On the first day of decisions since the unexpected passing of Justice Scalia, the Supreme Court of the United States ventured into the thorny area of preemption under the Employee Retirement Income Security Act (ERISA) and managed to articulate a reasonably clear standard for evaluating preemption issues involving employee benefit plans. However, several members of the Court weighed in separately, either in concurrence with the majority’s decision or dissenting from it, and their conclusions suggest that ERISA’s preemption provision will continue to provide fodder for the Court’s docket for years to come.
In Gobeille v. Liberty Mutual Insurance Co., No. 14-181 (March 1, 2016), the Court ruled that ERISA preempts a Vermont statute requiring health insurers and other entities that pay for the costs of health care—notably including self-funded group health plans and their third-party claims administrators—to periodically report data about health care claims, enrollment, costs, pricing, quality, utilization and resource requirements to a state agency in order to facilitate cost comparisons, outcome assessments, health care resource allocation, and other similar functions related to health care provided in Vermont or to Vermont residents. According to the Court, Vermont law created a reporting and recordkeeping regime affecting ERISA-governed employee benefit plans, effectively intruding on existing and extensive reporting requirements directly imposed by ERISA. Despite the potential utility of Vermont’s reporting requirement, the Court concluded that preemption “is necessary to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans.”
ERISA broadly preempts state laws that “relate to” employee benefit plans. For years, the Court has struggled to establish the boundaries of ERISA’s preemption provision, having long ago concluded (in a 1995 case) that it could not be applied literally or “for all practical purposes preemption would never run its course.” ERISA makes clear that state laws regulating the business of insurance are not preempted, meaning that if Vermont had limited its reporting requirements to state-licensed health insurers, the case almost certainly never would have made a trip to the Supreme Court. ERISA also makes clear that employers maintaining self-funded employee benefit plans are not in the business of insurance. In practice, this means that state attempts to regulate the operations of such plans are likely to be preempted. Typically, states have sought to avoid even indirect attempts to regulate self-funded plans, but the Vermont reporting law specifically included self-funded plans and their third-party claims administrators as reporting entities, on the chance that the courts would view the law’s impact on those plans as sufficiently attenuated to avoid preemption by ERISA.
In Justice Kennedy’s 6-2 majority opinion, the Court noted that ERISA generally preempts two broad categories of state laws: (1) those that refer to and purport to directly regulate ERISA plans and (2) those that are connected to “a central matter of plan administration” or would interfere with ERISA’s goal of fostering “nationally uniform plan administration” or cause “acute, albeit indirect, economic effects” on ERISA plans. The respondents in Gobeille—one, a large national insurance company, and the other its health plan’s third-party claims administrator—argued that the Vermont law fell into the latter category. The Court’s prior preemption decisions had generally supported ERISA’s strong policy goal of fostering nationwide uniformity in the regulatory requirements for employee benefit plans, and the majority continued that trend, finding that Vermont’s reporting requirement intruded upon a key aspect of plan administration by interfering with ERISA’s comprehensive and uniform reporting, disclosure, and recordkeeping regime.
According to the majority, if multiple jurisdictions were to issue differing or parallel regulations, it “could create wasteful administrative costs and threaten to subject plans to wide-ranging liability,” an outcome the Court has worked diligently to avoid in the past. Finding that preemption “is necessary to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans,” the Court concluded that ERISA’s preemption clause requires that Vermont’s statute be invalidated as applied to ERISA plans.
Concurring and Dissenting Opinions
Beyond Justice Kennedy’s majority opinion, Justices Thomas, Breyer, and Ginsburg (joined by Justice Sotomayor), each wrote to clarify their own positions relative to ERISA’s preemption provision. For his part, Justice Thomas agreed with the majority’s conclusion, but raised concerns about the Court’s historical approach to preemption under ERISA and whether the preemption provision itself was a valid exercise of Congressional authority. Justice Thomas questioned whether prior Court decisions dealing with ERISA preemption imposed any real restraints on its scope and whether Congress was truly empowered to effectively forbid state regulation of ERISA plans across the board. Although ERISA preemption was at issue in Gobeille and offered a convenient point of departure, Justice Thomas’s concurrence appears to have reflected his long-standing concerns about the scope of congressional power under the Constitution’s Commerce Clause more than anything else. Even so, he invited the Court to confront this issue directly in future cases dealing with ERISA preemption.
Leaving constitutional considerations aside, Justice Breyer found ERISA’s goal of uniform national regulations for employee benefit plans to be sound and rejected the notion that the states should be free to experiment with their own regulatory approaches in this area. Instead, Justice Breyer suggested that the states approach the U.S. Department of Labor to seek new regulatory authority to collect the information needed to support the policy goals articulated by Vermont and other states that have adopted similar health care data reporting regimes.
Finally, Justice Ginsburg (joined by Justice Sotomayor) dissented from the Court’s majority opinion, focusing on her view that the Vermont law did not present substantial impediments to the operation of the respondents’ self-funded health plan. Justice Ginsburg found significant Vermont’s proffered policy justification for the reporting requirement and concluded that the additional burdens imposed by the requirement were quite small and did not interfere with ERISA’s reporting or recordkeeping requirements. She also noted that Vermont’s requirements were directed at state-specific goals different from the goals embodied in ERISA. Justice Ginsburg also echoed some of the sentiments raised by Justice Thomas, suggesting that prior Court decisions dealing with preemption intruded too far into state regulatory prerogatives. Acknowledging that allowing state regulation of the sort enacted by Vermont could lead to some loss of uniformity, Justice Ginsburg concluded that this would be a small price to pay where the impact of the state regulation on ERISA plans was relatively small and where the subject matter at issue was limited to ancillary aspects of plan administration rather than core functions such as benefit determinations, vesting requirements, claims processing, and the like.
On the one hand, Gobeille offers a fairly straightforward preemption analysis under ERISA and is significant for that reason if no other. However, Justice Thomas’s concurrence in the result and Justice Ginsburg’s dissent both indicate some degree of continuing skepticism about the Court’s approach to ERISA preemption—and the eventual addition of a new justice to take Justice Scalia’s place may cause further changes in the future. While Gobeille might be a good stopping point for the Court in terms of doctrinal clarity, it seems doubtful that it will be the Court’s last word on ERISA preemption.
