This is the second article of a three part series summarizing employee benefit issues that are being argued in front of the U.S. Supreme Court during the current October 2015 term. Part One provided an outline of Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (Jan. 20, 2016) which involved subrogation and the scope of plan remedies under § 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA). The next case, Gobeille v. Liberty Mutual Insurance Company, 136 S. Ct. 936 (March 1, 2016) was argued on December 2nd and involved whether the scope of ERISA’s preemption power under § 514(a) extends to a state statute requiring that group health plans’ healthcare claims information be reported for the creation of a state-wide database.
ERISA’s preemption clause states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Given the ambiguous meaning of “relate” in the definition, the scope of ERISA preemption has been brought before the Supreme Court many times before. As the law stands now, ERISA preempts state laws in three different ways:
Express preemption. All state laws that have a connection with or reference to ERISA plans are preempted, except for state laws that regulate insurance. This encompasses state laws that pertain to areas ERISA regulates, which includes reporting, disclosure and fiduciary responsibility.
Field or Complete preemption. The civil enforcement and remedies of ERISA § 502 “occupy the field.” Therefore, state law causes of action or remedies are preempted for claims involving ERISA plans.
Conflict preemption. Any state law that conflicts with a provision of ERISA is preempted.
Vermont requires all “health insurers” to submit healthcare claims information to the state for the purpose of creating a statewide claims database. Vermont, and more than fifteen other states with similar databases, maintains that the claims information will help state governments understand and control healthcare costs.
Liberty Mutual Insurance Company (“Liberty Mutual”) sponsors a self-insured group health plan that is subject to ERISA. While Liberty Mutual employs tens of thousands of employees, only a small subsection are employed in Vermont. Liberty Mutual, as the plan sponsor, does not have to comply with the Vermont healthcare claims reporting requirement due to the small number of Vermont employees. Nevertheless, its third-party administrator (“TPA”) was obligated to comply and report information on Liberty Mutual’s employees in Vermont. Liberty Mutual informed its TPA not to comply, out of fear that disclosure of information regarding the Vermont employees may violate its ERISA fiduciary duty to administer its plan solely in the interest of the participants.
Shortly thereafter, Liberty Mutual filed suit in federal district court seeking a declaratory judgment that the Vermont healthcare claims reporting requirement was preempted by ERISA.
The United States District Court for the District of Vermont originally granted summary judgment in favor of Vermont, holding that the Vermont statute did not “relate to” ERISA because it did not reference or exclusively apply to ERISA plans. The Second Circuit Court of Appeals, in a 2-1 split decision, reversed the district court ruling finding that the Vermont statute was preempted because its reporting requirement was connected with reporting required under ERISA.
SUPREME COURT’S HOLDING
The Supreme Court issued its decision on March 1, 2016. The Court held that ERISA preempts the Vermont law that requires entities, specifically health insurers, to report healthcare claims information to the state.
During oral arguments, counsel for Vermont argued that the 2nd Circuit decision was inconsistent with the Supreme Court’s preemption precedent. In response, Liberty Mutual focused its arguments on the administrative burden for group health plans to report to uncoordinated requirements by different states with similar databases.
In a 6-2 decision, the Court held that the Vermont statute was preempted. The Court based their holding on the degree of connection and effect the Vermont statue has on ERISA plans under the theory of express preemption. The majority held that Vermont’s reporting requirements interfered with the “fundamental components of ERISA’s regulation of plan administration.” The majority was not persuaded by Vermont’s argument that Liberty Mutual had not yet suffered additional administrative burden or cost by complying with the statute. The mere possibility of additional administrative burden is sufficient for preemption to apply.
The Gobeille decision does not only shed light on the reach of ERISA’s preemption power, but also may have an impact on states’ ability to manage healthcare costs and claims. Now that the Supreme Court has determined that the Vermont health care claims database is preempted, other states with mirrored statutes will have to comply and may need to revise their statutes. This decision is important for plan sponsors and TPAs of large group health plans because preemption will relieve the administrative burden of submitting data and ensuring compliance with each state’s separate claims database requirements. On the other hand, preemption of state healthcare claims reporting could be detrimental to states’ ability to regulate and control healthcare costs given the majority of data came from plans subject to ERISA.
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