"Consumer Protection" and ERISA

By Baron, Roger M. | South Dakota Law Review, Fall 2011 | Go to article overview
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"Consumer Protection" and ERISA


Baron, Roger M., South Dakota Law Review


I. WHAT COMES TO MIND WHEN HEARING THE WORD "ERISA"?

Because of my work with ERISA reimbursement issues, I have had folks (including many law students) speak to me with some initial excitement about ERISA. They think this must be a fun and exciting area of the law. I would like to pose the initial question, "What comes to one's mind when she or he hears the word, 'ERISA?'"

For me, the word "ERISA" projects an image of an APOCALYPTIC EVENT. By way of analogy, let me talk briefly about an EMP Bomb ... what is an EMP Bomb? It is an Electricalmagnetic Pulse Bomb--it is a type of bomb which causes a burst of electromagnetic waves which destroys all electronic circuits. It has been thought that an EMP Bomb might be utilized as a weapon by terrorists in recent years. It has also been featured on a couple of episodes of 24--where Jack Bauer and others had to deal with the aftermath of an EMP Bomb detonation. What is the aftermath? All computers are totally erased and voided. All electric circuits destroyed. Any device utilizing an electric circuit is useless. Motor vehicles, lights, computers all rendered useless. The result is an apocalyptic rendering of the environment and all functions of life have to start from scratch, all over again.

Well, to my way of thinking, ERISA is like an EMP Bomb detonation in the matter of insurance benefits. How so?

II. STATE REGULATION OF INSURANCE

The business of insurance--health insurance, disability insurance, life insurance--has never been regulated on the federal level. Why not? Because the U.S. Supreme Court ruled in 1868, in Paul v. Virginia, that an insurance policy was not an item of "commerce" and, therefore, Congress lacked authority to regulate insurance through the interstate commerce clause. This decision meant that Congress could NOT regulate insurance. As a result, insurance became regulated by the states. And, the states have regulated insurance intensely--with much interaction by state legislatures, judicial decision, and regulations by state departments/divisions of insurance. In my insurance class, we are constantly exploring the "give and take" of state regulations as courts and legislatures carefully mold rules that protect consumers and also foster an acceptable and healthy environment for insurance companies to do business.

As a result of Paul v. Virginia, the matter of insurance regulation has been undertaken by states. This decision is not, of course, the law today. In 1944 the U.S. Supreme Court overruled Paul v. Virginia and held that insurance was an item of commerce and that it could be regulated. But, this decision was handed down the day before D-Day and our country's entry into the European theater of WWII. Congress was not in a position to start regulating insurance and immediately responded with the McCarran Ferguson Act which was a recognition that the states are doing a great job regulating insurance and that the states should continue to do so. Thus, state regulation of insurance was endorsed by Congress and continued to flourish.

III. ERISA PREEMPTION

But--enter ERISA in 1974. With the enactment of ERISA in 1974--designed initially and primarily for the protection of pension plans, we have Federal Preemption. The impact of this federal preemption and the enactment of ERISA is the equivalent of an EMP Bomb. In AN INSTANT, all state laws are preempted. Rational rules and regulations protecting consumers which have been developed in over a century of state regulation--INSTANTLY WIPED OUT! Well, what is left? Since Congress has never regulated insurance, there was and there is no "federal standard" or federal substitution of reasonable rules. Instead we have an apocalyptic landscape, which was completely virgin territory--a vacuum, if you will. Similar to the devastation left in the area where an EMP Bomb is detonated.

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