Does ERISA expressly exclude 403(b) tax sheltered annuities from ERISA coverage?

For purposes of ERISA, a program for the purchase of an annuity contract or the establishment of a custodial account as described under IRC Section 403(b), pursuant to salary reduction agreements or agreements to forgo an increase in salary and which satisfies the requirements of treasury regulations under Section 403(b), will not be considered “established or maintained by an employer” as that term is used in the definition of the terms “employee pension benefit plan” and “pension plan” if:  

1.    Participation is completely voluntary for employees; 

2.    All rights under the annuity contract or custodial account are enforceable solely by the employee, by a beneficiary of such employee, or any authorized representative of such employee or beneficiary;  

3.    The sole involvement of the employer is limited to any of the following:  

a.    permitting annuity contractors to publicize their products to employees,  

b.    requesting information concerning proposed funding media, products, or annuity contractors, 

 c.    summarizing or otherwise compiling the information provided with respect to the proposed funding media or products that are made available, or the annuity contractors whose services are provided, in order to facilitate review and analysis by the employees,  

d.    collecting annuity or custodial account considerations as required by salary reduction agreements or by agreements to forgo salary increases, remitting such considerations to annuity contractors, and maintaining records of such considerations,  

e.    holding in the employer’s name one or more group annuity contracts covering its employees, and 

f.    limiting the funding media or products available to employees, or the annuity contractors who may approach employees, to a number and selection that is designed to afford employees a reasonable choice in light of all relevant circumstances; and  

4.    The employer receives no direct or indirect consideration or compensation in cash or otherwise other than reasonable compensation to cover expenses properly and actually incurred by the employer

Which employee benefit plans does ERISA expressly exclude from coverage?

ERISA Section 4(b) establishes that the provisions of ERISA do not apply to any employee benefit plan if:  

1.    The plan is a governmental plan (as defined under ERISA Section 3(32));  

2.    It is a church plan (as defined in ERISA Section 3(33)) that has not made an IRC Section 410(d) election to have participation, funding, and vesting provisions apply;  

3.    It is maintained solely for the purpose of complying with applicable workers’ compensation laws or unemployment compensation laws or disability insurance laws;  

4.    It is maintained outside the United States primarily for the benefit of persons substantially all of whom are nonresident aliens; or  

5.    The plan is an unfunded excess benefit plan (as described under ERISA Section 3(36), which provides benefits for certain employees in excess of the limitations on contributions and benefits imposed by IRC Section 415). 

Self-Funding with Stop-Loss Coverage and/or ASO Arrangements

Two of the problems associated with self-funding and self-administration are the risk of catastrophic claims and the employer's inability to provide administrative services in a cost-effective manner. For each of these problems, however, solutions have evolved—namely, stop-loss coverage and ASO contracts—that still allow an employer to use elements of self-funding. Although an ASO contract and stop-loss coverage can be provided separately, they are commonly written together. In fact, most insurance companies require an employer with stop-loss coverage to have a self-funded plan administered under an ASO arrangement, either by the insurance company or by a third-party administrator.

Until recently, stop-loss coverage and ASO contracts were generally provided by insurance companies and were available only to employers with at least several hundred employees. However, these arrangements are increasingly becoming available to small employers, and in many cases the administrative services are now being purchased from third-party administrators who operate independently from insurance companies.

Stop-Loss Coverage

Aggregate stop-loss coverage is one form of protection for employers against an unexpectedly high level of claims. If total claims exceed some specified dollar limit, the insurance company assumes the financial responsibility for those claims that are over the limit, subject to the maximum reimbursement specified in the contract. The limit is usually applied on an annual basis and is expressed as some percentage of expected claims (typically between 115 percent and 135 percent). This arrangement can be thought of as a form of reinsurance and is treated as such by some regulatory officials. It is interesting to note that the employer is responsible for payment of all claims to employees, including any payments that are received from the insurance company under the stop-loss coverage. In fact, because the insurance company has no responsibility to the employees, no reserve for claims must be established.

