A federal court recently decided that the Employee Retirement Income Security Act (ERISA) does not preempt an Arkansas insurance rule that affects pharmacy reimbursements. The case is Cent. States, Se. and Sw. Areas Health and Welfare Fund v. McClain, 2025 WL 2522621 (N.D. Ill. 2025).
Arkansas implemented an insurance rule that regulates pharmacy reimbursements. The rule requires health benefit plans and healthcare payors, including ERISA-governed plans, to report compensation for pharmacy services. The purpose of the rule is to maintain adequate pharmacy benefit manager (PBM) networks for the state. The state insurance commissioner then decides if the compensation is adequate, and if not, may require payment of a "dispensing fee."
A self-insured multiemployer health plan sued, arguing that ERISA preempted the insurance rule because its requirements interfered with plan design and restricted its structuring of prescription drug benefits. In turn, these restrictions adversely affect the plan's ability to administer its provisions nationwide in a uniform fashion.
According to the court, ERISA preempts state laws that apply exclusively to or are impermissibly connected to ERISA plans. An impermissible connection governs a central plan administration issue or interferes with uniform plan administration nationwide. The court concluded that the insurance rule neither exclusively applies to ERISA plans nor is it impermissibly connected to ERISA plans. The court reasoned that the reporting requirement in the insurance rule was incidental to the purpose of getting information needed to monitor the fairness and reasonableness of pharmacy reimbursements. Likewise, the court determined that the dispensing fee does not dictate ERISA plan design, as it applies only if the insurance commissioner imposes one. Furthermore, plans on which the insurance commissioner imposes a fee can offset the fee by passing the costs on to plan participants via copays, coinsurance, or deductible increases.
Ultimately, the court referenced the U.S. Supreme Court's decision in Rutledge, which analyzed a similar law, in concluding that the insurance law is a cost regulation law applicable to all health plans and not exclusively to ERISA-governed plans. Therefore, the court concluded that the law does not impermissibly interfere with the uniform administration of ERISA plans, which avoids ERISA preemption.
This case illustrates a continuing trend of lawsuits challenging state PBM laws based on ERISA preemption. The outcomes of such cases are extremely fact-specific, with courts more likely to find preemption in cases involving state laws that directly affect ERISA plan design.
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