The U.S. Supreme Court affirmed the Second Circuit’s ruling that Employee Retirement Income Security Act (ERISA) preempts a Vermont reporting statute that requires health plans to report detailed claims and member information as part of the state’s efforts to track health care utilization, costs, and resources. Liberty Mutual Insurance Company (Liberty Mutual) maintains a health plan that provides benefits in all 50 states to over 80,000 individuals and is subject to ERISA. Liberty Mutual’s plan was not required to report claim information under the Vermont statute because it covers fewer than the threshold number of Vermont residents. Liberty Mutual, however, uses Blue Cross Blue Shield of Massachusetts (Blue Cross) as a third-party administrator. Blue Cross serves several thousand Vermonters and thus must report the information it possesses about Liberty Mutual’s Vermont members under the statute. Liberty Mutual, concerned in part that the disclosure of confidential information about its members may violate its fiduciary obligations under its plan, instructed Blue Cross not to comply with the Vermont statute.
Liberty Mutual sought a declaration in the U.S. District Court for the District of Vermont that ERISA preempts application of Vermont’s mandatory reporting statute to Liberty Mutual’s plan and sought an injunction precluding Vermont from acquiring data about Liberty Mutual members. The District Court granted summary judgment in favor of Vermont and the Second Circuit reversed.
In determining that ERISA preempts the Vermont statute, the majority explained that there are two categories of state laws that ERISA preempts. First, ERISA preempts state laws that reference ERISA plans and act exclusively upon them. Second, ERISA preempts state laws that govern a “central matter” of ERISA plan administration or interfere with ERISA's goal of nationally uniform plan administration. The Supreme Court recognized that the purpose of ERISA is to ensure the security of benefits promised by employers by mandating certain oversight systems and other standard procedures. These systems and procedures are intended to be uniform across the country.
Justice Kennedy, on behalf of the six justice majority, found that ERISA’s reporting and disclosure requirements for welfare benefit plans are central to, and an essential part of, the uniform system of plan administration contemplated by the federal statute. The panel concluded, therefore, that Vermont’s reporting regime both intrudes on a central matter of ERISA plan administration and interferes with ERISA’s goal of uniform plan administration. The panel also explained that differing, or even parallel, regulations from multiple states could create wasteful administrative costs and subject plans to wide-ranging liability. The majority further noted that preemption is necessary to prevent the states from imposing inconsistent and costly reporting requirements on benefit plans.
The majority rejected Vermont’s argument that Liberty Mutual failed to demonstrate the reporting statute in fact caused it to suffer economic costs, finding that a plan did not need to wait until it suffered the costs of inconsistent obligations in order to bring a preemption claim. Vermont also argued that ERISA does not preempt the state reporting scheme because it has different objectives than ERISA, namely, to manage health care costs of the state, as compared to ERISA’s goal of ensuring the security of employee benefits. The majority held that the perceived difference in the objectives of the Vermont statute and ERISA does not suffice to avoid preemption, because the Vermont statute still imposes a direct regulation on plans’ reporting and disclosure requirements, which is a key facet of ERISA plan administration. Finally, the majority rejected Vermont’s argument that the regulation of public health, as a traditional state police power, cannot be preempted. The majority explained that ERISA in fact contemplated the preemption of substantial areas of state regulation. It held that ERISA preempts a state law that regulates a central matter of plan administration even if the state law exercises a traditional state power.
Justices Thomas and Breyer wrote separate concurring opinions. Justice Thomas expressed concern that ERISA’s express preemption provision may be an improper exercise of Congressional power. On the other hand, Justice Breyer’s concurrence emphasized that the failure to find preemption would impose serious administrative problems by requiring plans to satisfy 50 or more reporting requirements imposed by various state statutes.
Justice Ginsberg filed a dissenting opinion, in which Justice Sotomayor joined. The dissent emphasized the need for state-based health care data-collection laws and concluded that the Vermont data-collection scheme does not infringe on the objectives of ERISA.