Aggregate stop-loss coverage results in (1) an improved cash flow for the employer and (2) a minimization of premium taxes, because they must be paid only on the stop-loss coverage. However, these advantages are partially (and perhaps totally) offset by the cost of the coverage. In addition, many insurance companies insist that the employer purchase other insurance coverages or administrative services to obtain aggregate stop-loss coverage.

Stop-loss plans may also be written on a specific basis, similar to the way an insured plan with a deductible is written. In fact, this arrangement (most commonly used with medical expense plans) is often referred to as a big-deductible plan or as shared funding. The deductible amount may vary from $1,000 to $250,000 but is most commonly in the range of $10,000 to $20,000. It is usually applied on an annual basis and pertains to each person insured under the contract. Although stop-loss coverage was once written primarily for large employers, more recently it also has been written for employers with as few as 25 employees. These plans have particular appeal for small employers who have had better-than-average claims experience but who are too small to qualify for experience rating and the accompanying premium savings.

The deductible specified in the stop-loss coverage is the amount the employer must assume before the stop-loss carrier is responsible for claims and is different from the deductible that an employee must satisfy under the medical expense plan. For example, employees may be given a medical expense plan that has a $200 annual deductible and an 80 percent coinsurance provision. If stop-loss coverage with a $5,000 limit has been purchased, an employee will have to assume the first $200 in annual medical expenses, and the plan will then pay 80 percent of any additional expenses until it has paid a total of $5,000. At that time, the stop-loss carrier will reimburse the plan for any additional amounts that the plan must pay to the employee. The stop-loss carrier has no responsibility to pay the employer's share of claims under any circumstances, and most insurance companies require that employees be made aware of this fact.

Misunderstandings often arise over two variations in specific stop-loss contracts. Most contracts settle claims on a paid basis, which means that only those claims paid during the stop-loss period under a benefit plan are taken into consideration in determining the liability of the stop-loss carrier. Some stop-loss contracts, however, settle claims on an incurred basis. In these cases, the stop-loss carrier's liability is determined on the basis of the date a loss took place rather than when the benefit plan actually made payment. For example, assume an employee was hospitalized last December, but the claim was not paid until this year. This is an incurred claim for last year but a paid claim for this year.

A second variation has an impact on an employer's cash flow. Assume an employer has a medical expense plan with a $20,000 stop-loss limit and that an employee has a claim of $38,000. If the stop-loss contract is written on a reimbursement basis, the employer's plan must pay the $38,000 claim before the plan's administrator can submit an $18,000 claim to the stop-loss carrier. If the stop-loss contract is written on an advance-funding basis, the employer's plan does not actually have to pay the employee before seeking reimbursement.

Most insurance companies that provide stop-loss coverage for medical expense plans also agree to provide a conversion contract to employees whose coverage terminates. However, the employer must pay an additional monthly charge to have this benefit for employees.

ASO Contracts

Under an ASO contract, the employer purchases specific administrative services from an insurance company or from an independent third-party administrator. These services usually include the administration of claims, but they may also include a broad array of other services. In effect, the employer has the option to purchase services for those administrative functions that can be handled more cost-effectively by another party. Under ASO contracts, the administration of claims is performed in much the same way as it is under a minimum-premium plan; that is, the administrator has the authority to pay claims from a bank account that belongs to the employer or from segregated funds in the administrator's hands. However, the administrator is not responsible for paying claims from its own assets if the employer's account is insufficient.

In addition to listing the services that will be provided, an ASO contract also stipulates the administrator's authority and responsibility, the length of the contract, the provisions for terminating and amending the contract, and the manner in which disputes between the employer and the administrator will be settled. The charges for the services provided under the contract may be stated in one or some combination of the following ways:

• A percentage of the amount of claims paid

• A flat amount per processed claim

• A flat charge per employee

• A flat charge for the employer

Payments for ASO contracts are regarded as fees for services performed, and they are therefore not subject to state premium taxes. However, one similarity to a traditional insurance arrangement may be present: The administrator may agree to continue paying any unsettled claims after the contract's termination but only with funds provided by the employer.

