Gobeille v. Liberty Mutual: Supreme Court holds that ERISA preempts a state statute requiring ERISA-covered health plans to report benefit-payment and other data to a state agency



March 10, 2016

Benefits Alert

Author(s): Charles M. Dyke

This alert was co-authored by William Lisa.

This alert discusses what employers and plan administrators should know about the recent ruling involving ERISA’s preemptive scope.

On March 1, in Gobeille v. Liberty Mutual, the Supreme Court found that a Vermont reporting and disclosure law was preempted by ERISA to the extent it required ERISA-governed health plans to register with and report benefit-claims and enrollment data to a state agency. The Court held that although the law was created for the benign purpose of creating an “all-payer claims database” that was available as a resource for insurers, employers, providers, purchasers of health care and state agencies to review health care utilization, expenditures and performance within the state, the law’s reporting scheme nonetheless was an attempt to directly regulate a fundamental ERISA function—the setting of uniform rules for reporting, disclosure, recordkeeping and other aspects of plan administration.

Because ERISA preempts any state law that “relates to” an ERISA-covered plan, the Court held that the Vermont law could not survive, at least as applied to ERISA health plans. The court emphasized that if Vermont’s law were not preempted, ERISA plans would face the possibility of disuniform state and local reporting laws that could be deeply burdensome and expensive for employers and their health care plans. This is exactly what ERISA’s broad preemption clause was designed to prevent.

The plaintiff in the case, Liberty Mutual Insurance Company, maintains a health-care plan that covers 80,000 participants in all 50 states. The participants in the plan are Liberty Mutual’s employees and their families, as well as former employees. In 2011, Liberty Mutual’s third-party administrator, Blue Cross, received a subpoena from Vermont demanding submission of all claims files and member eligibility files. Liberty Mutual instructed Blue Cross to object to the subpoena, then filed suit challenging the statute. The trial court ruled in favor of the state, finding that while the law’s reporting requirement might affect ERISA benefit plans, any effect would be indirect and would not interfere with plan administration. The United States Court of Appeals for the Second Circuit reversed, holding that ERISA preempted the Vermont statute because it invaded an area central to ERISA regulation.

In the decades since ERISA was enacted in 1974, the Supreme Court has sought to find the right balance in applying ERISA’s broadly worded preemption clause. A literal interpretation of the clause would mean that all laws would be preempted, because, as Justice Scalia once wrote in an ERISA preemption case 20 years ago: “as many a curbstone philosopher has observed, everything is related to everything else.” The Court has instead construed to the clause to preempt state laws that explicitly reference ERISA-governed plans or have an impermissible connection to ERISA plans, meaning that the state law either “governs a central matter of plan administration” or “interferes with nationally uniform plan administration.” In Gobeille, the Court held that the Vermont statute had an impermissible connection with ERISA.

Justice Kennedy authored the majority decision, with Justices Breyer and Thomas each filing a concurrence and Justice Ginsburg authoring a dissent in which Justice Sotomayor joined. Justice Breyer suggested that the Secretary of Labor could modify ERISA’s reporting requirements to compel plan sponsors and administrators to provide claims and enrollment data like that required under the Vermont statute, and could pass along the information to the states. Justice Thomas agreed that the majority opinion reached the correct result under the Court’s past precedents, but he questioned whether ERISA’s expansive preemption clause was Constitutional in the first place. According to Justice Thomas, Congress’s power to regulate under the Commerce Clause was insufficient to authorize Congressional regulation of truly local matters. Justice Ginsburg disagreed with the majority’s broad interpretation of the preemption clause, arguing that the Vermont law’s benign purpose was sufficient to save it under prior Supreme Court ERISA preemption cases.

Seventeen other states have enacted similar “all-payer claims database” statutes, including: Arkansas, Colorado, Connecticut, Kansas, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Tennessee, Utah, Virginia, Washington and West Virginia. Gobeille may render all of those unenforceable against ERISA-covered health plans and their administrators.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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