United States: Gobeille v. Liberty Mutual: The Dog That Didn't Bark, And The Next Front In The Preemption War

Recently, we reported on Gobeille v. Liberty Mutual, in which the Supreme Court invalidated the Vermont all-payer claims data base law. Applying what appeared to us as a straight-forward application of existing ERISA preemption jurisprudence, the Court determined that the Vermont law had an impermissible connection with ERISA plans because it governed a central matter of plan administration, and was thus rendered inoperative (or "preempted" in the parlance of ERISA).  Gobeille's holding is significant. The decision materially shifts the Federal/state balance of regulatory power, at the expense of the states, in instances where the states seek to regulate ERISA-covered employee benefit plans. This post examines an alternative approach raised in Gobeille, but not pursued, under which states might seek to regulate service providers of plans rather than the plans themselves to avoid ERISA preemption.

An Alternative Argument

As Gobeille wound its way to the Supreme Court, the State of Vermont made an argument that got little attention. The essence of the argument is that the Vermont law applied to, and imposed obligations on, Blue Cross Blue Shield of Massachusetts (the Liberty Mutual group health plan third-party administrator) and not the plan itself. (The argument is set out in the Brief for Petitioner (August 28, 2015), page 22.)

The relevant question is not, as the Second Circuit suggested, whether ERISA is concerned with plan reporting and disclosures to participants. It is. See, e.g., Travelers, 514 U.S. at 661. The relevant inquiry is whether Vermont's effort to collect comprehensive statewide data about health care spending and services interferes with any of ERISA's core objectives. It does not. The state law merely requires Blue Cross—Liberty Mutual's third-party administrator— to transmit certain claims data it generates as a matter of course. There is no meaningful difference between Vermont's statute and other generally applicable state laws that this Court has upheld against ERISA challenges. (Emphasis added).

Consequently, said Vermont, the law in issue regulates health care and not ERISA-covered group health plans.

The Memoirs of Sherlock Holmes by Sir Arthur Conan Doyle is a collection of short stories, one of which is "Silver Blaze," a mystery about the disappearance of a famous racehorse the night before a race and the murder of the horse's trainer. Sherlock Holmes solves the mystery in part by recognizing that no one he spoke to in his investigation remarked that they had heard barking from the watchdog during the night. That the dog did not bark led Holmes to the conclusion that the perpetrator was not a stranger to the dog, but someone the dog recognized and thus would not cause him to bark. Vermont's argument that it was not regulating a group health plan occupies similar ontological terrain: the dog and the Vermont law were both there, but they went unnoticed.

Background—ERISA Preemption

The sheer breadth of the ERISA preemption rule guarantees an ongoing war with the states. While the states remain free to regulate insurance, ERISA makes the regulation of employee benefit plans exclusively a Federal concern. In a recent Health Affairs Blog post, Professor William Sage offers a succinct and insightful summary of the origins of ERISA preemption. He writes:

Ideologically, ERISA represents the outcome of a hard-fought political battle between management and labor during the economic turmoil of the early 1970s: corporate America agreed to strict government regulation of workers' pensions on condition that such regulation come in a single package from Congress and the U.S. Department of Labor, not separately from each of the 50 states.

Professor Sage goes on to explain that Congress was so focused on retirement pensions that, apart from preemption, they almost completely ignored ERISA's application to welfare plans, including group health plans. The result is a regulatory vacuum in the case of welfare benefits that often cries out for additional regulation, state or Federal. That the states are frozen out in this manner troubled Justice Thomas. In his concurring opinion in Gobeille, he asked whether Congress overstepped its Constitutional authority in enacting a law that abrogates the right of states to regulate in an area (health care) that is traditionally a matter of state concern. Justice Thomas' concurring opinion would in our view lead to disaster if followed. (We concede, of course, that this view is based on mere commercial expedience and not any rigorous Constitutional exegesis.) Multistate employers that sponsor self-funded plans are able to offer uniform benefit programs without having to adhere to different rules in each state in which they operate. Fully insured plans of multistate employers must still comply with state insurance codes, of course, but the compliance obligation is on the shoulders of (highly) regulated insurance carriers.

The Vermont all-payer claims law and the future of Gobeille

The State of Vermont had a legitimate statutory objective. All-payer claims databases provide detailed information to help design and assess various cost containment and quality improvement efforts. The law would enable the State to gain a complete picture of what care costs, how much providers receive from different payers for the same or similar services, the resources used to treat patients, and variations across the State and among providers in the total cost to treat an illness or medical event (e.g., a heart attack or knee surgery). Businesses, consumers, providers and policymakers can use the information to make decisions about cost-effective care.

As a result of Gobeille, the Vermont all-payer claims data base law is preempted. But other issues involving the regulation of group health plans will inevitably arise in Vermont and elsewhere. Gobeille makes it at least more difficult to directly regulate group health plans. But what about indirect regulation aimed at service providers?

To get a sense of what is at stake, it helps to get a clear understanding of what "plan" is being regulated. In a 2000 case, Pegram v. Herdrich, the Supreme Court explained what Congress meant by the term "group health plan." It's not what you think. Here's what the Court said:

ERISA's definition of an employee welfare benefit plan is ultimately circular: "any plan, fund, or program . . . to the extent that such plan, fund, or program was established . . . for the purpose of providing . . . through the purchase of insurance or otherwise . . . medical, surgical, or hospital care or benefits." . . . Here the scheme comprises a set of rules that define the rights of a beneficiary and provide for their enforcement. Rules governing collection of premiums, definition of benefits, submission of claims, and resolution of disagreements over entitlement to services are the sorts of provisions that constitute a plan.

Thus, the Vermont all-payer claims database law endeavored to impose obligations on the set of promises that Liberty Mutual made to its employees and their beneficiaries together with the accompanying administrative scheme. Blue Cross Blue Shield of Massachusetts is a mere agent of or, in the parlance of ERISA, a service provider to the plan. It was not acting as a health insurance issuer/carrier in this case. That is, there is no shifting of risk from the employer to the carrier here.

In Rush Prudential HMO v. Moran, the Supreme Court was called upon to review the Illinois HMO Act, a law that required independent reviews of HMO claims denials. Before the Court were two questions: is the law preempted by ERISA, and, if so, is the law saved under the ERISA insurance saving clause. The Court answered, "yes" on both counts. Conceding that the Illinois HMO Act "relates to" an employee benefit plan within the meaning of ERISA, the Court nevertheless held the law saved under the insurance saving clause. In so holding, the Court also held that an HMO is an insurer despite whether it takes on any risk. The Court said that it was willing to tolerate what it referred to as a minimal "overbreadth" in state laws that are directed at insurers. To be clear, what the Supreme Court is saying in Rush Prudential HMO is that a state law that targets carriers (and therefore is saved from preemption) might not be preempted in instances in which the carrier is not acting as a risk-bearing entity but rather as a mere agent of the ERISA-covered plan (in this case, a third-party administrator).

The discussion of statutory overbreadth in Rush Prudential HMO was dicta, i.e., it was not essential to the holding of the case. So it's not technically the law. But it does point to legislative strategy: regulate the carrier irrespective of whether risk is being transferred. The Vermont law at issue in Gobeille did not do this. Rather, it purported to regulate group health plans directly. So the issue of regulating the carrier was not before the Court. If Vermont had regulated just state-licensed carriers, would the result have been different? We hope not, but that question was not before the Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.