Continuation of Coverage under COBRA | Plan Provisions and Taxation

The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, requires that group health plans allow employees and certain beneficiaries to elect to have their current health insurance coverage extended at group rates for up to 36 months following a "qualifying event" that results in the loss of coverage for a "qualified beneficiary." The term group health plan as used in the act is broad enough to include medical expense plans, dental plans, vision care plans, and prescription drug plans, regardless of whether benefits are self-insured or provided through other entities, such as insurance companies, HMOs, or PPOs. COBRA applies even if the cost of a plan is paid solely by employees, as long as the plan would not be available at the same cost to an employee if he or she were not employed. There is one exception to this rule: Voluntary benefit plans under which the employer's only involvement is to process payroll deductions are not subject to COBRA.

Church and government plans are exempt from COBRA, but the act applies to all other employers who had the equivalent of 20 or more full-time employees on a typical business day during the preceding calendar year. For example, an employer who had 10 full-time and 16 half-time employees had the equivalent of 18 full-time employees and is not subject to COBRA. Failure to comply with the act results in an excise tax of up to $100 per day for each person denied coverage. The tax can be levied on the employer as well as on the entity (such as an insurer or HMO) that provides or administers the benefits.

Since the passage of COBRA, a qualified beneficiary has been defined as any employee, or the spouse or dependent child of the employee, who on the day before a qualifying event was covered under the employee's group health plan. HIPAA expanded the definition to include any child who is born to or placed for adoption with the employee during the period of COBRA coverage. This change gives automatic eligibility for COBRA coverage to the child as well as the right to have his or her own election rights if a second qualifying event occurs.

Under the act, each of the following is a qualifying event if it results in the loss of coverage by a qualified beneficiary or an increase in the amount the qualified beneficiary must pay for the coverage:

The death of the covered employee

The termination of the employee for any reason except gross misconduct (This includes quitting, retiring, or being fired for anything other than gross misconduct)

A reduction of the employee's hours so that the employee or dependent is ineligible for coverage

The divorce or legal separation of the covered employee and his or her spouse

For spouses and children, the employee's eligibility for Medicare

A child's ceasing to be an eligible dependent under the plan

The act specifies that a qualified beneficiary is entitled to elect continued coverage without providing evidence of insurability. The beneficiary must be allowed to continue coverage identical to that available to employees and dependents to whom a qualifying event has not occurred.

Coverage for persons electing continuation can be changed when changes are made to the plan covering active employees and their dependents. The continued coverage must extend from the date of the qualifying event to the earliest of the following:

18 months for employees and dependents when the employee's employment has terminated or coverage has been terminated because of a reduction in hours. This period is extended to 29 months for a qualified beneficiary if the Social Security Administration determines that the beneficiary was or became totally disabled at any time during the first 60 days of COBRA coverage.

36 months for other qualifying events.

The date the plan terminates for all employees.

The date the coverage ceases because of a qualified beneficiary's failure to make a timely payment of premium.

The date a qualified beneficiary subsequently becomes entitled to Medicare or becomes covered (as either an employee or dependent) under another group health plan, provided the group health plan does not contain an exclusion or limitation with respect to any preexisting condition. If the new plan does not cover a preexisting condition, the COBRA coverage can be continued until the earlier of (1) the remainder of the 18- or 36-month period or (2) the time when the preexisting-conditions provision no longer applies. Note that COBRA coverage is not affected by entitlement to benefits under Medicare or coverage under another group plan if this entitlement or coverage existed at the time of the qualifying event.

