive system to regulate employee pension requirements. It applies to employee benefit plans like those to provide medical care through the purchase of insurance or otherwise, as well as welfare benefit plans like programs to provide vacations, child care, and prepaid legal services.

Although it is common for Congress to permit states to regulate in areas in which federal law is silent, ERISA explicitly prohibits state action. The statute specifies that [ERISA] “supersedes

any and all state laws as they may now or hereafter relate to any employee benefit plan... .” State laws regulating insurance, banking, and securities are exempt from federal preemption under ERISA.


ERISA poses a formidable hurdle to many activities that states would like to undertake as part of health care reform. For example, states may need to find revenue sources, impose obligations on employers to cover workers, or impose obligations on individuals to insure themselves. But many of the options states are considering as a source of financing employer mandates (e.g., employer “play or pay,” premium taxes on health plans, or assessments on providers) are not applicable to employers and employees under ERISA plans or it is not clear whether they are permissible because of conflicting or unclear court decisions (see Traveler's Insurance Co. v. Cuomo, Nos. 1514, 1515, 1516, 1667, Oct. 27, 1993 and United Wire, Metal and Machine Fund v. Morristown Hospital, 995 F.2d 500 (3d Cir. 1993)). Because of both the breadth of the federal preemption clause and the fact that the U.S. Supreme Court has not ruled on most of the health care regulatory and taxing strategies states might want to use, few, if any, activities can be undertaken with the confidence that they will not face an ERISA challenge. Because ERISA is a federal statute, Congress must amend the law to provide states waivers. Hawaii's law, the Hawaii Prepaid Health Care Act in effect since September 2, 1974 is the only exception to ERISA's preemption provision.

Using Hawaii as a model, U.S. Representative Mike Kreidler introduced H.R. 2870 to exempt from preemption specific provisions of the state of Washington's health care reform law. Similarly, U.S. Representative Ron Wyden sponsored H.R. 3618 to exempt Oregon laws relating to its high-risk insurance pool and employer-based coverage, as well as any other provisions of state law to the extent they are necessary to achieve universal coverage under the Oregon Health Plan. No action on either bill has been taken.

Other state exemptions from ERISA modeled after the Hawaii exemption were proposed in the 1993 federal budget bill (H.R. 2264). The bill would have permitted four other states to continue several existing programs: 1983 amendments to Hawaii's Prepaid Health Plan Act; Maryland's all-payer hospital rate-setting law; Minnesota's provider tax, data collection, and uniform claim form requirements; and New York's hospital rate-setting law that includes provider surcharges and charity care (i.e., bad debt pools). In proposing these “narrowly crafted, temporary amendments” to ERISA's preemption clause, the House Budget Committee noted that ERISA has made it difficult “to evaluate the availability of key elements of the various reforms proposals.” These exemptions were passed by the House of Representatives but deleted from the budget reconciliation legislation before final passage to comply with Senate rules forbidding the inclusion of nonbudgetary items in such legislation. Subsequent amendments to the federal tax law achieved the same objective for New York, which is conditioning employer health plan's tax deductibility or compliance with the state rate-setting law.

Waiver Process

Authorizing a federal administrative agency to evaluate individual state requests for ERISA preemption waivers was proposed in 1992 by U.S. Senators Leahy and Pryor (S.3180) and Durenberger (S.2589). The Leahy-Pryor proposal would have created a national commission to grant waivers from certain Medicaid, Medicare, and ERISA provisions for up to 10 states qualifying for five-year grants to demonstrate universal health care financing programs. The bill prescribed a series of conditions, including a minimum benefit package (preempting state mandates), federal budget neutrality, and specific reductions in both state health care spending and the number of uninsured residents.

Senator Durenberger's proposal authorized the secretary of labor to permit states to tax providers; set hospital rates; and impose a nondiscriminatory tax on health plans to fund risk pools for uninsured people or otherwise expand health care access.