On March 1, 2016, the United States Supreme Court, in Gobeille v. Liberty Mutual Insurance Company, No. 14-181, reaffirmed the broad preemptive effect of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq. (ERISA). In enacting ERISA, Congress provided, among other things, for the preemption of "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 136 S. Ct. 936, 939 (2016) (citing 29 U.S.C. § 1144(a)). As is relevant here, ERISA "pre-empts a state law that has an impermissible 'connection with' ERISA plans,i.e., a law that governs, or interferes with the uniformity of, plan administration." Id. In a 6-2 decision written by Justice Anthony Kennedy, the Gobeille Court held that state laws that govern plan reporting, disclosure, and recordkeeping were preempted by ERISA and that preemption in this situation was "necessary in order to prevent multiple jurisdictions from imposing differing, or even parallel, regulations, creating wasteful administrative costs and threatening to subject plans to wide-ranging liability." Id.
At issue in Gobeille was the validity of a Vermont statute and regulation that required health insurers, healthcare providers, healthcare facilities, and government agencies to report any "information relating to healthcare costs, prices, quality, utilization, or resources required," to the Vermont Department of Banking, Insurance, Securities and Health Care Administration (the Department), including data relating to health insurance claims and enrollment, for compilation in an all-inclusive all-payer claims database (APCD). The Vermont statute and regulation were intended, among other things, to identify healthcare needs and inform healthcare policy, compare costs between various treatment settings and approaches, determine the capacity and distribution of existing resources, and provide information to purchasers of healthcare. Vermont intended to use the APCD data to better control healthcare outcomes and costs.
Liberty Mutual Insurance Company (Liberty Mutual), which maintained a self-insured health plan for its employees, challenged the Vermont statute and regulation. Liberty Mutual's third-party administrator (TPA) was ordered to transmit its files on eligibility, medical claims, and pharmacy claims for the Plan's Vermont members. Liberty Mutual, voicing concerns that the disclosure of such confidential information might violate its fiduciary duties to its Plan participants, instructed the TPA to refuse to submit the data to the Department and filed suit, seeking a declaration that ERISA preempts application of the Vermont law and an injunction prohibiting Vermont from trying to acquire data about the Plan or its members. Liberty Mutual argued that the Vermont law was preempted by ERISA, as it was a law that governed, or interfered with the uniformity of, plan administration and hence had an impermissible "connection with" ERISA plans. Id. at 943.
The Decision—And the Reasoning Behind It
The United States District Court for the District of Vermont granted summary judgment in favor of Vermont, but the Second Circuit Court of Appeals reversed, holding that Vermont's data-collection law was preempted by ERISA. The Second Circuit reasoned that the reporting of information about plan benefits qualified as a core ERISA function and should therefore be shielded from potentially inconsistent and burdensome state regulation. Liberty Mut. Ins. Co. v. Donegan, 746 F.3d 497, 508 (2d Cir. 2014).
The United States Supreme Court affirmed the Second Circuit's decision and invalidated Vermont's statute and regulation. As part of its analysis, the Court cited the various federal recordkeeping requirements that ERISA and the Department of Labor have imposed on ERISA plans, and explained that ERISA's extensive reporting, disclosure, and recordkeeping requirements are central to, and an essential part of, a uniform plan administration system. 136 S. Ct. at 945.
The Majority reasoned that Vermont's reporting regime, which also attempted to govern plan reporting, disclosure, and recordkeeping, and compelled plans to report detailed information about claims and plan members, intruded upon "a central matter of plan administration" and "interfere[d] with nationally uniform administration." Id. The Supreme Court noted that the implementation of a patchwork of state regulations could create wasteful administrative costs and potentially subject plans to wide-ranging liability, and therefore, "preemption [was] necessary to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans." Id.
The Majority further rejected Vermont's argument that Liberty Mutual had not demonstrated that Vermont's reporting regime had caused it economic loss, reasoning that "[a] plan need not wait to bring a preemption claim until confronted with numerous inconsistent obligations and encumbered with any ensuing costs." Id. The Majority also rejected Vermont's argument that ERISA did not preempt the state law because the state reporting scheme invoked different objectives. Vermont had maintained that in enacting ERISA, Congress's primary concern was with mismanagement of funds accumulated to finance employee benefits and failure to pay employee benefits from accumulated funds. Vermont argued that its law had nothing to do with the financial solvency of plans or the prudent behavior of fiduciaries. The Majority was unconvinced, reasoning that Vermont ordered ERISA plans to report detailed information about the administration of benefits in a systematic manner, which is a core function of ERISA.
The Critics' Views
Critics of the decision point out that because APCD laws and ERISA serve different purposes, ERISA should not preempt these APCD laws. Critics of the decision also point out that prohibiting states from collecting healthcare price and market data from self-funded employee benefit plans puts states at a disadvantage in addressing the growing problems of increasing healthcare costs, consolidation, and price variation. Finally, critics maintain that the decision substantially undermines state efforts to understand and control rising healthcare costs for consumers by depriving states of essential information on healthcare utilization, pricing, and quality.
The Result of the Ruling
As a result of the ruling, health insurers, healthcare providers and healthcare facilities may not have to be concerned about multiple data-reporting jurisdictions creating increased and wasteful administrative costs, as well as threatening to subject plans to state-imposed risk of liability.