The New York State Senate is considering passing Bill No. 4326 which seeks to address an epidemic of heroin and prescription drug abuse by requiring insurers to provide in-patient treatment to addicts. Publicity over the death of actor Philip Seymour Hoffman and the rise in heroin deaths on Long Island have brought notoriety to the problem and put pressure on the legislators to come up with a solution. But the scope of the proposed bill may not be as broad as legislators hope because it should be preempted in part by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq. (ERISA).
The bill proposes a law that requires all medical insurance policies provide coverage for substance abuse services. The bill further proposes that “[t]he only prerequisite for the coverage of hospital-based detoxification is the certification and referral by a qualified health professional which will control both the nature and the duration of covered treatment, excepting when the attending physician providing the drug and alcoholism treatment certifies that admission of the covered person is not necessary, early discharge is appropriate, or additional days or sessions are necessary.” The bill seeks to amend the individual insurance policies under N.Y. INS. LAW § 3216, group insurance policies under N.Y. INS. LAW § 3221, including ERISA-governed plans, and health maintenance organizations contracts under N.Y. INS. LAW § 4303.
But this proposed law indisputably interferes with the administration of ERISA-governed plans. ERISA § 514(a), 29 U.S.C. § 1144(a), provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Here, the proposed bill is mandating coverage and takes away the decision-making authority of the claim administrator and places it in the hands of a “qualified healthcare professional” or “treating physician” to determine whether the treatment should be covered by the medical plan. The bill is excepted from ERISA preemption only if it is a state law “which regulates insurance, banking, or securities.” ERISA § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). Although the state may mandate specific coverage for benefits, it should not be able to rescind a plan administrator’s decision to vest discretionary authority in a particular claim administrator.
A state law regulating insurance that “relates to” an employee benefit plan is “saved” from preemption under ERISA § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A) if: (i) the state law is “specifically directed toward entities engaged in insurance” and, (ii) it “substantially affect[s] the risk pooling arrangement between the insurer and the insured.” Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 341-42 (2003). The taking away of discretion from the claim administrator does not substantially affect the risk pooling. The proposed bill only changes who is deciding the claim for substance abuse benefits—not the coverage provided. Moreover, it requires plans to administer substance abuse benefits differently from all other health benefits for group policies issued in New York.
In Conkright v. Frommert, 550 U.S. 506 (2010), the U.S. Supreme Court explained that the vesting of discretionary authority in a claim administrator furthers three goals of ERISA: uniformity, predictability and efficiency. Here, the bill strips claim administrators of their decision-making ability in only limited situations—where the insurance policy is delivered in New York and the question is as to whether the services for substance abuse benefits are medically necessary under the plan. Notably, the law serves to place the discretion of determining coverage in the healthcare providers and treating physician, who may have a financial incentive in finding treatment medically necessary and who may have no understanding of the meaning of “medical necessity” under the given plan. This type of patchwork administration interferes with the ERISA plan’s goals of having uniform administration of the claims, predictability for whether there is coverage, and efficiency in the administration. “Uniformity is impossible, however, if plans are subject to different legal obligations in different States.” Conkright, 559 U.S. at 520 (quoting Egelhoff v. Egelhoff, 532 U.S. 141, 148 (2001)).Thus, a state law that strips a claim administrator of discretion should be preempted by ERISA because it interferes and supplants the goals of ERISA.
Although the intent of the bill is to expand coverage for treatment of heroin addicts, the effect of this law will be severely curtailed because it should not be allowed to strip the claim administrator of the ability to make decisions that the plan requires the claim administrator to decide. As a result, this law should be preempted to the extent it affects ERISA-governed plans.