Overturning of Roe v. Wade creates challenging legal issues for self-funded health plan sponsors

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On Friday, June 24, 2022, the U.S. Supreme Court issued its decision in Dobbs v. Jackson Women’s Health Organization, and overruled Roe v. Wade and Planned Parenthood of Southeastern Pa. v. Casey.  In doing so, the Court held that the U.S. Constitution “does not prohibit the citizens of each State from regulating or prohibiting abortion.”

While abortions remain legal in a number of states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington and Wisconsin), as many as 26 states are expected to ban or limit access to abortions now or in the future.

Oklahoma, for example, generally makes it a felony for a physician to administer or assist with an abortion.  21 Okla. Stat. § 861.  Oklahoma also recently enacted the Oklahoma Heartbeat Act (“OHA”), which establishes a private civil cause of action as follows:  “Any person, other than the state, its political subdivisions, and any officer or employee of a state or local governmental entity in this state, may bring a civil action against any person who . . . Knowingly engages in conduct that aids or abets the performance or inducement of an abortion including paying for or reimbursing the costs of an abortion through insurance or otherwise . . . . “  63 Okla. Stat. § 1-745.39(A)(2) (emphasis added).

As applied to employers and their self-funded group health plans, laws like the OHA create very difficult questions, including:

  • Can an employer’s self-funded group health plan pay for an employee to get an abortion in another state that permits abortions – or is the employer and/or its plan administrator subject to criminal and/or civil actions by doing so?
  • Can an employer or its self-funded group health plan pay for an employee to travel to another state that permits abortions – or is the employer and/or its plan administrator subject to criminal and/or civil actions by doing so?
  • Should abortion-related travel benefits be provided through an employer’s existing self-funded group health plan, or can they be provided separately?
  • Can abortion-related travel expenses be provided through an employee-assistance program (EAP) without making the EAP a group health plan?
  • If an employer provides travel benefits so that an employee can get an abortion in another state, must the employer also provide travel benefits for non-abortion-related medical procedures or mental health conditions?
  • Are there dollar limits on the amount that an employer can pay for abortion-related travel expenses?

I. Employer Liability Under State Law?

Suppose that an employer with a self-funded group health plan has employees in Oklahoma and California.  Suppose that Oklahoma prohibits the provision of abortion benefits to any plan members.  Also suppose that California mandates that a benefit plan must provide abortion benefits to all of its members.  If the employer’s group health plan provides abortion benefits, it may arguably be violating the laws of Oklahoma.  If it does not provide abortion benefits, it may be violating the laws of California.  If the plan does not permit abortion benefits, but it nevertheless provides them to a California employee, then plan assets are being wasted in violation of the terms of the plan.  If the plan pays for abortion benefits for California employees but not for Oklahoma employees, then plan members are being treated differently, perhaps in violation of federal regulations.  See 29 C.F.R. § 2560.503-1(b)(5) (requiring that “the plan provisions [must be] applied consistently with respect to similarly situated claimants”).

Congress sought to avoid these kinds of problems by eliminating state regulation in this field, and by instead “establishing [federal] standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.”  29 U.S.C. § 1001(b)  This goal is effectuated in various provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

A. ERISA Preemption of State Laws, Generally

ERISA relieves plan fiduciaries from the aforementioned quandaries by generally preempting state law.  29 U.S.C. § 1144.  Federal preemption is a concept rooted in Article VI, Clause 2 of the U.S. Constitution (the Supremacy Clause), which states that “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof [i.e., ERISA] … shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the Constitution or Laws of any State to the Contrary notwithstanding.”

In keeping with this, ERISA states that “the provisions of this subchapter and subchapter III [of ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan….”  29 U.S.C. § 1144(a).  ERISA defines “The term ‘State law’ [to include] all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.” ERISA thus preempts not only state statutory law, but also state regulations, executive and administrative action, etc. if the state law “relates to” an ERISA-regulated plan.  The Supreme Court held long ago that ERISA preempts state lawsuits involving plan benefits.  See Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 67 (1987) (“Accordingly, this suit, though it purports to raise only state law claims, is necessarily federal in character [under ERISA] by virtue of the clearly manifested intent of Congress. It, therefore, ‘arise[s] under the . . . laws . . . of the United States,’ 28 U.S.C. § 1331, and is removable to federal court by the defendants, 28 U.S.C. § 1441(b), emphasis added); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 57 (1987) (“we conclude that [plaintiff’s] state law suit asserting improper processing of a claim for benefits under an ERISA-regulated plan is not saved by [29 U.S.C. § 1144(b)(2)(A)], and therefore is preempted by [29 U.S.C. § 1144(a)], emphasis added).

