New State of Play: Florida and the Limits of ERISA Preemption

In 2023, the state enacted a statute that revised the definition of “pharmacy benefits plan or program” to require self-insured plans governed by the Employee Retirement Income Security Act (ERISA) of 1974 to follow state law. While this revision may be slight, it could have sizable implications for the future of state regulation of federally governed health insurance. What’s more, numerous states are considering similar bills in 2024 to address their regulatory concerns over self-insured ERISA plans. Let’s dive into what Florida lawmakers were attempting to do, why other states want to exercise this authority over self-insured plans, and why such laws may be a harbinger of future insurance regulation in the United States.

First, some context: As a general rule, states have a reduced capacity to regulate self-insured plans owing to ERISA, which established a single federal regulatory framework for large and multistate employers to follow alongside the construction of a single health insurance benefit to be offered to all employers. This law was created to reduce costs and regulatory burdens on employers to incentivize them to offer employees high-quality health insurance. More than 70 percent of employers with 500 or more employees are typically self-insured and regulated by ERISA. Self-insured plans alongside other commercial plans pay significantly more for health care as compared to other government payers such as Medicare or Medicaid. For example, the Kaiser Family Foundation found that commercial plans paid nearly double Medicare rates for all hospital sites with commercial payment amounts ranging from 141 percent to 259 percent of Medicare payments in 2020. There are tremendous benefits to ERISA, namely that self-insured plan sponsors don’t have to contend with 50 versions of state law, keeping costs down for insurers and plan holders.

In that sense, the Florida statute represents a further weakening of ERISA’s preemption provisions. Florida lawmakers revised a legal definition that now requires self-insured plans preempted by ERISA to be subject to state law. The statute also mandates that 100 percent of rebates passed through to the pharmacy benefits plan or program must be used to offset costs for beneficiaries through lower cost-sharing and reduced premiums. If an employer has only a few employees in the state, this requirement could create inequity in the health benefits offered to all of its employees, regardless of in which state in which they reside or work. Moreover, one could assume that increased costs to the employer or plan sponsor operating in an affected state would have to be offset by employees in other states. The law has other requirements on self-insured plans including specific requirements on the pharmacy network offered by a pharmacy benefit manager (PBM) and other PBM-specific services. Of note, Florida has the seventh largest ERISA-governed self-insured population (2.77 million) which means this small definitional change could have long-term negative economic consequences for employers and employees.