ERISA Preemption Forum

(Study Tips, Dealing With Stress, Maintaining a Social Life, Financial Aid, Internships, Bar Exam, Careers in Law . . . )
Post Reply
User avatar

Posts: 10471
Joined: Mon May 04, 2009 1:14 am

ERISA Preemption

Post by TTH » Tue Feb 14, 2012 6:43 pm

Oh Jesus Fuck.

Does anyone know a good supplement for either health law or supplement law that provides a flowchart or guide for analyzing a state law for ERISA preemption?


Posts: 917
Joined: Sat May 16, 2009 6:01 pm

Re: ERISA Preemption

Post by goodolgil » Wed Feb 15, 2012 4:07 pm

Did not use a supplement, but Health Law in a Nutshell is by Hall who wrote my casebook, which was very good.

Here's the section from my outline, it may not be very useful.


f. ERISA and the Preemption of Tort Claims

○ ERISA -- interpretation has had quite serious consequences. Originally designed to help employees; two purposes:
1. Protect pensions.
◊ Minimum funding requirements. Federal guarantee--not our concern
2. Imposition of fiduciary obligation on plan administrators.
◊ Must act as employee's trustee--cannot put own interests ahead
◊ Must be careful in managing its assets
◊ Demands payment of benefits if court if not given voluntarily and "appropriate equitable relief." -- § 502
□ As part of the political deal, employer's want state law preemption.
® § 514 -- state laws that relate to matters of ERISA are preempted.
◊ These two sections interact in confusing ways
○ So what does this have to do with health care?
§ Applies to employee benefit plans generally, of which health insurance is a common fringe benefit.
§ If you have an employer-sponsored plan, you cannot sue under state tort law for benefit payment claims. Any statelaws that relate to employer-sponsored plans are preempted.
§ Supreme Court has ruled that the remedies laid out in ERISA are exclusive. § 502 authorizes 2 remedies:
1. Enjoinment/injunction
2. Other appropriate equitable relief--court order to stop violating ERISA.
□ Supreme Court says this excludes consequential damages.
® This doesn't matter much in the pension context, but denials of medical care can have massive consequential damages!
® Florence (pregnant woman denied treatment that led to son's death) wants damages as a result--but ERISA held not allow for consequential damages.
§ If Congress really wanted to replace tort law, it would have at least would have come up with some scheme to protect consumers.
§ The big question now is "Does ERISA apply?" Considerations:
□ Must be employer-sponsored plan.
□ If it is, and an employee suffers negligent injury--does ERISA apply?
○ Peagram v. Herdrich, 530 U.S. 211 (2000)
§ Question: are decisions made by an HMO fiduciary acts within ERISA? Alleged that HMO rewarding doctors for limiting care was an anticipatory breach of fiduciary duty.
§ Shows up with groin pain. Peagram finds an inflamed mass--forces her to wait 8 days for an ultrasound--had to find an HMO facility to do it. Had authority to do out-of-network ultrasound, but it would have cost more. Doctor was also part-owner of HMO
□ HMO plan: distributed money saved from HMO to doctors at the end of the year--creates incentive to spend as little money as possible.
§ What role should the doctor be playing in this situation? Has to put on both a treatment hat and an eligibility hat.
□ Financial incentive seems to be inconsistent with the fiduciary obligation of ERISA.
® If financial obligations were disallowed under ERISA, it would effectively destroy managed care.
§ The court sees a distinction between treatment and eligibility decisions
□ Treatment--can't pay attention to costs
□ Eligibility--is this covered under the costs of the plan?
® Eligibility is sort of a contract decisions
◊ Everyone agrees that doctors' treatment decisions fall outside the scope of ERISA
◊ Likewise everyone agrees that pure eligibility decisions fall within ERISA
® Court holds the D was acting as a "mixed treatment eligibility," and thus not a fiduciary under ERISA
□ Doctor must determine necessity--treatment hat. But this decision determines the eligibility question--eligibility hat.
§ 3 reasons for no fiduciary duty according to court:
1. Nature of the decision is sufficiently distinct from that of a trustee to not impose duty
2. Congress wants HMOs, thus would not pass legislation purposely crippling them
3. Anamoly: fight in this case would turn into whether the doctor was negligent--Congress did not intend ERISA to replicate state tort law
§ Medical Necessity -- not always crisp. If one options is so preferable to the next best, it can meet the necessity requirement.
§ When a doctor makes a treatment decision, he is acting as a trustee.
§ Decision is based mostly on policy--no statutory interpretation.
§ But if P had won, her medical negligence claim would have disppeared--ERISA would be the exclusive remedy. Future P's in mixed-treatment cases would this have to proceed under ERISA instead of state med-mal law.
□ Thus, in general this case is good for P's. If denied coverage under mixed treatment-eligibility, they can sue under state tort law.
○ Aetna Health Inc. v. Davila, 543 U.S. 200 (2004)
§ P's sue HMOs for coverage decisions--lack of ordinary care in violation of state law (Texas Act). Preempted by ERISA? P's claim they are not seeking reimbursement for benefits, but tort damages from a violation of ordinary care. Supreme Court is unpersuaded and rules ERISA preempts
□ A determination is made that Vioxx and hospital stay are not necessary. Claim is that they are.
® Court sees this as an eligibility question. When making this decision, insurer is acting as a fiduciary under ERISA.
◊ Fact that question is infused with medical question does not alter is fundamental eligibility nature
□ How does the court deal with Peagram?
® When treatment blends with eligibility, it is not fiduciary. No ERISA.
® But when HMO makes the decision, it is a fiduciary decision under ERISA
§ In Dukes, the 3rd circuit said ERISA preempted state court challenges to the quantity of care delivered, while quality was covered by state medical malpractice.
□ Court draws a formal line in Davila
® If doctor makes decision, it is not fiduciary
® If HMO does, then it is
○ We probably wouldn't care about all of this if it wasn't for the huge difference in remedies between ERISA and the preempted state laws
§ If you're an HMO practicing utilization review, what incentives exactly do you have to provide best coverage?
□ Since you're making an eligibility decision, it can only be challenged under ERISA
□ Gives blanket immunity to HMOs for their own negligence
□ Prevents states from regulating their own HMOs
§ Why Florence got sued:
□ Could she sue her doctor? He wanted to give care, can't put him on the hook.
□ Sue HMO? Not under state law. Under ERISA? Recovery would be nothing because consequential damages are not allowed.
® These are the reasons for Ginsburg's concurrence--the remedies section of ERISA is in need of reevaluation.

