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Reforming ERISA to Help States Control Health Care Costs

Members of the U.S. House of Representatives seated and standing in the House Chamber of the U.S. Capitol Building in Washington, D.C.

Members of the U.S. House of Representatives on the first day of the 118th Congress in the House Chamber of the U.S. Capitol Building in Washington, D.C., on January 3, 2023. With political control now divided between the House and Senate, the long-simmering issue of ERISA preemption reform has potential to receive bipartisan support in Congress. Photo: Win McNamee/Getty Images

Members of the U.S. House of Representatives on the first day of the 118th Congress in the House Chamber of the U.S. Capitol Building in Washington, D.C., on January 3, 2023. With political control now divided between the House and Senate, the long-simmering issue of ERISA preemption reform has potential to receive bipartisan support in Congress. Photo: Win McNamee/Getty Images

  • Federal ERISA law limits states’ ability to control costs by preempting many state laws related to employer-sponsored health plans

  • Bipartisan support may be growing for legislation that would give states more flexibility through ERISA preemption waivers

  • Federal ERISA law limits states’ ability to control costs by preempting many state laws related to employer-sponsored health plans

  • Bipartisan support may be growing for legislation that would give states more flexibility through ERISA preemption waivers


  • Issue: The federal Employee Retirement Income Security Act (ERISA) preempts many state laws relating to employer-sponsored health insurance and thereby dilutes states’ ability to enact cost-control reforms. Since ERISA’s passage in 1974, federal legislators frequently have considered altering ERISA’s preemption to provide states greater flexibility. Now facing a divided Congress and rising health care costs, state reforms could benefit from more latitude under ERISA.
  • Goals: Assess past efforts and current opportunities for federal legislation on ERISA preemption to enable state cost-control reforms.
  • Methods: Identify federal bills on ERISA preemption and compare proposals’ likely impact on state cost-control reforms.
  • Key Findings and Conclusions: Adding ERISA preemption to the Affordable Care Act’s (ACA) waiver program or adding a waiver to the ERISA statute would offer modest assistance to state cost-control reform efforts without undermining the ACA or ERISA’s protections — an outcome that state legislators from both major political parties would likely welcome. Although past proposals have failed to pass in Congress, the endurance of the ACA and the bipartisan recognition of state health care cost control’s urgency present an opportunity to try again.


Although U.S. health policy has maintained a significant role for state authority,1 state health reform remains subject to one of the broadest federal preemptions in any area of law: the Employee Retirement Income Security Act of 1974 (ERISA).2 ERISA preempts state laws that regulate employer-sponsored health benefits, even when those state laws do not directly conflict with federal requirements. Because nearly 155 million people get coverage through employer-sponsored benefits,3 ERISA preemption impedes state health reforms, from incremental measures such as claims data collection all the way to comprehensive proposals for state single-payer systems.4

Critiques of ERISA’s preemption provision focus on its unpredictable breadth and its unintended consequences for regulation of health benefits. ERISA supplies relatively few federal rules for health benefits, making the statute’s preemption of state laws largely deregulatory. Critics say this creates a preemption “vacuum” when ERISA supplies no federal rule on a topic but preempts states from enforcing their own rules. For example, ERISA has no requirement that employers contribute to their employees’ health care coverage. When states have passed laws requiring employers to contribute to employee health care in various ways, employers have sued to prevent enforcement of the law, losing in some courts but winning in others.

State and federal lawmakers who argue for ERISA reform request greater flexibility for states to expand health insurance regulation in ways that serve their constituents’ needs and goals. In contrast, trade associations and political action committees aligned with large, multistate businesses vociferously oppose any dilution of ERISA preemption, which they use to challenge enforcement of state laws.5

As Congress begins a new session with political control now divided between the House and Senate, the prospects for larger-scale federal reform seem dim. Meanwhile, states continue to grapple with rising health care costs and uncertainty surrounding the end of supports and flexibility tied to the COVID-19 public health emergency declaration. Reviving the long-simmering issue of ERISA preemption reform could offer states some needed flexibility in pursuing cost-control measures and has some potential to receive bipartisan support in Congress.

Opportunities and Efforts to Reform ERISA Preemption

Unlike many federal health care statutes, ERISA does not authorize the administering agency (the U.S. Department of Labor) to waive its preemption provisions. That means any significant change to ERISA preemption would need to come from Congress through federal legislation.6

Within the past few years, federal lawmakers have introduced legislation that would add ERISA preemption to the list of waivable provisions under the ACA’s State Innovation Waiver framework. These proposals are the most recent in a long line of legislative efforts to alter ERISA preemption.

