ERISA governs most insurance employees receive through their employers. But there are exceptions. Determining whether insurance a person gets through their employer is governed by ERISA can be complicated.
This is important because whether ERISA applies to an insurance policy determines the insured’s rights and the insurer’s obligations. If ERISA applies, the insurer must follow specific rules requiring the insurer to promptly decide claims, fairly consider all the evidence, perform a reasonable investigation, and communicate transparently with the claimant. Similarly, ERISA imposes important duties on the claimant, including the obligation to go through the insurer’s informal administrative process before bringing a lawsuit to recover insurance benefits if a claim is denied.
In general, ERISA applies to insurance an employer provides for its employees through an employee benefit plan. Factors that might show the insurance is part of an ERISA plan include: the employer pays for the benefits, the employer investigates claims, the employer decides which claims to pay, or the employer requires all employees to participate.
But employers often arrange for their employees to obtain insurance outside of an ERISA plan. This exception to ERISA coverage exists because, in passing ERISA, Congress wanted employers to be free to offer their employees insurance without creating an ERISA plan and subjecting themselves to ERISA’s complicated rules. One of the goals of ERISA is to increase the benefits available to employees by making it easier to offer employees benefits.
Accordingly, ERISA allows employers to offer their employees attractive insurance coverage without making the insurance part of an ERISA plan as long as the employer limits its involvement in the policy. Congress reasoned that if the employer’s involvement is limited, ERISA’s concern with protecting employee benefits from employers’ mismanagement or embezzlement is not in play.
Insurance that falls within this exception often has these attributes:
- the insurance is advertised separately from the employer’s benefit plan;
- the employee pays for the insurance (often through deductions from their paycheck);
- the employer leaves it up to the employee to decide whether to buy the insurance;
- the employee can take the coverage with them when they leave the employer; and
- the employer isn’t involved in claims under the policy.
As with everything insurance-related, whether ERISA applies to a particular policy is complicated and depends on the details. Consult a qualified attorney if you have questions about whether specific benefits are governed by ERISA.