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License for employer-based health plans

Members of the U.S. Senate and House of Representatives reached a rare level of consensus in the latest round of regulations for the Employee Retirement Income Security Act (ERISA).  The House voted 279-131, followed by an even more lopsided Senate tally of 93-5, in favor of the Pension Protection Act of 2006.  President Bush signed the new bill into law on August 17, 2006.

Unlike most previous ERISA regulations, the Pension Protection Act (PPA) was intended to assuage the financial strains of employers rather than employees.  Previous regulations, for example the Department of Labor’s code in 2000, focused on promoting the rights of the consumers and facilitating the claims process for insurance policyholders.  Constantly looking at the issue from one side, however, soon led to problems.  The employers, whose health insurance programs were being expanded and restricted without their control, found themselves unable to gather enough money for employee pensions.

The PPA is designed to solve this problem by giving employers, to some extent, free reign.  The new act is one of a rare breed: a law that deregulates rather than regulating.  In accordance with the new guidelines, employees are now permitted to invest at their discretion, and with much greater freedom.  It is now legal, for example, to invest one fund in another fund.  Companies are also able to invest much more widely through cross-trading, block trading, and trading with “parties-of-interest,” practices that had previously been forbidden.  Furthermore, the PPA allows a grace period of 14 days after any violation has been committed, during which time an offender may correct his transaction without penalty.

While most regulations in the past dealt with the claims process (paying out money), the new PPA deals with investment processes (making more money), and leaves a vast number of new windows for profitability.  Also unlike some past regulations, as a new law, the PPA is enforceable by the power of the national executive in the office of the President.  For the PPA, there is direct accountability to an ecstatic tribunal who finally has the power to act.  And while the effect of the new law may be in question quantitatively, there is little doubt that the fresh-licensed companies will be able to turn the decision into some black figures.

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