Understanding Past ERISA Preemption Reform Efforts

Legislative options for reforming ERISA have included the following approaches:

  • repealing the broad preemption provision
  • closing the Supreme Court’s preemption loophole for employer self-funded plans
  • allowing the U.S. Department of Health and Human Services to grant waivers to states
  • exempting specific individual state laws (see table).7

Repealing the preemption provision. This option would not eliminate preemption entirely but would limit the scope of preemption to only those state laws that actually conflict with ERISA’s rules, rather than “any and all State laws” that “relate to” employer-sponsored benefits. Similarly, Congress could enact new federal law that expressly supersedes or replaces ERISA with a different version of preemption.8 Though Congress in 1998 considered repealing the preemption to permit patients to sue plans, that proposal would have retained the broader “relate to” preemption for other insurance-related regulations.9

Closing the self-funded loophole. As a more moderate measure, Congress could close the ERISA preemption loophole for employer self-funded health plans. ERISA allows states to enforce their insurance regulations, despite the federal preemption for employer-sponsored benefits. For health insurance benefits, about 36 percent of employers buy their plans from insurers. These “fully insured” plans must abide by state insurance law. The remaining 64 percent of employers establish “self-funded” plans in which the employer assumes most of the financial risk and relies on third-party contractors to help design and administer the benefits.10

Though ERISA does not differentiate between these types of plans, the Supreme Court in 1990 interpreted ERISA’s language “to exempt self-funded ERISA plans from state laws that ‘regulat[e] insurance.’”11 Congress could change this through a “statutory override.”12 The year after the Supreme Court opinion, Sen. Patrick Leahy (D–Vt.) introduced a bill that would have lifted preemption “with respect to . . . the State’s authority to include self-funded employee welfare benefit plans in a health insurance reform effort.”13 It did not pass.

Adding waiver authority. Congress could give the administering agencies the power to suspend ERISA preemption for states on demand, creating a statutory waiver process. This modest change has been a popular feature in legislative proposals. During the past 30 years, Democratic legislators have proposed several versions of federal legislation to help states pursue comprehensive reforms and test models of universal coverage. These state-based reform bills often consolidate federal funding from existing programs and permit states to use these funds for universal care plans without the usual strictures of federal law. Typically, states must apply to a federal agency (usually some combination of the Departments of Health and Human Services and Labor, as well as the Internal Revenue Service), submit a plan for reform, and seek the Secretaries’ approval.

Recognizing that ERISA preemption prevents states from reaching some aspects of employer-sponsored coverage, the state-based reform bills have often (but not always) included a provision for waiving ERISA preemption.14 In the decade leading up to the Affordable Care Act, for example, Sen. Bernie Sanders (I–Vt.) and Rep. John F. Tierney (D–Mass.) introduced numerous versions of the “States’ Right to Innovate in Health Care Act.” That legislation would have created a process for states to apply to the Secretary of Health and Human Services (HHS) for federal “demonstration grants” to implement plans for a statewide “cost-effective delivery system of universal, comprehensive health care with simplified administration.” It also proposed to give HHS the authority to waive ERISA preemption for an approved state plan.15 It did not pass.

Republican proposals that failed during the same era did not touch ERISA preemption and tended to focus on ways to offer health insurance across state lines, subject to fewer federal and state requirements.16

Exempting individual state laws. As the most minimal change, Congress could suspend ERISA preemption only for specific state laws, creating an exemption. Hawaii is the only state that has a federally enacted exemption, which Congress passed in 1983 to save the state’s employer mandate from ERISA preemption.17 Bills introduced in the 1990s proposed exemptions for reforms in Maryland, Minnesota, New York, Oregon, and Washington but failed to pass.

Opportunities for ERISA Preemption Reform in the ACA Era

Since the ACA’s passage, efforts to address the ERISA preemption have again gained some momentum. Options include using State Innovation Waivers, passing the State-Based Universal Health Care Act, and enacting an ERISA preemption waiver.

State Innovation Waivers. The ACA enacted a federal employer mandate and established uniform standards for health insurance, but many of the ACA’s requirements do not apply to ERISA plans.18 The ACA afforded states some flexibility to seek waivers of the ACA’s provisions to pursue new reforms under the Section 1332 State Innovation Waiver administered by HHS.19 The federal employer mandate is among the waivable provisions in the ACA’s State Innovation Waiver. But the ACA expressly disavowed any effect on ERISA preemption and did not include ERISA preemption among the waivable provisions.20 So, for example, a state could apply for a waiver of the ACA’s employer mandate and enact a state payroll tax on employers that did not offer coverage. But this play-or-pay provision, under certain circumstances in some jurisdictions, has been found to trigger ERISA preemption.21 Thus, the ACA gave states a stronger set of federal rules to build upon and some new flexibility, but it did not afford them any relief from ERISA preemption.22

