As the Employee Retirement Income Security Act (ERISA) commemorates its 50th anniversary, employers are increasingly pushing for greater transparency from insurance providers and third-party vendors. This demand stems from heightened scrutiny regarding fiduciary duties within health plans and the evolving landscape of health benefits administration.
ERISA, which was enacted on September 2, 1974, originally regulated employer-sponsored health plans, with only 6% of people in group health plans being covered under self-insured plans. Fast forward to today, and 57% of private employer plans are self-insured, placing greater focus on the roles and responsibilities of plan service providers, particularly in terms of data and pricing transparency. In response, several states have begun regulating these areas, leading to legal debates over whether ERISA preempts state laws.
Lisa Gomez, Assistant Secretary of the Employee Benefits Security Administration under the Department of Labor, noted, “ERISA’s framers likely didn’t foresee the complex web of relationships and entities that would emerge around employer-sponsored plans.”
While ERISA has seen amendments over the years, the most significant recent change came with the Consolidated Appropriations Act of 2021. This law reinforced the fiduciary responsibilities of plan sponsors, barring them from paying unreasonable fees to third-party administrators. It also eliminated “gag clauses” that prevented plans from accessing critical claims data. Despite these measures, employers report ongoing challenges in obtaining necessary information.
Shawn Gremminger, President and CEO of the National Alliance of Healthcare Purchaser Coalitions, emphasized that the statute remains “largely silent” on industry partners. ERISA places the burden on employers to enforce fiduciary obligations, which can be challenging when dealing with third-party contractors like insurance companies and pharmacy benefit managers (PBMs).
Employers are advocating for more explicit fiduciary responsibilities for third-party service providers, arguing that current practices often unfairly penalize them for the missteps of others. “We’re held accountable for others’ bad practices, and if they engage in misconduct, we’re the ones who suffer,” said Gremminger. His organization supports extending fiduciary duties to these third-party entities, though this remains a contentious issue among employers.
Gomez acknowledged the frustration of employers, noting that her agency has communicated these concerns to lawmakers. “We’re making it clear that we’re doing everything we can, but we need legislative support,” she said.
The focus on transparency has intensified, particularly concerning PBMs, which manage prescription drug benefits for insurance plans. The three largest PBMs—Express Scripts, CVS Caremark, and Optum Inc.—control 80% of the market and are deeply integrated with insurance companies and retail pharmacies.
In January, House Committee on Education and the Workforce Chairwoman Virginia Foxx (R-N.C.) solicited stakeholder feedback on how Congress might better define fiduciary duties for third-party entities, including PBMs. In response, the Blue Cross Blue Shield Association warned that stricter fiduciary definitions could have “unintended negative impacts,” potentially disrupting non-fiduciary business operations.
“This would impose significant new burdens on basic business functions and discourage TPAs and PBMs from innovating and developing cost-saving programs,” the association stated.
In the meantime, employers continue to demand greater transparency. Several have filed lawsuits against insurance companies, seeking access to data and alleging that these companies failed to manage healthcare costs effectively. For example, former employees of Johnson & Johnson and Wells Fargo & Co. have initiated lawsuits this year, accusing the companies of breaching fiduciary duties by paying inflated drug prices.
However, benefits lawyers caution that transparency alone may not guarantee lower costs. “Price transparency doesn’t always equate to the lowest cost,” said Eric Mathisen, a shareholder at Ogletree Deakins. “There are trade-offs between service quality and cost.”
The transparency sought by employers could come at the expense of insurance companies, consultants, and others in the insurance industry. Currently, fees paid by insurance companies to consultants, PBMs, and other third parties are often not disclosed to employers.
A spokesperson for America’s Health Insurance Plans (AHIP) stated that the organization does not support additional transparency requirements beyond those already mandated by the No Surprises Act, which protects patients from unexpected out-of-network bills.
Several major consulting firms, including McKinsey & Co. and Deloitte, did not respond to requests for comment.
States have also taken matters into their own hands, particularly concerning PBM regulation. The 2020 US Supreme Court decision in Rutledge v. Pharmaceutical Care Management Association allowed for more state regulation of PBMs by confirming that ERISA does not preempt an Arkansas law imposing specific requirements on PBMs regarding pharmacy payments.
Oklahoma is currently petitioning the Supreme Court to review a similar law after losing a challenge from the Pharmaceutical Care Management Association at the US Court of Appeals for the Tenth Circuit.
These state laws highlight the ongoing debate over ERISA preemption, which employers argue is vital for offering consistent, low-cost health insurance plans across states with differing regulations. At a subcommittee hearing in April, Foxx referred to the proliferation of state PBM laws as “the camel’s nose under the tent.”
However, Erin Fuse Brown, a professor at the Brown University School of Public Health, argued that concerns about state preemption are exaggerated. She pointed out that the healthcare market was very different when ERISA was enacted. “The landscape has changed significantly since ERISA’s passage,” she said. “It wasn’t designed with today’s self-funded payers in mind, who claim they need uniformity across states to offer plans.”
Still, the fact that Congress hasn’t altered this standard over the past 50 years underscores its importance, according to Melissa Bartlett, Senior Vice President of Health Policy at the ERISA Industry Committee.
“The durability and significance of the preemption standard can’t be overstated,” Bartlett said. “It has played a crucial role in expanding this market and has been instrumental in encouraging employers to offer self-funded insurance.”
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