General Publications April 4, 2016

“The High Court's Preemption Tango and the Future of ERISA,” Law360, April 4, 2016.

Extracted from Law360

The Employee Retirement Income Security Act of 1974 preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). Some ERISA commentators have questioned whether there is a growing trend for courts to weaken the preemptive sweep of ERISA. However, a majority of the Supreme Court recently bucked any such trend. On March 1, 2016, the U.S. Supreme Court (in a 6-2 decision) held that a state law requiring certain entities, such as health insurers, to report payments relating to health care claims and other information regarding health care services to a state agency was preempted by ERISA, as applied to ERISA-governed plans.

The majority opinion in Gobeille v. Liberty Mutual Insurance Co., No. 14-181 (U.S. 2016), and the strongly worded dissent authored by Supreme Court Justice Ruth Bader Ginsberg (joined by Supreme Court Justice Sonia Sotomayor) are evidence of the push and pull in the tango over the scope of ERISA preemption. This case may also have practical implications for ERISA practitioners who are trying to keep in step with state laws that are out of step with ERISA’s preemptive sweep.

Factual and Legal Background for Gobeille

At issue in this case was a Vermont law that requires certain private and public entities that provide and pay for health care services to report information to a state agency so that the reported information could be compiled into a database reflecting “all health care utilization, costs, and resources in [Vermont], and health care utilization and costs for services provided to Vermont residents in another state.” As the majority opinion of the Supreme Court notes, this kind of database is often referred to as an “all-payer claims database, for it requires submission of data from all health insurers and other entities that pay for health care services.”

As reflected in an amici curiae brief submitted by the state of New York and cited by the majority opinion, almost 20 states have or are implementing similar databases. Vermont’s law required health insurers, health care providers, health care facilities and governmental agencies to report any “information relating to health care costs, prices, quality, utilization or resources required” by the state agency, including data relating to health insurance claims and enrollment. Health insurers were required to submit claims data on members, subscribers and policyholders. The Vermont law defined “health insurer” to include a “self-insured ... health care benefit plan,” as well as “any third-party administrator” and any “similar entity with claims data, eligibility data, provider files and other information relating to health care provided to a Vermont resident.”

Vermont law left to a state agency the responsibility to “establish the types of information to be filed … and the time and place and the manner in which such information shall be filed,” and the law was implemented by a regulation creating the Vermont Healthcare Claims Uniform Reporting and Evaluation System. Under the regulation, health insurers are required to report data about the health care services provided, regardless of whether the patients are treated in Vermont or out-of-state, and about non-Vermont residents who are treated in Vermont. Covered entities under the Vermont law must register with the state and must submit data monthly, quarterly or annually, depending on the number of individuals that entity serves. Entities that serve more people are required to report more frequently, and entities with fewer than 200 members are not required to report at all. Mandatory or “mandated” reporters under the Vermont law could be fined for not complying with the statute or regulation.

Liberty Mutual maintains a health plan — an “employee welfare benefit plan” under ERISA — that provides benefits to its employees across the U.S. The plan is self-insured and self-funded, and Blue Cross Blue Shield of Massachusetts Inc., acts as the administrator for the plan. The plan is a voluntary reporter under the Vermont regulation because it covers fewer people than the required 200-person cutoff for mandated reporting, but Blue Cross is a mandated reporter under the Vermont law at issue. State officials in Vermont issued a subpoena to Blue Cross to transmit to a state-appointed contractor all the files it possessed on member eligibility, medical claims and pharmacy claims for Vermont members.

Liberty Mutual instructed Blue Cross not to comply and filed a lawsuit in the U.S. District Court for the District of Vermont, seeking a declaration that ERISA preempted Vermont’s statute and regulation of the plan and an injunction forbidding Vermont from trying to acquire data about the plan or its members. The district court found in favor of Vermont, finding that Vermont’s reporting requirements were not preempted by ERISA because although the state statute and regulation “may have some indirect effect on health benefit plans,” the “effect is so peripheral that the regulation cannot be considered an attempt to interfere with the administration or structure of a welfare benefit plan.” Liberty Mutual Insurance Co. v. Kimbell, No. 2:11–cv–204 (D. Vt., Nov. 9, 2012).

However, on appeal, the Second Circuit reversed, and the majority of the Second Circuit panel noted that “one of ERISA’s core functions — reporting — [cannot] be laden with burdens, subject to incompatible, multiple and variable demands, and freighted with risk of fines, breach of duty and legal expense.” Liberty Mutual Insurance Co. v. Donegan, 746 F.3d 497, 510 (2d Cir. 2014). The Supreme Court granted the petition for writ of certiorari to address the critical issue regarding the scope of ERISA preemption.