When the ACA’s State Innovation Waiver became active in 2016, states mostly used it for reinsurance programs to shore up the individual market, rather than as a catalyst for more comprehensive state reforms.23 Under the Trump administration, however, HHS encouraged states to use the waiver program to undermine the ACA itself.24 The administration granted waivers that litigants argue contravene the “guardrail” requirements in the statute.25 The Biden administration reversed this controversial approach.26 This experience with the ACA waiver illustrates how much delegating the preemption decision to a federal agency invites uncertainty and political calculation into the determination.

State-Based Universal Health Care Act. Democratic representatives have recently proposed bills for an expanded ACA waiver program that would support state experimentation with universal coverage designs and would include the authority to waive ERISA preemption for these experiments. First introduced in 2015, the State-Based Universal Health Care Act (SBUHCA)27 “builds upon the ACA’s State Innovation Waiver” by giving HHS the ability to waive “numerous barriers that limit states’ ability to design true single-payer systems.”28 Most importantly, the waiver expansion in SBUHCA makes it easier for states to pool funds from existing federal programs (like Medicare, Medicaid, and the Children’s Health Insurance Program) and authorizes HHS to waive ERISA preemption.29

SBUHCA’s Waiver for State Universal Health Care is designed for states’ comprehensive reforms and not for more discrete “innovations” covered by the existing ACA waiver. As prerequisite to granting a waiver, SBUHCA requires the state demonstrate that its plan will provide coverage to all residents and its coverage will be “at least as comprehensive” and “affordable” as coverage under existing federal programs.30 The “all residents” coverage requirement in SBUHCA is more demanding on states than the ACA’s State Innovation Waiver criteria of covering a number of residents “comparable” to the number with coverage under the ACA.31 Thus far, after two more attempts, SBUHCA has received backing solely from Democratic lawmakers representing 16 states.32

ERISA preemption waiver. State legislators, meanwhile, have garnered some bipartisan support for ERISA preemption reform. In 2019, the National Council of Insurance Legislators (NCOIL), a bipartisan organization of state lawmakers serving on insurance committees, passed a resolution asking members of Congress to enact an all-purpose ERISA preemption waiver.33 Expressing their frustration that ERISA preemption threatens state reforms as modest as all-payer claims databases, NCOIL urged Congress to amend ERISA to allow the Secretaries of Labor and HHS to waive ERISA preemption for particular health reforms.34

Adding waiver authority directly to the ERISA statute would enable states to pursue a wider range of health reforms — including discrete cost-control efforts that are not part of comprehensive reform packages or otherwise within the ambit of ACA provisions. Permitting a waiver of ERISA’s preemption provision also would allow states to add to existing federal protections while preserving ERISA and the ACA. In this way, it aligns with the Biden administration’s plans to build on the ACA.35

An ERISA preemption waiver is, by definition, budget-neutral for the federal government because ERISA does not provide any federal funding that could pass through to the states. But a statutory waiver program — as opposed to a law altering the preemption itself — would make the availability of waivers depend somewhat on administrative discretion. So, for example, under an ERISA waiver provision, a state could seek a waiver of ERISA preemption for an all-payer claims database that included collection of self-funded plans’ data, a practice currently preempted by ERISA’s loophole for self-funded plans. A state also could apply to waive preemption for a play-or-pay provision to tax employers who do not offer coverage. Although that provision should withstand an ERISA preemption challenge, having a federal preemption waiver would save the costs of litigation.

Though modest in its potential impact, a statutory waiver provision may be more politically palatable because it does not automatically affect all employers, and it offers stakeholders an opportunity to weigh in on the potential impacts of proposed waivers.


Calls to relieve state health reforms from ERISA preemption have been around for more than 45 years. Even the most modest changes have failed to pass thus far. With the current divided federal government, an ERISA preemption waiver presents an opportunity for federal legislators to ease the way for states to pursue urgently needed cost-control efforts while larger reforms likely stall in Congress.


This study combined primary source research into federal legislation with legal analysis of ERISA preemption. The research team searched databases of bills introduced in Congress for provisions that would alter the preemption provision of ERISA contained in 21 U.S.C. § 1144(a)-(c). We also reviewed secondary source literature describing legislative efforts to alter the preemption provision. For each bill we identified, we examined the legislative history to determine how far the bill had progressed in Congress. We reviewed the bills’ text and assessed what changes they would have made to ERISA preemption. We also compared some earlier versions of bills with later ones.