If a second qualifying event (such as the death or divorce of a terminated employee) occurs during the period of continued coverage, the maximum period of continuation is 36 months. For example, if an employee terminates employment, the employee and family are eligible for 18 months of COBRA coverage. If the employee dies after 15 months, a second qualifying event has occurred for the employee's spouse and dependent children. The normal period of COBRA continuation resulting from the death of an employee is 36 months. However, because the spouse and children have already had COBRA coverage for 15 months, the second qualifying event extends coverage for an additional 21 months.

At the termination of continued coverage, a qualified beneficiary must be offered the right to convert to an individual insurance policy if a conversion privilege is generally available to employees under the employer's plan.

Notification of the right to continue coverage must be made at two times by a plan's administrator. First, when a plan becomes subject to COBRA or when a person becomes covered under a plan subject to COBRA, notification must be given to an employee as well as to his or her spouse. Second, when a qualifying event occurs, the employer must notify the plan administrator, who then must notify all qualified beneficiaries within 14 days. In general, the employer has 30 days to notify the plan administrator. However, an employer may not know of a qualifying event if it involves divorce, legal separation, or a child's ceasing to be eligible for coverage. In these circumstances, the employee or family member must notify the employer within 60 days of the event, or the right to elect COBRA coverage is lost. The time period for the employer to notify the plan administrator begins when the employer is informed of the qualifying event, as long as this occurs within the 60-day period.

The continuation of coverage is not automatic; it must be elected by a qualified beneficiary. The election period starts on the date of the qualifying event and may end not earlier than 60 days after actual notice of the event to the qualified beneficiary by the plan administrator. Once coverage is elected, the beneficiary has 45 days to pay the premium for the period of coverage prior to the election.

Under COBRA, the cost of the continued coverage may be passed on to the qualified beneficiary, but the cost cannot exceed 102 percent of the cost to the plan for the period of coverage for a similarly situated active employee to whom a qualifying event has not occurred. The extra 2 percent is supposed to cover the employer's extra administrative costs. The one exception to this rule occurs for months 19 through 29 if an employee is disabled, in which case the premium can then be as high as 150 percent. Qualified beneficiaries must have the option of paying the premium in monthly installments. In addition, there must be a grace period of at least 30 days for each installment.

COBRA has resulted in significant extra costs for employers. Surveys indicate that coverage is elected by approximately 20 percent of those persons who are entitled to a COBRA continuation. The length of coverage averages almost one year for persons eligible for an 18-month extension and almost two years for persons eligible for a 36-month extension. While significant variations exist among employers, claim costs of persons with COBRA coverage generally run between 150 percent and 200 percent of claim costs for active employees and dependents. Moreover, administrative costs are estimated to be about $20 per month for each person with COBRA coverage.

TERMINATION OF COVERAGE | Plan Provisions and Taxation

In the absence of any provisions for continuation or conversion, group medical expense coverage of an employee generally ceases on the earliest of the following:

The date on which employment terminates (In some plans, coverage ceases on the last day of the month in which employment terminates.)

The date on which the employee ceases to be eligible

The date on which the master contract terminates

The date on which the overall maximum benefit of major medical coverage is received

The end of the last period for which the employee has made any required contribution

Coverage on any dependent usually ceases on the earliest of the following:

The date on which he or she ceases to meet the definition of dependent

The date on which the coverage of the employee ceases for any reason except the employee's receipt of the overall maximum benefit

The date on which the dependent receives the overall maximum benefit of major medical coverage

The end of the last period for which the employee has made any required contribution for dependent coverage

However, coverage often continues past these dates because of federal legislation or employer practices.