g. ERISA and the Preemption of State Regulation

○ In the 1970s New York State orders that employers can’t discriminate against pregnant women.
§ Supreme Court reverses based on ERISA preemption
§ If states are disabled, then all that is left is for Congress to step in, but they won't--no one is regulating employee benefit plans.
§ The effect of ERISA is really one big accident
○ § 514(c)--preempts state law.
§ A state law falls under ERISA if it "relates to" an employer benefit plan
□ What about indirect effects? "Relate to" has been interpreted very broadly.
□ Conundrum: states are the ones left to regulate insurance, but most employee benefit plans involve insurance
® Exception: § 514(b)(2)(c)--Leaves states with their historic authority to regulation insurance (also banking, securities)
§ Many large employers self-insure--they pay their own insurance and pool all of their workers into a risk-pool. They then hire a TPA and a Pharmacy Benefits Manager (PBM)
□ Party actually paying medical losses is the employer
§ If employers are self-insuring, then they are acting as insurers. State officials want to make sure they have enough capital on hand.
□ 514(b)(2)(b)--exception to exception. A self-funded plan is not an "insurance plan" and cannot be treated as such
§ § 514 in plain English
1) Does law relate to employee benefit plan?
2) If so, does it regulate insurance?
3) If so, is the law nonetheless directed at a self-funded plan?
□ If so, preempted by ERISA
§ What does a law regulating insurance look like?
1) Might say on its face it is regulating insurance
2) Might have characteristics of a quintessential insurance law
○ Does ERISA preempt "Any Willing Provider" statutes? Kentucky passed one, and it was litigated in 2003.
§ Is this a law regulating insurance? Yes because
□ Substantially affected the risk pooling
□ Requires insurers to allow certain providers to practice
§ Holding narrowed the scope of ERISA.
□ This motivated employers to self-insure where ERISA preemption applies and thus avoid state regulation.
□ The more regulation, the more employers begin to self-insure
§ Since the state governments can't regulate self-insured plans, what has federal legislation done in response? Almost nothing
□ Must keep women who just delivered a full 48
□ For mastectomy, must provide reconstructive surgery.
□ Parity in mental health care with rest of health care
○ "Relates to" -- when does a state statute relate to an ERISA plan?
§ Shaw v. Delta Air Lines -- "a law relates to an employee benefit plan in the normal sense of the phrase if it has a connection with reference to the plan."
□ NY law in this case would have required employers to rewire their plans--it required providing same benefits for pregnancy related disabilities as other disabilities. ERISA preempts
□ State laws do not relate to ERISA when they change incentives--Travelers Insurance would charge Blues hospitals substantially less.
® Made it much more expensive for to insure without Blue Cross
◊ Had a direct effect on employer's ability to choose plans
○ Retail Industry Leaders Ass'n v. Fiedler, 475 F. 3d 180 (4th Cir. 2007)
§ Law regulated large employers, mostly targeted at Wal-Mart. Required employers with 10,000 or more employees to spend at least 8% of their total payrolls on employee HI or to pay the difference to the state.
□ Court views it as a regulation of benefits, and thus preempted by ERISA.
§ Under Shaw, offering incentives is OK, but to Wal Mart this was not really a choice. Obviously they would spend the money on their employees instead of paying it to the state.
□ Any sort of mandate clearly relates to ERISA.
□ The state was clearly mad at Wal-Mart for sending its employees to state-run Medicaid
○ Golden Gate Restaurants (9th Cir. 2007)
§ San Francisco's effort to provide universal insurance. Health Access Plan -- gives those lacking insurance access to it. Employees whose employers don’t provide enough insurance get a cut.
□ Employers have a choice: pay $1.17 per hour for insurance under 100 employees, or $1.74 an hour for 100+. If they don't they can pay the balance into the HAP
® Court distinguishes Fielder because in this case it sees a real choice.
® Does not require employers to change plans themselves--only dollar amounts.
□ Will employers really perceive this as a meaningful choice? Is there a difference between a tax and a mandate?
□ Both statutes impose record keeping standards--4th Cir. saw this as enough to preempt.
○ Universal health care at the state level
§ Massachusetts avoided ERISA because
□ Not a lot of uninsured
□ Got lots of money from feds.
□ For the above two reasons, they did not have to impose a large tax to implement the plan.

There is a small fee, but no one has challenged it. It still probably violates ERISA

Post Reply

Return to “Forum for Law School Students”