The United States Supreme Court ruled on March 1, 2016 in Gobeille v. Liberty Mutual Insurance Company that a Vermont state statute that requires health care plans to file informational report with the state is preempted by ERISA to the extent it is intended to apply to self-funded plans. Writing on behalf of the Court in a 6-2 ruling, Justice Anthony Kennedy noted that reporting, disclosure and record-keeping are central to and an essential part of ERISA’s regulatory scheme and thus concluded that ERISA preempted state efforts to impose other reporting obligations.
ERISA expressly preempts any state laws insofar as they may now or hereafter relate to any employee benefit plan. The Court has over the years established principles for dealing with preemption. Under a threshold standard, where either a state law acts immediately and exclusively upon ERISA plans or the existence of ERISA plans is essential to the law’s operation that law will be preempted. Under an alternative test, the Court has ruled that ERISA preempts state laws that have an “impermissible connection” with ERISA plans (i.e., this test focuses on state laws that attempt to govern a central matter of plan administration or that interfere with nationally uniform plan administration). This second alternative was at issue in the Gobeille case.
The Gobeille case arose out of a challenge to the applicability of Vermont state law requiring disclosure of payments relating to health care claims and other information (including costs, prices, quality, utilization or resources required and certain data relating to health insurance claims and enrollment) relating to health care services. The disclosures were designed to allow Vermont to maintain an all-inclusive health care database. The state law on its face applied to health care plans regulated by ERISA, including self-funded plans. The question before the Court was whether ERISA preempted the Vermont statute as it applies to self- funded plans.
Liberty Mutual maintains a self-funded health plan that provides benefits to employees in all 50 states, including Vermont. The Liberty Mutual plan uses Blue Cross Blue Shield of Massachusetts as third-party administrator, and Blue Cross was under pressure to provide information concerning the Liberty Mutual plan to Vermont. Liberty Mutual filed an action in the United States District Court for the District of Vermont seeking a declaration that ERISA preempted the application of Vermont’s statute to their plan. While the lower court did not rule that the Vermont statute was preempted under ERISA, the Court of Appeals agreed with Liberty Mutual and ruled that the statute was in fact preempted. That decision was accepted by the Court for review.
Writing for the Court, Justice Kennedy noted that ERISA’s reporting, disclosure and recordkeeping requirements for welfare benefit plans are extensive (as is true for retirement plans as well). As Justice Kennedy stated, “As all this makes plain, reporting, disclosure and recordkeeping are central to, and an essential part of, the uniform system of plan administration contemplated by ERISA.” Given that conclusion, the Court upheld the ruling of the Court of Appeals and ruled that ERISA’s express preemption clause requires invalidation of the Vermont reporting statute as applied to self-funded plans: “The state statute imposes duties that are inconsistent with the central design of ERISA, which is to provide a single uniform national scheme for the administration of ERISA plans without interference from laws of the several States even when those laws, to a large extent, impose parallel requirements.”
In a surprising twist, Justice Clarence Thomas wrote a concurring opinion that expresses doubt as to whether ERISA’s preemption doctrine, at least with the breadth under which it has been applied, reflects a valid exercise of the powers of Congress under the Constitution. While only a concurring opinion, one might expect these arguments to be raised in future litigation in this area.
This case represents an important marker and even a victory for ERISA covered plans, including health care and retirement plans, because it can be an important shield against burdensome state regulation of those plans. An immediate impact of the decision is the limits it imposes on similar state laws that have been adopted in 17 other states in the country.
As an interesting historical note, this decision was one of two decisions issued by the Court on its first day of rulings after the tragic death of Justice Antonin Scalia.