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For Employers

Differences Between State and Federal Regulation

Private healthcare coverage coverage protects people from the potentially extreme financial costs of medical care if they become ill and it ensures access when they need it. Health coverage is subject to significant requirements at both the state and federal level. While new laws and regulations have created important protections for consumers, they have also produced overlapping and sometimes duplicative or conflicting state and federal rules.

The regulation of insurance has traditionally been a state responsibility. However, there are primarily two different types of entities that provide healthcare coverage:

  1. State-licensed health plans, and
  2. Self-funded (federal or non-federal governmental) health plans.

The employer offering the private group health coverage determines which type.

State-licensed Health Plans (offered by fully funded plans):

  • State-licensed managed care organizations are regulated under state law, although federal law may add additional standards and in some cases supercedes state authority.
  • In Connecticut, state-licensed health plans cover approximately 50% of the privately insured citizens.
  • Each state has laws that require state-licensed managed care organizations to offer or include coverage for certain benefits or services (known as mandated benefits). In Connecticut these mandated benefits are listed under Managed Care Laws.

Self-funded Health Plans--Federal or Governmental:

Although the business of insurance is primarily regulated by the state, a number of federal laws contain requirements that apply to private health coverage, including ERISA and HIPAA. ERISA was enacted in 1974 to protect workers from the loss of benefits provided through the workplace; and in 1996, HIPAA was motivated by concern that people faced lapses in coverage when they change or lose their jobs.

  • Most self-funded health plans operate under ERISA and are health benefit arrangements sponsored by empoyers or employee organizations. Under a self-funded arrangement, the employer retains the responsibility to pay directly for health care services of the plan participants.
  • In Connecticut, self-funded health plans cover approximately 50% of the privately insured citizens.
  • ERISA does not require employers to establish any type of employee benefit plan, but contains requirements applicable to the administration of the plan, such as requirements for disclosure, reporting and fiduciary standards, claims and continuation coverage.
  • In general, ERISA preempts state laws that would regulate the operation of health plans. Therefore, any state mandates do not apply to those covered by self-funded plans. (An exception is CT's state employee plan, which abides by state mandates by contract).
  • Self-funded governmental plans such as the state employee plan or municipal self-funded plans may be exempt from ERISA but still bound to follow other federal laws, such as the federal regulations on internal and external review processes under the Affordable Care Act or the Mental Health parity and Addiction Equity Act of 2008.

Other Federal Mandated Benefits

These standards apply to all covered persons under state or self-funded health plans:

  • If a health plan provides coverage for mastectomies it must also cover breast reconstruction surgery.
  • Health plans are prohibited from restricting hospital stays following childbirth to less than 48 hours (or 96 hours following delivery by caesarian section). See Newborns' and Mothers' Health Protection Act.