COVERAGE FOR ALTERNATIVE MEDICINE

During the 1990s, the use of alternative medicine increased dramatically, with estimates that over half of the population has used one or more of these types of services. In addition, the majority of physicians have recommended alternative medical techniques, particularly for treatment of neck and back problems, anxiety, depression, and headaches. Examples of alternative medicine services include the following:

Acupuncture

Biofeedback

Chiropractic treatment

Herbal medicine

Homeopathy

Hypnosis

Massage therapy

Meditation

Relaxation

Therapeutic touch

Vitamin therapy

Yoga

The attractiveness of these programs has increased over the past few years for a number of reasons. Patients appreciate the rapport they develop with their alternative medicine practitioners, and this is indicated by a higher degree of satisfaction with these practitioners than with their physicians. Patients also like the fact that alternative medicine practitioners are more likely than traditional medical practitioners to actively involve patients in the development of treatment plans. As a result, patients are more likely to follow plans of alternative medicine than they are to follow conventional medical treatment plans. Finally, complications from treatment are less likely than from conventional medical treatment, possibly because of the less-invasive nature of alternative medicine.

Insurers and plan administrators have typically been leery of adding benefits for alternative medicine because they fear increases in claims costs. This will obviously occur if alternative medicine is used in addition to traditional medical treatment. However, it is often used as a replacement for traditional medical treatment. If successful, costs might decrease. There is also concern over the qualifications and training of many of the persons who provide alternative medicine.

Many insurance contracts and managed care plans provide limited benefits for chiropractic treatment, and a smaller number cover acupuncture, sometimes as a result of state mandates. However, benefits are often subject to limitations. Some providers of medical benefits will add other types of alternative medicine to their insurance contracts or managed care plans if the employer is willing to pay an increased premium. Employers may be willing to pay this cost as a response to employee interest or to differentiate their medical expense plan from those of other employers. Results of surveys vary, but it appears that over half of employers have benefit plans that cover chiropractic services, about 20 percent have plans that cover acupuncture, and about 10 percent have plans that cover some other forms of alternative medicine.

To control costs, coverage of alternative medicine is subject to a variety of controls. These include one or more of the following:

Annual or lifetime dollar limits

Limits on the number of annual visits

A requirement that treatment is for specified medical conditions

A requirement for a referral from a primary care physician

BASIC MEDICAL EXPENSE COVERAGES

Historically, medical expense coverage consisted of separate benefits for hospital expenses, surgical expenses, and physicians' visits. Coverage was limited, and many types of medical expenses were not covered. In this environment, two developments took place: (1) basic coverages for other types of medical expenses were developed (2) and a vast majority of employers began to provide more extensive benefits to employees than had previously been available through the commonly written basic coverages. While this broader coverage is often provided through a single comprehensive contract, many employees who have medical expense benefits under traditional plans are still covered under medical expense plans that consist of selected basic coverages supplemented by a major medical contract. This is particularly true for large employers, while small employers are much more likely to use a single major medical contract. Basic plans consist of three traditional coverages:

- Hospital expense benefits

- Surgical expense benefits

- Physicians' visits expense benefits

In addition, other types of medical expense coverage can be written as a basic benefit. While many of these basic coverages can be written separately, it is common for them to be incorporated into a single contract.

Development of Medical Expense Coverage

To understand the wide array of medical expense plans available today, it is appropriate to understand their historic development.

Until the 1930s, medical expenses were borne primarily by ill or injured persons or their families. It was not unusual, however, for hospitals and physicians to provide care on a charity basis if the patient lacked the resources to pay. What have been described as the earliest "health insurance" plans were in reality disability income coverage. However, at that time medical costs were relatively low, and the continuation of income was often the difference between a person's ability to pay medical bills and the need to rely on charity.

Birth of the Blues
The Great Depression saw the development of the first organizations that would later be called Blue Cross. These organizations, which were initially controlled by hospitals, were designed to provide first-dollar coverage for hospital expenses, but with a limited duration of benefits. In the late 1930s, physicians followed the hospitals' approach and established Blue Shield plans. Through the 1940s, the Blues were the predominant providers of medical expense coverage.

Early HMOs
Although it is often thought that health maintenance organizations were a product of the 1970s, some HMOs were among the earliest providers of medical expense coverage. What is usually considered to be the first HMO, the Ross-Loos Clinic, was founded in Los Angeles in 1929. Other HMOs, such as the Kaiser Plans, had their beginnings in the 1930s. However, HMOs remained only a small player in the marketplace for medical expense coverage until the past two decades.

