The Employee Retirement Income Security Act of 1974, abbreviated as ERISA, is “a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.”
To give you more context, here are the three ways ERISA protects the interests of benefit plan participants and their beneficiaries:
- It requires the disclosure of financial and other details regarding the plan
- It establishes the standards of conduct for plan fiduciaries
- It provides appropriate remedies and access to federal courts.
With that said, ERISA protects patients and other beneficiaries as well as medical providers. The legislation established a formal process to help most medical practices make insurers pay on claims which are being denied, delayed or recouped.
Finally, ERISA requires insurance providers to give participants comprehensive information regarding their plans, such as coverage eligibility, benefits, associated costs (premiums, deductibles and copays) and the process of making a claim.
On that note, let’s take a look into how the legislation came to be to appreciate its benefits further.
The Challenges Before ERISA
Before ERISA came to be, employees had a hard time claiming their needed benefits. It’s also worth noting that the Internal Revenue Service (IRS) was the agency primarily regulating private pension plans and healthcare plans back then.
The Revenue Acts of 1921 and 1926 allowed employers to deduct pension contributions from corporate income. The pension fund income was also allowed to accumulate tax-free.
The catch was that plans had to meet certain minimum employee coverage and employer contribution requirements to qualify for favorable tax treatment. Then, the Revenue Act of 1942 provided stricter participation requirements and even disclosure requirements.
In 1959, the Welfare and Pension Plans Disclosure Act (WPPDA) shifted the duty of regulating benefit plans from the IRS to the U.S. Department of Labor. The legislation also compelled plan sponsors to file plan descriptions and annual financial reports with the government while requiring fiduciary agents to provide sufficient information to plan participants.
These new regulations were designed to prevent fund mismanagement better, but they weren’t enough. The need to address private pension plan funds mismanagement, and abuse still remained.
How the ERISA Law Came To Be
From the 1960s to the 1970s, the Teamsters’ Central States pension fund was a wellspring of corruption. Millions of dollars from the pool were used to gain control of Las Vegas casinos. This raised public awareness on the issue of fiduciary misconduct during that time.
But it was the Studebaker-Packard crisis in 1963 that can be considered the catalyst for strong ERISA appeals.
When the corporation’s Indiana plant closed in the same year, it also terminated its retirement plan for hourly workers. Ultimately, the plan defaulted on its obligations. 4,000 employees aged 40-59, received around 15 cents for each dollar of benefit they were owed. 2,900 employees who had less than ten years of service, on the other hand, received nothing. The plight of the employees quickly became the symbol of the need for pension reform.
Then, in 1972, a national television broadcast on NBC titled “Pensions: The Broken Promise,” shared the personal stories of individuals who had been deprived of pension benefits they earned. The documentary added momentum to the public support for pension reforms, ultimately resulting in ERISA’s enactment.
The House of Representatives passed the law in February 1974, and the Senate approved it the following month. ERISA was finally signed into law by President Gerald Ford on Labor Day, September 2, 1974.
With ERISA in effect, the federal government’s role in regulating private-sector retirement plans expanded significantly.
The Changes ERISA Brought About
ERISA primarily provided employees with enhanced retirement security since employee pensions pre-ERISA had very few protections.
Before the legislation was signed, some plans required employee service periods to be uninterrupted. This meant that a short, involuntary leave in the middle of a 30-year career is enough for a beneficiary to lose all benefits. Companies reportedly took advantage of this by terminating employees before pension vesting to avoid paying their benefits.
ERISA took a unique approach in safeguarding the establishment, operation, and administration of retirement plans.
It delegated the administration of its guidelines to three federal agencies:
- The Department of Labor, which is primarily responsible for promulgating rules for reporting, disclosure, and fiduciary requirements;
- The IRS, which is tasked to administer the minimum standard’s provisions of ERISA;
- And the Pension Benefit Guaranty Corporation (PBGC), which is given primary responsibility of protecting pension benefits in private-section benefit plans.
Aside from that, ERISA changed many rules for retirement plans. It now required minimum funding, uniform vesting schedules, and a standard definition of employee service for benefit accrual and vesting.
Finally, it required the following to protect both patients and their medical providers:
- A Summary Plan Description (SPD) supplied by insurance companies within 90 days of a beneficiary’s coverage.
- Prompt response from plan administrations (within 30 days) regarding requests for plan documents.
Final Thoughts
Since its enactment in 1974, ERISA has undergone continuous amendments to protect beneficiaries and healthcare providers' rights better. And as a hospital, it’s worth noting that the legislation also impacts your ability to accommodate your patients and grow your bottom line.
However, ERISA is one of the most underutilized healthcare revenue solutions. It's only used in less than one percent of hospital medical appeals. This gap is mainly because filing ERISA appeals entails complex processes.
If you’re interested in maximizing ERISA to protect your hospital revenue, but do not have the in-house staff to handle it, consider seeking help from an experienced ERISA appeals team such as Auraven Health.
We offer a unique service in leveraging ERISA law to recoup claims that have been written off. Most importantly, we’ll be with you in every step of the process to build the best strategy for winning back your lost revenue. Let Auraven help you win your ERISA appeal. Contact us today to get started!
