Self-Funded Employer Plans and Why State Law Stops at the Door

A patient hands over a card with a well-known insurer's name on it. Your practice is out of network with that insurer, and you have been told the panel is closed. You know your state has a credentialing deadline law, or even an any willing provider law. Does it help with this patient? Often it does not, because the plan behind the card is not insurance at all. It is the employer's own self-funded plan, and the insurer is only running it.

What makes a plan self-funded?

In a fully insured plan, the employer buys a policy and the insurer bears the risk of paying claims. In a self-funded (or self-insured) plan, the employer pays claims from its own funds and usually hires an insurer or administrator to process them and rent its network. The Illinois Department of Insurance puts it plainly: "Although self-insured plans are frequently administered by an insurance company, it is the employer and not the insurance company that bears the risk for paying claims."

Why does state law stop there?

Because of ERISA, the federal law governing employer benefit plans. ERISA preempts state laws that "relate to" employee benefit plans, but saves state laws that regulate insurance (29 U.S.C. 1144(b)(2)(A)). Then its "deemer clause" says an employee benefit plan shall not "be deemed to be an insurance company or other insurer" for purposes of state laws regulating insurance companies or insurance contracts (29 U.S.C. 1144(b)(2)(B)). A state insurance law can reach the insurance policy an employer buys. It cannot reach an employer plan that buys no policy.

The Supreme Court described this in Kentucky Association of Health Plans v. Miller, 538 U.S. 329 (2003), which upheld Kentucky's any willing provider laws for insured plans and noted that the Kentucky law "reaches only those employee benefit plans 'not exempt from state regulation by ERISA.'" Regulators say the same in their own words. Illinois: the Department "does NOT have jurisdiction" over "Self-insured employers and health & welfare benefit plans," and "State laws, including the Prompt Pay Law, do not apply" to them. Texas: the Department of Insurance "regulates HMO and fully insured health plans, which represent less than a quarter of the health insurance sold in Texas."

Which state rules usually do not apply?

• Any willing provider and fair opportunity laws. See any willing provider laws.
• Credentialing deadline and provisional credentialing laws. See credentialing deadline laws.
• State network adequacy standards and waiver processes for insured products.
• State insurance department complaint processes, which are built for the plans the department regulates.

How can you tell which kind of plan a patient has?

Start with the card. The Texas Department of Insurance tells providers that if the card says "TDI" or "DOI" on the front, the complaint belongs with it; otherwise another agency handles it. Many states use similar markings, but not all. Other clues: wording such as "administered by" or "claims administrator," the employer's name printed as the plan name, or a plan document that names the employer as plan sponsor. When in doubt, ask the administrator's provider line whether the member's plan is fully insured or self-funded. The patient can also ask their HR department.

Track this for your patient panel. If most of the members you want to see under a given carrier are in self-funded plans, a state-law dispute with that carrier will not help them, even if you win it for its insured products.

What federal rules still apply to self-funded plans?

Some. ERISA incorporates part A of title XXVII of the Public Health Service Act for group health plans (29 U.S.C. 1185d), which includes the section 2706 rule against discriminating against a provider acting within the scope of a state license. That rule bars excluding a license type; it "shall not require" a plan to contract with any willing provider (42 U.S.C. 300gg-5(a)). The federal parity regulation for group health plans lists "standards for provider and facility admission to participate in a network" among the limits it covers (29 CFR 2590.712(c)(4)(ii)(D)), though how much it can do for a single provider is limited; see mental health parity and network admission. Questions about what federal law requires of a particular plan are for a healthcare attorney.

Which levers remain?

1. The carrier's own process. If the carrier's network is closed for all of its business in your area, its reasons and exceptions apply to self-funded members too. A group exception, for example, may open the network for both.
2. The employer. The employer, not the carrier, owns a self-funded plan's design. A large local employer whose employees cannot find in-network care for a service may ask its administrator to address the gap. That request comes from the employer and its members, not from you, but you can tell patients it exists.
3. Single-case agreements. Many self-funded plans allow out-of-network exceptions when the network cannot provide care. The terms come from the plan document. See single-case agreements.
4. The patient's own appeal rights. Members of ERISA plans have claim and appeal rights under their plan, and the Illinois Department notes that the U.S. Department of Labor "has some oversight of these plans." Those rights belong to the patient.

Is it still worth disputing with the carrier?

Often yes, for its insured products and for Medicare Advantage and Medicaid lines that state and federal rules do reach. Just be clear about which members a win would cover. A Network Rejection Review ($249) sorts the products a carrier offers in your area by the law that governs each, so a Payer Network Dispute ($799 per payer) targets the products where a lever exists. We prepare the letters; you sign and send them. We are not a law firm and do not give legal advice about ERISA or any other law; that is a healthcare attorney's job.