Early Efforts of Insurance Companies
Insurance companies, seeing the success of Blue Cross, entered the market for hospital insurance in the 1930s and later added coverage for surgical expenses and physicians' expenses. However, insurance companies were only modestly successful in competing with the Blues until a new product was introduced in 1949—major medical insurance. As a result, by the mid-1950s insurance companies surpassed the Blues in premium volume and number of persons covered.

The 1960s—Era of Government Involvement
The number of persons covered by medical expense insurance plans grew rapidly during the 1950s and 1960s. Much of this growth was in employer-sponsored plans as a result of a 1949 Supreme Court ruling that employee benefits were subject to collective bargaining.

While the types of products available underwent little change during this period, there were two major developments in the mid-1960s. For the first time, the federal government became a major player in providing medical expense coverage by creating national health insurance programs for the elderly and the poor. Medicare provides benefits for persons aged 65 and older. The financing of the benefits under this program comes from three sources: government revenue, premiums of Medicare beneficiaries, and the FICA taxes paid by most working persons and their employers.

The second program—Medicaid—provides medical benefits for certain classes of low-income individuals and families. There is little doubt that both Medicare and Medicaid provide benefits to major segments of the population with large numbers of persons who would otherwise be unable to receive adequate medical care. However, the effect of so many additional persons with coverage beginning at the same time created shortages of medical facilities and professionals. This increased demand for medical care is one reason for the high rate of inflation for health care costs that soon developed.

The 1970s—First Reactions to Spiraling Costs
In 1950, expenditures for health care equaled 4.4 percent of GNP; they increased to 5.4 percent in 1960 and 7.3 percent in 1970. When these spiraling costs received the attention of employers and the federal government, large employers started turning to the self-funding of medical expense benefits. In addition to improved cash flow, savings were achieved by the avoidance of state-mandated benefits and state premium taxes. The passage of ERISA in 1974 thwarted initial state attempts to bring self-funded plans under their insurance regulations. This federal legislation freed self-funded plans from state regulation and hastened the growth of this financing technique.

The 1970s also saw the first large-scale debate over national insurance. As in the mid-1990s, the majority of the members of Congress supported one of the many plans that were introduced, but opinions were diverse and little common ground was found. However, one significant piece of legislation was passed—the Health Maintenance Organization Act of 1973. This legislation sought to encourage the growth of HMOs by providing funding for their development costs and mandating that certain employers make these plans available to employees. There is little doubt that the growth of HMOs is a result of this legislation.

The 1980s and 1990s—Continued Change
Attempts to rein in the cost of medical care in the 1970s seemed to have little effect. By 1980, expenditures for health care reached 9.2 percent of GNP. This figure was 12.2 percent by 1990, and nearly 14 percent by the end of the decade. In addition, about 14 percent of the population, including many employed persons and their families, remained uninsured.

Reactions to these statistics came from many sources. Many state governments adopted programs to make coverage more available and affordable to the uninsured. At the federal level, there were suggestions that the entire health care system needed an overhaul. While the initial national health insurance proposal by the Clinton administration was dead, there was still continued support by members of Congress for changes in the nation's approach to providing and financing health care. Significant federal legislation was enacted in 1996, but little new and significant legislation was enacted after that.

The many efforts by employers to contain costs included the following:

- Growth in the self-funding of benefits. Much of this growth came from small- and medium-sized employers.

- Cost-shifting to employees. It became increasingly common for employers to raise deductibles and require that employees pay a larger portion of their medical expense coverage.

- Increased use of managed care plans that are alternatives to HMOs, such as PPOs and point-of-service plans. These approaches often overcame the reluctance of some employees to participate in managed care plans.

- Requiring or encouraging managed care plans. Some employers dropped traditional medical expense plans and offered managed care alternatives only. A more prevalent approach was to offer employees a financial incentive to join managed care plans.