From that research, we identified categories of legislative options presented in secondary source critiques of ERISA, and in the actual bills introduced. We then compared the bills proposed before and after the ACA. We then assessed the legal scope of each category of bill’s potential impact on states’ ability to enact cost-control reform.

  1. Abbe R. Gluck and Nicole Huberfeld, “What Is Federalism in Healthcare For?,” Stanford Law Review 70, no. 6 (June 2018): 1689.
  2. 29 U.S.C. § 1001.
  3. Henry J. Kaiser Family Foundation, 2021 Employer Health Benefits Survey (KFF, Nov. 10, 2021).
  4. Elizabeth Y. McCuskey, State Cost-Control Reforms and ERISA Preemption (Commonwealth Fund, May 2022).
  5. For example, Katie Mahoney and Steven Lehotsky, “ERISA Preemption: A Vital Protection for Health Coverage,” U.S. Chamber of Commerce, Sept. 30, 2020; and ERISA Industry Committee, “Protecting ERISA Preemption,” n.d. (“ERIC’s core mission in its legal advocacy is to protect and uphold the principles of federal ERISA preemption.”)
  6. Judicial interpretation of ERISA preemption has an important influence on the breadth of ERISA preemption. Commentators have made many suggestions for how courts should interpret the statute’s words to further restrain the scope of preemption. But courts can only interpret the statute’s terms, not suspend them.
  7. Patricia A. Butler, ERISA and State Health Care Access Initiatives: Opportunities and Obstacles (Commonwealth Fund, Oct. 2000).
  8. For example, State Care: State-Based Comprehensive Health Care Act of 1992, H.R. 4218 (introduced Feb. 11, 1992), sec. 2017(a) (“No provision of [ERISA] may be construed to prohibit a State from implementing a State Care plan under this [law].”). Sen. Elizabeth Warren’s (D–Mass.) presidential campaign platform in 2020 mentioned limiting ERISA preemption to be a “floor, not a ceiling” as part of her strategies for strengthening worker protections. See “Empowering American Workers and Raising Wages,” Warren Democrats, n.d. Commentators began calling for this sort of revision almost as soon as the statute was enacted in 1974. For example, David J. Brummond, “Federal Preemption of State Insurance Regulation Under ERISA,” Iowa Law Review 62 (1976): 57.
  9. For example, Rep. John Dingell (D–Mich.) introduced the Patients’ Bill of Rights Act of 1998, H.R. 3605, which would have repealed the preemption for “certain [litigation] actions involving health insurance policyholders,” while leaving intact the broader preemption provisions “with respect to group health plans.”
  10. KFF, 2021 Employer Health Benefits, 2021.
  11. FMC Corp. v. Holliday, 498 U.S. 52, 54 (1990). Justice John Paul Stevens dissented from the majority, arguing that the Court’s distinction between fully insured and self-funded plans was not in ERISA’s text and that if Congress had intended to make a distinction, it could simply have stated so. Id. at 65­66.
  12. Deborah A. Widiss, “Communication Breakdown: How Courts Do — and Don’t — Respond to Statutory Overrides,” Judicature 104, no. 1 (Spring 2020): 50–8.
  13. State Care: State Based Comprehensive Health Care Act of 1991, S. 1972 (introduced Nov. 14, 1991).
  14. For example, Sens. Patrick Leahy (D–Vt.) and Ron Wyden (D–Ore.) and Rep. Jim McDermott (D–Wash.) introduced versions of the “State Care: State-Based Comprehensive Care Act” in 1991 and 1992, which exempted state plans under the bill from ERISA preemption. For example, H.R. 4218, 102nd Cong. (1992), sec. 2017(b) (“No provision of [ERISA] may be construed to prohibit a State from implementing a State Care plan” approved under this Act.). Sen. Russ Feingold (D–Wis.) introduced the “State-Based Health Care Reform Act” in 2006, proposing similar support for states’ universal care experiments, but expressly preserving ERISA preemption. S.3776, 109th Cong. (2006), sec. 101(i)(4)(B) (“Nothing in this section shall be construed as affecting or modifying ERISA preemption.”)
  15. For example, States’ Right to Innovate in Health Care Act of 2000, H.R. 4412 (2000), sec. 2203(a)(1); H.R. 2816, 111th Cong. (2009) (same).
