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First Circuit Court to Apply U.S. Supreme Court’s Gobeille Decision Makes Important Distinction

Posted Tuesday, August 2, 2016 by Linda M. Josephson

In a 6-2 decision (with two separate concurrences) this past March, the U.S. Supreme Court decided the case Gobeille v. Liberty Mutual Insurance Company, holding that ERISA preempts state statutes that impose certain reporting requirements on health plans and third party administrators. Already, at least one circuit court of appeals has distinguished Gobeille and found a Michigan law taxing benefit claim payments is not preempted.

Vermont Law Preempted Because It Implicates Fundamental ERISA Reporting Requirements

The Gobeille case centered around a Vermont statute requiring health insurers, including self-funded ERISA plans and third party administrators, to disclose claims data on members. Reporting was required on a monthly, quarterly, or annual basis depending on the number of individuals served. Coding, formatting and other specifications had to be followed. The information was compiled by the State into a database reflecting health care utilization, costs and resources in Vermont, and health care utilization and costs for services provided to Vermont residents in other states.

Liberty Mutual sponsored a self-funded ERISA plan, covering 80,000 individuals in 50 states. This included 137 in Vermont, where Liberty Mutual advised its third-party administrator not to file the disclosure reports with the state. In response, the State threatened to impose a fine for noncompliance of $2,000 per day. Liberty Mutual then brought an action seeking to enjoin Vermont from enforcing the statute on grounds it was preempted by ERISA.

ERISA preempts state laws that relate to employee benefit plans. In considering the case, the Supreme Court noted that ERISA has extensive reporting, disclosure, and recordkeeping requirements that applied to welfare benefit plans. Based upon that, the Court concluded that the Vermont law was preempted because it was a law that attempted to govern or interfere with the uniformity of plan administration, and therefore, had an impermissible connection with ERISA plans. The majority opinion focused on the potential of conflicting state and federal regulations, noting that 17 states have some type of reporting law that applies to health plans.

Michigan Law Survives Preemption Because It Does Not Interfere with “Uniform Plan Administration”

A week after the Gobeille decision, the Supreme Court directed the Sixth Circuit Court of Appeals to reevaluate its decision in Self-Insurance Institute Of America v. Snyder et al., in light of Gobeille. The Sixth Circuit had found that self-funded ERISA plans must comply with a Michigan statute that imposes 1% tax on claims paid for Michigan residents who received services from Michigan providers (Case No. 12-2264, Sixth Circuit Court of Appeals).

The statute at issue in the SIIA case imposes a 1% tax on “paid claims” by carriers or third party administrators for paid claims on healthcare provided in Michigan to Michigan residents. The revenue generated by the tax is used to fund Michigan’s Medicaid program. Carriers and TPAs must maintain accurate and complete records and make quarterly filings with the state. “Paid claims” is defined as “actual payments…made to a health and medical services provider or reimbursed to an individual by a carrier, third party administrator, or excess loss or stop loss carrier.” Residency of individuals for whom claims are paid may be determined by the carrier or plan’s own administrative records.

The case had made its way through the district court and Sixth Circuit prior to the Supreme Court’s decision in Gobeille, with both courts determining that ERISA did not preempt the Michigan law’s application to ERISA self-funded plans. The Supreme Court remanded SIIA to the Sixth Circuit for the Court to reconsider its holding in light of Gobeille. In a July 1, 2016 decision, the Sixth Circuit reaffirmed its holding that ERISA does not preempt Michigan’s law.

The Sixth Circuit drew a distinction between “the Gobeille category of state laws,” which it claimed directly regulate ERISA’s essential reporting and recordkeeping functions, and laws like Michigan’s, which necessitate “incidental reporting and recordkeeping.” The Court stated that Congress did not set out to preempt state laws in areas of traditional state concern and Court quoted a reservation included in the Gobeille decision itself, that “[t]he analysis may be different when applied to a state law, such as a tax on hospitals, see De Buono v. NYSA-ILA Med & Clinical Servs. Fund [], the enforcement of which necessitates incidental reporting by ERISA plans.”

In De Buono(520 US 806 (1997)) the Supreme Court upheld a New York State law that imposed a gross receipts tax on all hospitals—including a facility operated by an ERISA plan—to fund the state’s Medicaid program. The Supreme Court argued that the tax was one of general application and would have been passed through to an ERISA plan even if the hospital had not been affiliated with the plan.

The main thrust of the Sixth Circuit’s argument is that ERISA preempts laws that directly regulate internal aspects of ERISA preemption and does not preempt state laws that only peripherally impact plans. It found that the Michigan Act’s purpose was to raise revenue and not collect data. Other than suggesting a state law intended to tax self-funded plans to raise revenue is peripheral, there is little guidance about how to approach ERISA preemption decisions. *The Cases Illustrate the Murkiness of ERISA Preemption Doctrine*

The two cases illustrate the continued lack of certainty about ERISA’s preemption doctrine. The Supreme Court’s Gobeille decision contained three separate opinions with no opinion receiving a majority of votes. The Sixth Circuit’s decision makes a semantic distinction between laws that directly regulate plan administration and those that have only peripheral effect, but offers little help concerning how that distinction is made.