The U.S. Court of Appeals for the Fourth Circuit, in American Medical Security v. Bartlett, recently upheld a lower court decision that invalidated a health insurance regulation issued by the Maryland Insurance Administration (MIA).
The controversy surrounds Maryland's requirement that health insurance policies sold in the State must contain certain expensive mandated benefits, such as in vitro fertilization. Employers who are self-insured, that is, employers who pay for health benefits directly, and not through the purchase of health insurance, however, do not have to provide these mandated benefits.
Some employers have claimed to be self-insured by directly paying for only a limited amount of health care benefits, and then purchasing stop-loss insurance to pay for any health care benefits needed by an employee or covered dependent above the limited amount paid by the employer.
In response, the MIA established $ 10,000 as a minimum "attachment point" for stop-loss insurance for health care coverage. In other words, to avoid providing employees with all of Maryland's mandated health care benefits, an employer had to pay for the first $ 10,000 of health care benefits needed by each employee or covered dependent.
The Fourth Circuit in American Medical Security v. Bartlett, however, concluded that the MIA's attachment point regulation should be overturned because of the federal Employee Retirement Income Security Act of 1974 (ERISA). Among other things, ERISA permits states to regulate insurance companies, but prohibits states from regulating employer-sponsored health plans.
In this case, the court found that the State over- stepped its bounds by regulating employers as if they were insurance companies. The court expressed sympathy for Maryland's initiative, but stated that only Congress has the power to take the action intended by the MIA's regulation.
Look for continued efforts before Congress to amend ERISA to give states more authority in the area of self-insured health plans, and look for Maryland to regulate stop-loss insurance companies directly, instead of regulating them indirectly, as was the case with the MIA's attachment point regulation.