  16. For example, Simple Universal Healthcare Act of 2009, 111th Cong. introduced by Rep. Lee Terry (R–Neb.) (proposing a federal employee health plan that private employers could opt into); and Universal Health Care Choice and Access Act, S. 1019, 110th Cong. (2007) introduced by Sen. Tom Coburn (R–Okla.), sec. 213 (proposing multistate cooperatives, as well as ending the tax exclusion for employer-provided health care coverage).
  17. 29 U.S.C. § 1144(b)(5)(A) (stating that the “relate to” preemption “shall not apply to the Hawaii Prepaid Health Care Act”). In 2017, the House Republicans passed a provision that would exclude stop-loss insurance that self-insured plans often purchase from the definition of “health insurance,” but it did not make it through the Senate. H.R.1304 – Self-Insurance Protection Act, 115th Congress (Mar. 8, 2017).
  18. Abbe R. Gluck, Allison K. Hoffman, and Peter D. Jacobson, “ERISA: A Bipartisan Problem for the ACA and the AHCA,” Health Affairs Forefront (blog), June 7, 2017.
  19. Deborah Bachrach, Joel Ario, and Hailey E. Davis, Innovation Waivers: An Opportunity for States to Pursue Their Own Brand of Health Reform (Commonwealth Fund, Apr. 2015); and “Section 1332: State Innovation Waivers,” Centers for Medicare and Medicaid Services, n.d.
  20. 29 U.S.C. § 1191 (“Nothing in this part shall be construed to affect or modify the provisions of section 1144 of this title with respect to group health plans.”) See Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 326 (2016) (finding ERISA’s provisions maintain their preemptive force despite the ACA’s imposition of additional obligations); and Elizabeth Y. McCuskey, “Agency Imprimatur & Health Reform Preemption,” Ohio State Law Journal 78 (July 2017): 1099–167.
  21. Mary A. Chirba-Martin, “ERISA Preemption of State ‘Play or Pay’ Mandates: How PPACA Clouds an Already Confusing Picture,” Journal of Health Care Law & Policy 13, no. 2 (2010): 393.
  22. Gluck et al., “ERISA: A Bipartisan Problem,” 2017. Republicans’ failed proposals to repeal and replace the ACA in 2017 likewise would have left ERISA preemption intact.
  23. The ACA’s Innovation Waiver Program: A State-by-State Look,” map, Commonwealth Fund, Nov. 2, 2020.
  24. Timothy S. Jost, “Using the 1332 State Waiver Program to Undermine the Affordable Care Act State by State,” To the Point (blog), Commonwealth Fund, Oct. 30, 2018.
  25. Katie Keith, “Lawsuit Challenges GA’s 1332 Waiver, ACA in the Biden Pandemic Plan,” Health Affairs Forefront (blog), Jan. 21, 2021.
  26. Timothy S. Jost, “Biden Administration Proposed Rule Would Reverse Trump Rules on ACA Marketplaces, Health Insurance Markets,” To the Point (blog), Commonwealth Fund, July 1, 2021.
  27. State-Based Universal Health Care Act of 2015, H.R. 3241, 114th Cong. (2015).
  28. Rep. Jim McDermott (D–Wash.) remarks introducing SBUHCA, Congressional Record E1147 (July 28, 2015).
  29. H.R. 3241, sec. 1332A(a)(2)(J).
  30. H.R. 3241, sec. 1332A(b)(1)(A)-(D).
  31. 42 U.S.C. § 18052(b)(1)C).
  32. H.R. 6097, 115th Cong. (June 13, 2018); H.R. 5010, 116th Cong. (Nov. 9, 2018); H.R. 3775, 117th Cong. (June 8, 2021). The last two introductions of the bill in the House garnered cosponsors representing Arizona, California, Colorado, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, Oregon, Pennsylvania, Washington, Wisconsin, and the District of Columbia. Of those states, only Wisconsin has not expanded Medicaid.
  33. National Council of Insurance Legislators “NCOIL Passes Resolution to Amend ERISA,” press release, Mar. 28, 2019. The resolution was sponsored by Reps. Kevin Cahill (D–N.Y.) and Jim Dunnigan (R–Utah).
  34. Elizabeth Y. McCuskey and Erin Fuse Brown, “ERISA Preemption: Health Reform Waiver Proposal,” National Council of Insurance Legislators, Dec. 7, 2018.
  35. Katie Keith, The Affordable Care Act in the Biden Era: Identifying Federal Priorities for Administrative Action (Commonwealth Fund, May 2021); and Elizabeth McCuskey, “ERISA Preemption Reform: Unlocking States’ Capacity for Incremental Reform,” Bill of Health (blog), May 10, 2021.

Publication Details



Elizabeth Y. McCuskey, Professor, School of Public Health and School of Law, Boston University

[email protected]


Elizabeth Y. McCuskey, Reforming ERISA to Help States Control Health Care Costs (Commonwealth Fund, Feb. 2023).