Many of these reactions are reflected in changing statistics about the extent of varying types of medical expense coverage; unfortunately, precise statistics are difficult to obtain. For example, many Blue Cross and Blue Shield associations and HMOs report only the total number of persons covered and make no distinction between individual coverage and group coverage. Many persons receive portions of their coverage from different types of providers, such as hospital coverage from a Blue Cross plan and other medical expense coverages from an insurance company under a supplemental major medical contract. In addition, self-funded plans may operate as HMOs, purchase stop-loss coverage, and/or utilize PPOs.

Even though precise statistics cannot be obtained, there is no doubt that a significant change took place in the 1990s. In 1980, approximately 90 percent of all insured workers were covered under "traditional" medical expense plans, and 5 percent were covered under HMOs. Under a traditional plan, if a worker or family member was sick, he or she had complete freedom in choosing a doctor or a hospital. Medical bills were paid by the plan, and no attempts were made to control costs or the utilization of services. It is estimated that between 10 and 15 percent of the employees under these traditional plans were in plans that were totally self-funded by the employer; the remainder of the employees were split fairly evenly between plans written by insurance companies and the Blues.

By the end of the 1990s, the figures had changed dramatically, with the majority of employees covered under plans that controlled costs and the access to medical care. Close to 85 percent of employees were enrolled in managed care plans—HMOs, PPOs, or point-of-service plans, often owned by insurance companies or the Blues. Of the remaining employees, few were in traditional plans. Many were still with insurance companies and the Blues, but under traditional plans that had been redesigned to incorporate varying degrees of managed care.

One important change is hidden in these statistics—the increasing trend toward self-funding of medical expenses by employers. It is estimated that over 50 percent of all workers are covered under plans that are totally or substantially self-funded. Self-funding is more prevalent as the number of employees increases, with between 80 and 90 percent of persons who work for employers with more than 20,000 employees being covered under self-funded plans. However, employers with as few as 25 to 50 employees also use self-funding. It should be noted that the way benefits are provided under a self-funded plan can vary—the employer may design the plan to provide benefits on an indemnity basis or as an HMO or PPO.

Despite the difficulty in obtaining precise statistics, the data collected by the Health Insurance Association of America[1] show that enrollment in medical expense plans that can be characterized as traditional indemnity plans dropped from more than 70 percent to 14 percent since 1990. During the same time period, the number of enrollees in plans that use PPOs increased significantly to 34 percent. Point-of-service plans and HMOs grew more slowly and now account for about 30 percent and 22 percent, respectively, of the number of enrollees.

Into the New Millennium
Just as in past decades, the health care system will continue to evolve in the first decade of the new millennium. What the changes will be is only speculation, but a few observations can be made about the current environment:

- Renewal rates in 2000 for employer-provided medical expense plans are increasing at the highest percentage since the early 1990s, and these high percentage increases are predicted to continue in the foreseeable future.

- Surveys indicate that the vast majority of Americans are satisfied with their own health care plans. The relatively low degree of dissatisfaction, however, is higher for plans with the greatest degree of managed care.

- Despite satisfaction with their own coverage, surveys also indicate that Americans are becoming less satisfied with and less confident about the health care system.

- There is a growing backlash against managed care, particularly HMOs. Two observations can be made about this trend. First, many persons appear to have based their opinions on media reports and stories from friends, not on their own experiences. In this regard, opinions about managed care and Congress tend to be somewhat similar, with a high percentage of negative attitudes, although most persons give high ratings to their own managed care plans and their own Congresspersons. Second, this backlash has gotten the attention of Congress and the states. Some legislation has resulted at the state level. However, managed care plans are also becoming increasingly flexible and consumer-friendly, possibly to prevent further legislation aimed at managed care reform.

- There was little federal health care legislation during Clinton's second term, at least partially due to a Congressional majority of a different political party from the President. While there seems to be bipartisan agreement that there are some problems with the current system, there is bipartisan disagreement about what should be done.

.