On March 1, 2016, the U.S. Supreme Court handed down its decision in Gobeille v. Liberty Mutual Ins. Co., finding that ERISA preempted Vermont’s health care database reporting requirements; and the Court granted a certiorari petition and vacated and subsequently remanded a similar case, Self­Insurance Institute of America , Inc. v. Snyder, to the Court of Appeals for the Sixth Circuit for further reconsideration (the Sixth Circuit had concluded that there was no ERISA preemption in its 2014 decision), in light of the Court’s decision in favor of Liberty Mutual.

Background on Gobeille

In Gobeille, the Court affirmed the decision of the Court of Appeals for the Second Circuit, concluding that the Vermont law had an impermissible “connection with” ERISA plans.  Concluding that reporting, disclosure, and recordkeeping are central to, and an essential part of, the uniform system of plan administration contemplated by ERISA, the Court opined that “Vermont orders health insurers, including ERISA plans, to report detailed information about the administration of benefits in a systematic manner.  This is a direct regulation of a fundamental ERISA function.”

The fact that the Vermont scheme related to the State’s traditional power to regulate in the area of public health could not save the scheme from ERISA preemption since ERISA “certainly contemplated the pre­emption of substantial areas of traditional state regulation.”  The Court’s expansive view of ERISA preemption sided with self­insured interests looking to prevent multiple jurisdictions from imposing differing, or even parallel, regulations that create wasteful administrative costs and threaten to subject plans to wide­ranging liability.

Self­Insurance Institute of America , Inc. v. Snyder (“Snyder”)

In a thinly veiled reference to Snyder, the Court explicitly left open the question of how it would decide on a state tax, which might only require incidental reporting by ERISA plans.  As context for Synder, in 2011, the State of Michigan enacted the Health Insurance Claims Assessment Act (“HICAA”), in order to generate revenues to fund Michigan’s share of its Medicaid program.  The Act requires health insurers and third­party administrators (including those administering ERISA plans) to:

  1. Calculate the value of claims paid to Michigan providers on behalf of Michigan residents pursuant to the State’s tabulation rules;
  2. Remit the tax (based on paid claims for health care services rendered in Michigan to Michigan residents) to the State;
  3. File quarterly and annual returns that are subject to audit by the State;
  4. Maintain detailed records and submit to audits at the State’s discretion; and
  5. Determine how, if at all, to seek reimbursement of the tax from others.

In its earlier 2014 decision, the Sixth Circuit concluded that ERISA did not preempt HICAA because the Michigan law did not regulate claims processing per se but instead imposed a tax on the value of paid claims, thereby not requiring a plan administrator to change how it administers the plan at all (according to the court). The Sixth Circuit also emphasized that the Michigan law related to a state tax, which the court deemed to be a traditional area of state concern.  The Synder court also rejected the Second Circuit’s reasoning in Gobeille, finding the Second Circuit’s reasoning flawed because the reporting did not affect benefits, but also distinguishing that case on factual grounds.

Practical Implications

Snyder is headed back to the Sixth Circuit for reconsideration of whether HICAA should be preempted in light of Gobeille.  It is unclear what effect a ruling that the administrative portions of HICAA are preempted would have on the tax.  Meanwhile, TPAs should consider what they need to do to make (and preserve against the statute of limitations) a claim for a refund in the event HICAA is invalidated.  With a four year statute of limitations, the State of Michigan may implement a process to handle protective claims (we have not seen anything set up to date).  ERISA plan administrators should work with their TPAs regarding a recoupment of any HICAA taxes that had been passed through to their plans and become subject to a refund.