States cannot “capture” self-funded ERISA plans and subject them to state regulation.  ERISA states that:

Neither an employee benefit plan described in section 1003(a) of this title …, nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, … or to be engaged in the business of insurance … for purposes of any law of any State purporting to regulate insurance companies, insurance contracts….

29 U.S.C. § 1144(b)(2)(A).  The Supreme Court explained the impact of this provision (known as the “deemer clause”) as follows:

We read the deemer clause to exempt self-funded ERISA plans from state laws that “regulat[e] insurance” within the meaning of the saving clause. By forbidding States to deem employee benefit plans “to be an insurance company or other insurer . . . or to be engaged in the business of insurance,” the deemer clause relieves plans from state laws “purporting to regulate insurance.” As a result, self-funded ERISA plans are exempt from state regulation insofar as that regulation “relate[s] to” the plans.  State laws directed toward the plans are preempted because they relate to an employee benefit plan but are not “saved” because they do not regulate insurance. State laws that directly regulate insurance are “saved” but do not reach self-funded employee benefit plans because the plans may not be deemed to be insurance companies, other insurers, or engaged in the business of insurance for purposes of such state laws. On the other hand, employee benefit plans that are insured are subject to indirect state insurance regulation. An insurance company that insures a plan remains an insurer for purposes of state laws “purporting to regulate insurance” after application of the deemer clause. The insurance company is therefore not relieved from state insurance regulation. The ERISA plan is consequently bound by state insurance regulations insofar as they apply to the plan’s insurer.

FMC Corp. v. Holliday, 498 U.S. 52, 62 (1990) (emphasis added).

The Supreme Court’s recent decision in Rutledge v. Pharm. Care Mgt. Ass’n explains that laws having a coercive effect on ERISA plans are preempted:

ERISA is therefore primarily concerned with preempting laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits … or by binding plan administrators to specific rules for determining beneficiary status ….  A state law may also be subject to preemption if “acute, albeit indirect, economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.”  … As a shorthand for these considerations, this Court asks whether a state law “governs a central matter of plan administration or interferes with nationally uniform plan administration.” Ibid. (internal quotation marks and ellipsis omitted). If it does, it is preempted.

141 S. Ct. 474, 480 (2020) (emphasis added).

B. ERISA Preemption of State Abortion Laws?

ERISA preemption is not without limits.  There are significant and very relevant exceptions.  For example, ERISA does not preempt “any generally applicable criminal law of a State.”  29 U.S.C. § 1144(b)(4).  Thus, any criminal law that does not specifically target benefit plans, but is instead “generally applicable,” is not preempted by ERISA.

As mentioned above, ERISA also does not preempt state laws that “regulate insurance.”  A state might, for example, be able to require an insurance company to include or not include certain provisions in its insurance policies, including group health insurance policies that fund ERISA-regulated plans (so-called “fully-insured plans”).  But a state cannot similarly regulate the terms and content of a self-funded plan.  Self-funded ERISA plans have the broadest possible protection under ERISA preemption.

The problem with the varying state abortion laws (the ones that exist now and the ones that are sure to be enacted in the future) and ERISA preemption is that even if a state law should be preempted by ERISA, it may take years and multiple layers of courts to definitively determine that a law is preempted.  So, the answer to the question at the beginning of this article  — namely, “Can an employer or plan administrator be subject to criminal or civil actions for paying for an abortion or related travel expenses?” – may be yes, at least until a court says otherwise.

Based on what we know about ERISA preemption, if a state has a law making it a crime for anyone to pay for or reimburse the costs of an abortion, it would be very difficult to argue that ERISA preempts said law as applied to self-funded ERISA plans because the law is generally applicable to everyone – and not just ERISA plan administrators.

On the other hand, laws like the OHA – which provide for a civil cause of action against anyone who pays for or reimburses the costs of an abortion – are likely preempted by ERISA as it relates to ERISA self-funded group health plans.  Thus, it is likely permissible for an ERISA self-funded group health plan to (a) pay for an employee to receive an abortion in a state where it is legal; and/or (b) pay for travel-related expenses to said state.  But states and private litigants may disagree, and ERISA plan administrators and fiduciaries might have to spend time and money litigating about these issues.  And courts may ultimately disagree also.  ERISA preemption does not appear to be getting stronger.  Courts and legislative bodies are using Rutledge (holding an Arkansas state PBM law was not preempted) to essentially argue that ERISA does not preempt anything.  All that to say, even if there are good ERISA preemption arguments, it is risky to ignore state laws.

