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ERISA is an acronym for the Employee Retirement Income Security Act of 1974, a federal law that was originally passed to protect consumers, but that has turned into a law protecting big health insurance companies instead.

ERISA requires employers to fund pension plans sufficiently to be able to pay out promised benefits when their employees retire. It also requires employers to keep retirement funds separate from other company funds and to hold them in a trust, so the funds will be protected even in the event that the company declares bankruptcy. The law was created because executives were stealing funds from employee retirement plans and leaving employees without any of their money when they retired. It sounds good, and Congress had good intentions when they passed the law, but over time, legal interpretations of the law have created problems that actually serve to protect big insurance companies.

How ERISA became a problem for consumers by overly protecting insurance companies

Over the years, however, federal courts have ruled that ERISA applies not just to pension plans, but to all employee benefits, including health insurance plans. The problem is that the law does not apply only to the solvency of employee health insurance plans -- it goes much further. Because it is a federal law, ERISA preempts many state insurance laws, leaving employee-sponsored health plans exempt from many state regulations designed to protect consumers from insurance company abuses. This leaves employee-sponsored health insurance plans exempt from oversight by state insurance commissioners. In addition, ERISA prevents the more than 130 million employees in the U.S. who are enrolled in insurance plans covered by the law from suing their insurance company or employer in court if they are denied treatment or a procedure. They can try to sue in federal court, but potential remedies there are so limited that plaintiffs have difficulty even finding lawyers willing to take their cases. Few lawyers specialize in ERISA or are knowledgeable about how the law affects health benefits.

ERISA helps big insurance companies by making sure they don't have to comply with varying state and insurance regulations and consumer protections. The law also does not allow federal judges or juries to award punitive damages, so people harmed by insurance company abuses cannot sue for pain, suffering or lost wages. If a covered patient dies, an insurer can't be ordered to pay anything to the patient's surviving family members. Because of all these protections offered by ERISA, health insurers have no financial incentive to provide treatment, even treatment deemed medically necessary.

Jamie Court, president of Consumer Watchdog, in his book Making a Killing (co-written with Francis Smith) likened the situation to that of a bank robber who, if caught, is only ordered to pay back money he stole:

Imagine that the penalty for bank robbery was limited to giving back the stolen money. No jail time, no fines, just pay the money back -- and only if you are caught. To top it off, the repaid money would be interest-free. Would bank robbery increase under such circumstances? That's the situation HMOs and insurers enjoy under ERISA.[1]

Some victims of insurance company abuses (like Hilda Sarkisyan, mother of Nataline Sarkisyan, a 17 year-old California girl who was denied coverage for a liver transplant by CIGNA) interpret ERISA as allowing companies to literally get away with murder.[2]

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  1. Jamie Court and Francis Smith Making a Killing: HMOs and the Threat to Your Health, Common Courage Press, 1999, at pg. 122
  2. Wendell Potter Deadly Spin: An Insurance Company Insider Speaks Out How Corporate PR is Killing Health Care and Deceiving Americans, Bloomsbury Press, November 2010, New York, New York, at pp 175-178