Supreme Court Rules State Law is Preempted

The United States Supreme Court has held that the Employee Retirement Income Security Act of 1974 (ERISA) preempts a state law requiring self-funded health plans to provide claim data to the state. Approximately 20 states have similar laws.

Vermont law requires certain entities, including health insurers, to report payments relating to health care claims and other information relating to health care services to a state agency for compilation in an all-inclusive health care database.

Liberty Mutual Insurance Company’s health plan, which provides benefits in all 50 States, is an employee welfare benefit plan under ERISA. The plan’s third-party administrator, Blue Cross Blue Shield of Massachusetts, Inc., which is subject to Vermont’s disclosure statute, was ordered to transmit its files on eligibility, medical claims and pharmacy claims for the Plan’s Vermont members.

Liberty Mutual, concerned that the disclosure of such confidential information might violate its fiduciary duties, instructed Blue Cross not to comply and filed suit, seeking a declaration that ERISA preempts application of Vermont’s statute and regulation to the Plan and an injunction prohibiting Vermont from trying to acquire data about the Plan or its members.

The District Court granted summary judgment to Vermont, but the Second Circuit reversed, concluding that Vermont’s reporting scheme is preempted by ERISA. ERISA expressly preempts any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.

ERISA seeks to make the benefits promised by an employer more secure by mandating certain oversight systems and other standard procedures, and those systems and procedures are intended to be uniform.

ERISA’s extensive reporting, disclosure and recordkeeping requirements are central to, and an essential part of, this uniform plan administration system. Vermont’s law and regulation, however, also govern plan reporting, disclosure and recordkeeping.

Preemption is necessary in order to prevent multiple jurisdictions from imposing differing, or even parallel, regulations, creating wasteful administrative costs and threatening to subject plans to wide-ranging liability. ERISA’s uniform rule design also makes clear that it is the Secretary of Labor – not the separate States – that is authorized to decide whether to exempt plans from ERISA reporting requirements or to require ERISA plans to report data such as that sought by Vermont.

The Supreme Court found Vermont’s arguments unpersuasive. Vermont argued that Liberty Mutual had not shown that the State scheme caused it to suffer economic costs, but the Supreme Court said Liberty Mutual need not wait to bring its preemption claim until confronted with numerous inconsistent obligations and encumbered with any ensuing costs.

In addition, the fact that ERISA and the state reporting scheme have different objectives does not transform Vermont’s direct regulation of a fundamental ERISA function into an innocuous and peripheral set of additional rules. Vermont’s regime also cannot be saved by invoking the State’s traditional power to regulate in the area of public health.

The Supreme Court said that ERISA’s pre-existing reporting, disclosure and recordkeeping provisions maintain their preemptive force regardless of whether the new Patient Protection and Affordable Care Act’s reporting obligations also preempt state law.

This case is good news for self-funded health plans and bad news for officials trying to get a better handle on health care expenditures. It is quite possible that the Department of Labor may request health data as a result of this ruling.



About John Garner

John Garner has over thirty five years of experience in employee benefits. He specializes in compliance, health care reform, the Health Insurance Portability and Accountability Act (HIPAA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Employee Retirement Income Security Act (ERISA). He helps clients with life, health, and disability benefits, cost containment, flexible benefits, and claim consulting.

Subscribe to the Bolton Blog