Supreme Court Rules ERISA Pre-empts Vermont All-Payer Claims DatabaseSpring 2016 – Articles For Your Benefit
In a decision handed down on March 1, 2016, the United States Supreme Court (the Court) ruled 6-2 that ERISA pre-empts a Vermont statute requiring entities that provide and pay for health care to report information to the state insofar as the statute applies to ERISA plans. The case is Gobeille v. Liberty Mutual Insurance Company.
In 2005, Vermont passed a statute requiring “health insurers” to report to state officials information on health care costs, prices, quality, claims and enrollment for use in evaluating the cost and quality of care provided to Vermont residents. Under the law, “health insurers” included self-insured benefit plans and third-party administrators of such plans. Health insurers serving 200 or more Vermont residents are required to remit plan information to state officials for consolidation into what is known as an all-payer claims database.
Liberty Mutual Insurance Company (Liberty Mutual) sponsors a self-funded medical plan to some 137 Vermont residents and was only a voluntary reporter under the Vermont law. Its third-party plan administrator, Blue Cross Blue Shield of Massachusetts (Blue Cross), however, serves several thousand Vermont residents. As a result, Blue Cross was a mandatory reporter under the law. In 2011, Liberty Mutual ordered Blue Cross not to provide the requested information to state officials out of concern that disclosure of participant and plan information would violate its duties as a plan fiduciary. Liberty Mutual subsequently filed an action in federal court seeking an injunction to prevent Vermont from compelling Blue Cross to provide the information and a declaration that ERISA
pre-empted the Vermont statute.
ERISA Section 514 expressly pre-empts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” The Supreme Court has, in a series of cases, interpreted the words “relate to” so as to pre-empt state laws that (1) make “reference to” ERISA plans or (2) have a “connection with” ERISA plans. Liberty Mutual contended the Vermont statute violated the latter prong as having an impermissible connection to ERISA plans.
An impermissible connection with an ERISA plan exists when a state statute “governs a central matter of plan administration” or “interferes with nationally uniform plan administration.” The majority, led by Justice Kennedy, stated “ERISA’s reporting, disclosure, and recordkeeping requirements … are extensive.” Noting that ERISA requires plans to make regular disclosures to plan participants and file reports with the Department of Labor, the majority concluded that “reporting, disclosure and recordkeeping are central to, and an essential part of, the uniform system of plan administration contemplated by ERISA.”
The majority reasoned that without pre-emption, differing state reporting requirements would impose burdensome reporting requirements on plans. Justice Breyer, in a concurring opinion, further elaborated on this concern, stating that allowing each state to impose its own reporting requirements could result in “unnecessary, duplicative, and conflicting reporting requirements, any of which can mean increased confusion and increased cost.” The majority and Justice Breyer both noted that the Department of Labor has authority to mandate plan reporting requirements and it alone should have authority to require plan reporting. Justice Breyer further suggested that states could continue to collect information using the all-payer claims databases if they were to seek approval from the Department of Labor to do so and would share such information with the agency.
The majority further noted that in evaluating prior similar cases, the Court considered (1) the objectives of ERISA and (2) the nature of the effect of the state law on ERISA plans when determining if pre-emption was necessary. The Court acknowledged that the objective of Vermont’s law was different from ERISA’s, a factor weighing against pre-emption. Nevertheless, the Court determined that the law regulated a matter central to plan administration, its differing objective did not transform the reporting requirements into an “innocuous and peripheral set of additional rules.”
While concurring, Justice Thomas questioned whether ERISA’s pre-emption clause is a valid exercise of Congressional power in this case. Specifically, Justice Thomas expressed concern whether the Commerce Clause permits Congress to pre-empt state laws that do not impact interstate commerce. Justice Thomas admitted that such a question was not posed before the Court and hence, until it is, the Court must rule based on current jurisprudence.
In their dissent, Justices Ginsburg and Sotomayor challenged the majority’s decision asserting that an analysis of ERISA’s objectives and the nature of the Vermont statute’s effects on ERISA plans demonstrated that the law “does not impermissibly intrude upon ERISA’s dominion of employee benefit plans.”
The dissent argued that ERISA’s objective is to govern the “design and administration of employee benefit plans” and that “[i]ts reporting requirements are geared towards those functions.” ERISA’s reporting requirements, according to the dissent, are meant to help the Department of Labor “evaluate plans’ management and solvency.” The Vermont law, on the other hand, focuses on improving the quality and reducing the cost of health care provided to Vermont residents. Because the laws request different information and serve different purposes, the dissent concluded the objectives of ERISA are not impacted by the Vermont law.
Further, the dissent argued Liberty Mutual failed to show details of the economic burden Vermont’s law would impose. Justice Ginsburg noted that amicus briefs submitted in support of Liberty Mutual indicated that compliance with the law would amount to “no more than everyday facets of modern regulatory reporting” – such as implementing software systems to collect and send data to state officials.
As a practical matter, the dissent noted that there are 18 states that currently use similar all-payer claims databases. In Vermont, approximately 20 percent of the data submitted relates to self-insured plans. Further, across the country approximately 50 percent of Americans get health insurance through their employers, and 61 percent of these employer plans are self-insured. Exempting self-insured employer plans would have a significant impact on the information available and would impair states’ ability to assess the quality and cost of health care.