Loyola University Chicago School of Law, JD 2021
The Employee Retirement Income Security Act (“ERISA”) regulates the administration of employee benefit plans. ERISA aims to protect the interest of employee-beneficiaries by setting minimum standards for employee benefit plans and voluntarily established pensions. The Act’s preemption clause works to prevent states from regulating these same plans. Initially, a state statute was considered to violate the preemption clause when it possessed, “a connection with, or reference to, covered employee benefit plans.” A few years later the standard was modified, states were considered to have violated ERISA preemption if the state, “mandates employee benefit structures or their administration.”
Broadening the scope
Recent years have seen continued modification to the preemption standard. A 2016 case, Gobeille v. Liberty Mutual Insurance, broadened the ERISA preemption application to state health care laws. The issue in the case revolved around a Vermont law that required health insurers to report claims data to an all-inclusive health care database. The Court stated that a state law may be preempted if “acute, albeit indirect, economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.” This seemed to follow Liberty Mutual’s argument that the burden of complying with a variety of different state requirements would be great. The Court concluded that the Vermont reporting statute should be invalidated as applied to ERISA plans due to ERISA’s express preemption clause. The Court reasoned that, “the state statute imposes duties that are inconsistent with the central design of ERISA, which is to provide a single uniform national scheme for the administration of ERISA plans without interference from laws of the several States even when those laws, to a large extent, impose parallel requirements.” This finding appeared to fundamentally increase the scope of ERISA as it applies to state health policy initiatives.
Returning to the decision in Travelers
More recently in December of 2020, legislation in Arkansas has been challenged by ERISA preemption in Rutledge v. Pharmaceutical Care Management. Some worried that the decision in the case would have the potential to further expand the scope of ERISA’s preemption, thereby lessening the power of states. Critics that fell into this line of reasoning believed that excluding employer-sponsored health plans would drastically undermine the ability of states to regulate the health care market. The Arkansas law in question mandates that pharmaceutical benefit managers must pay pharmacies at minimum the wholesale cost for generic medications. The purpose of the law is to aid in the reimbursement of pharmacies for the cost of obtaining generics and to encourage the pharmacies to increase their stock of generics thereby benefiting consumers. In a surprise move for some, the Supreme Court held that the Arkansas statute was not preempted by ERISA. The Court stated that state regulations are not preempted by EIRSA merely because the regulations increase costs or “alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”
The Court argued that the logic behind the Travelers decision should decide this case. It was found that the Arkansas statute was similar to the New York surcharge in Travelers in that it was merely a form of cost regulation. In fact, the Court found that the Arkansas regulation is less intrusive than the law at issue in Travelers. Furthermore, the Court argued that the Arkansas statute does not “refer” to ERISA, does not act immediately and exclusively on ERISA plans, ERISA plans are not essential to the statute’s operation, and the statute itself does not interfere with the central matters of plan administration. Thus, the Court held that because the statute does not bear an “impermissible connection” with or reference to ERISA, and is simply a cost regulation, the statute is not preempted by ERISA.
As such, the decision in Rutledge v. Pharmaceutical Care Management falls back on the logic used in the Travelers case, thereby narrowing the scope of ERISA preemption. This is certainly a minimization of the decision in Gobeille. It seems that states may now increase their roles in regulating health care costs beyond the scope determined in Gobeille, however it is likely that ERISA will still be the tool that insurance plans use to avoid complying with state law.