The Supreme Court’s Majority Opinion in Gobeille

The majority opinion noted that the Supreme Court has described two types of state laws that are preempted by ERISA: (1) state laws that have a “reference to” ERISA plans, i.e., “[w]here a state’s law acts immediately and exclusively upon ERISA plans ... or where the existence of ERISA plans is essential to the law’s operation ... that ‘reference’ will result in preemption”; and (2) state laws that have an impermissible “connection with” ERISA plans, such as a state law that “governs ... a central matter of plan administration” or “interferes with nationally uniform plan administration,” or a state law that has “acute, albeit indirect, economic effects” that would “force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.”

Liberty Mutual contended that the Vermont law fell within the second category. The majority opinion observed that, when analyzing similar preemption claims in the past, the Supreme Court considered “the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive,” and “the nature of the effect of the state law on ERISA plans.”

The majority then applied those guidelines to find that Vermont’s reporting scheme was preempted as applied to ERISA plans. In doing so, the majority observed that “ERISA’s reporting, disclosure and record-keeping requirements for welfare benefit plans are extensive.” Furthermore, the majority opinion acknowledged that the “reporting, disclosure and record-keeping are central to, and an essential part of, the uniform system of plan administration contemplated by ERISA” and that the Supreme Court has often remarked that these requirements are “integral aspects of ERISA.”

Here, the Vermont reporting scheme compelled plans to report “detailed information about claims and plan members,” and the majority found that the scheme intrudes upon “a central matter of plan administration” and “interferes with nationally uniform plan administration.” The majority also rejected Vermont’s argument that the reporting scheme could be spared from ERISA preemption because it fell within the traditional power of the state to regulate matters of public health.

Concurring Opinions in Gobeille

Supreme Court Justices Clarence Thomas and Stephen Breyer both filed concurring opinions. In his concurrence, Justice Thomas notes that, over time, the Supreme Court “became uncomfortable with how much state law [29 U.S.C.] § 1144 would preempt if read literally.” He concluded by asserting that, until the Supreme Court “confront[s] whether Congress had the constitutional authority to preempt such a wide array of state laws in the first place, the court — and lower courts — will continue to struggle to apply § 1144. It behooves us to address whether Article I gives Congress such power and whether § 1144 may permissibly be read to avoid unconstitutional results.”

Justice Breyer used his concurring opinion to highlight that failing to find that the Vermont reporting scheme is preempted in this case “would subject self-insured health plans under [ERISA] to 50 or more potentially conflicting information reporting requirements.” He also hinted at potential ways to work around ERISA preemption in the context of the government gathering health care information, stating that he saw “no reason why the secretary of labor could not develop reporting requirements that satisfy the states’ needs, including some state-specific requirements, as appropriate” and that he did not see why the U.S. Department of Labor “could not delegate to a particular state the authority to obtain data related to that state, while also providing the data to the federal secretary for use by other states or at the federal level.”

Dissenting Opinion in Gobeille

In a strongly worded dissent, Justice Ginsburg (joined by Justice Sotomayor) noted that, while ERISA focuses on the design and administration of employee benefit plans, the Vermont reporting scheme “aims to improve the quality and utilization, and reduce the cost, of health care in Vermont by providing consumers, government officials and researchers with comprehensive data about the health care delivery system.” Justice Ginsburg asserted that it is “[b]eyond debate” that “Vermont’s data-collection law does not seek to regulate the management and solvency of ERISA-covered welfare plans.”

Justice Ginsburg also found that no central matter of plan administration is touched by Vermont’s reporting scheme as the law “prescribes no vesting requirements, benefit levels, beneficiary designations, or rules on how claims should be processed or paid.” She also noted the numerous amicus curiae briefs filed by states seeking to advise the Supreme Court of “their urgent need for information yielded by their health care data-collection laws.” She concluded by blasting the Second Circuit (and presumably the majority opinion) for “[d]eclaring ‘reporting,' unmodified, a central or core ERISA function.”


The Gobeille case provides an interesting illustration of the elaborate dance the Supreme Court must engage in when determining how far to go regarding what state laws “relate to” ERISA plans, and the case certainly leaves ERISA commentators with a number of questions. States will continue to be interested in gathering health care data, and it will be interesting to see if, over time, the DOL follows what appears to be a “suggestion” in Justice Breyer’s concurrence to require ERISA plans to report similar information to what was being sought by Vermont’s reporting law.

From an ERISA litigation standpoint, the argument could be made that the majority opinion in Gobeille is helping to turn the tide back toward strengthening ERISA preemption. It would be interesting to see the majority opinion in Gobeille applied to cases like Rush Prudential HMO Inc. v. Moran, 536 U.S. 355 (2002), in which the Supreme Court held that an Illinois statute requiring health maintenance organizations to provide independent review of disputes between a primary care physician and an HMO, and to cover services deemed medically necessary by an independent reviewer, fell within ERISA’s savings clause and was not preempted.

If reporting and disclosure requirements are “core” or “central” functions of ERISA, then the argument could certainly be made that the actual process for the administration and handling of ERISA claims would be just as important, and therefore, just as likely to be protected by preemption. Only time will tell if the Supreme Court is willing to dance around those issues again.

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