It is important to keep in mind the obvious:  a plan cannot pay for medical care that is not covered by the plan.  So, if you are an ERISA plan administrator or other fiduciary and you want to provide coverage for abortion expenses and/or abortion-related travel expenses, take a look at your plan document to see what it says.  If your plan does not currently provide this coverage, you cannot provide the coverage – unless the settlor of the plan amends the plan document.  If your plan document is silent but you want to make it clear that your plan pays for an abortion (in a state where it is legal) or related travel expenses, then you should have the settlor of the plan amend your plan document.

II. Beyond ERISA Preemption Issues:  Other Compliance Challenges

There are numerous issues and considerations beyond the state law issues described above – far too many for this article.  But here are some quick thoughts regarding other related issues:

  1. Amending existing health plan may be the best option. If an employer wants to provide coverage for (a) abortion expenses in a state where it is legal; and/or (b) abortion-related travel expenses (e.g., transportation) to another state where it is legal, the likely best way to do that will be to amend the employer’s existing self-funded health plan.  Including these benefits in the employer’s existing self-funded plan will give the hopeful protection of ERISA preemption described above, and it will likely prevent the employer from needing to create a separate stand-alone HIPAA policy, COBRA notice packet, etc. – because the existing plan should already have those in place.
  2. Amending existing health plan = only participating employees.  If an employer amends their existing group health plan to provide coverage for abortion-related travel expenses, they cannot provide these benefits for all employees, i.e., only those employees who are eligible and participating in the current plan may receive these benefits.  If an employer pays benefits from the plan for non-participating employees, the employer will violate the exclusive benefit rule and breach their fiduciary duties.
  3. Amending existing health plan = Mental health parity challenges.  You may recall that the Mental Health Parity rules generally require mental health and substance use disorder benefits to have parity with the plan’s medical surgical benefits.  If an employer’s plan provides coverage for abortion-related travel expenses, but does not provide coverage for mental-health-related travel expenses, the employer may accidentally bust the Mental Health Parity rules.  Thus, it may be best to provide a certain level of travel-related expenses for any covered services (e.g., outside of a certain geographic area) without specifying that they are only for abortion-related travel expenses.  This may also minimize the risk of having the travel-expense benefit challenged under state law because it could theoretically be used for any covered benefit. News media outlets are reporting, for example, that Target will have such a broad travel reimbursement policy, which is reported to include travel for mental health, cardiac care, and other services that are not available near employees’ homes.
  4. Creating a stand-alone plan with only travel benefits likely busts multiple ACA rules. If an employer creates a new stand-alone benefit plan to pay travel benefits on a tax-favored basis, separate from their existing health plan, and if it provides nothing other than travel benefits, it would likely be deemed to violate certain provisions of the Affordable Care Act.  For this reason, it is likely better to add these benefits to the existing, robust group health plan. Even if these benefits are provided on an after-tax basis, this likely still creates these issues.
  5. Employers might be able to create an excepted benefit EAP.  Notwithstanding the comments above, it might be possible to create a stand-alone employee assistance plan (EAP) to pay for travel expenses.  This would allow the employer to provide travel expenses to all employees (not just those covered by the existing self-funded plan).  But there are also risks with this approach – namely, whether providing these benefits would provide significant medical care, based on existing DOL guidance, and trigger all of the normal ERISA-plan obligations. This could depend on whether the employer currently offer an EAP and, if so, what kinds of benefits are currently offered under the EAP.
  6. Talk to the PBM.  An employer should talk to the pharmacy benefit manager (PBM) for their plan and find out what abortion-related drugs participants have access to, especially through mail order – and especially if they have employees in states that make an abortion illegal.
  7. Multi-state employers: state laws.  If an employer has employees in multiple states, the employer should be sure to know and understand the state laws in all of the states in which they have employees.
  8. City and local ordinances.  There are various cities and municipalities that have either already passed local laws regarding abortion (e.g., Lebanon, Ohio) or are considering them.  We understand there are more than 45 cities that currently have such laws.  Employers will need to be mindful of these local laws and will need to think through any preemption issues.
  9. Tax considerations.  There are limits on the amount of travel benefits that can be provided either under an existing group health plan or separately (through one of the structures mentioned above) on a tax-free basis.  An employer will need to be sure to understand those limits and work with their administrator and/or payroll team to ensure compliance.  Certain expenses cannot generally be paid on a tax-free basis, such as meals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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