In Gobeille v. Liberty Mut. Ins. Co., No. 14-181, 2016 U.S. LEXIS 1612 (Mar. 1, 2016), the U.S. Supreme Court held that ERISA pre-empts Vermont’s
“all-payer database” law – to the extent it is applied to self-insured health plans. Vermont’s law requires all public and private entities that pay for
healthcare services − including insurers, government programs and third-party administrators − to transmit certain claims data to the state’s database.
The Supreme Court’s 6-2 decision, written by Justice Kennedy and joined by Chief Justice Roberts and Justices Thomas, Alito, Breyer and Kagan, found that
the Vermont 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[.]”
The decision reveals ongoing concerns by some Supreme Court justices concerning the scope of ERISA pre-emption:
- Justices Ginsburg and Sotomayor dissented, arguing that “Vermont’s effort to track health care services provided to its residents and the cost of those
services does not impermissibly intrude on ERISA’s dominion over employee benefit plans” and concluding that the majority’s ERISA pre-emption analysis
“belongs in the discard bin.”
- Although agreeing that the Vermont statute was pre-empted by ERISA, Justice Thomas filed a concurring opinion expressing concern that the broad
pre-emption language of ERISA raises constitutional issues.
- Justice Breyer also filed a concurring opinion, emphasizing “that a failure to find pre-emption here would subject self-insured health plans under
[ERISA] to 50 or more potentially conflicting information reporting requirements.” He suggested, however, that the U.S. Secretary of Labor (Secretary)
could “develop reporting requirements that satisfy the States’ needs [for healthcare data]” or could “delegate to a particular State the authority to
obtain data related to that State.”
All-Payer Claims Databases Exist in Vermont and At Least 15 Other States
Vermont’s health data collection statute, Vermont Stat. Ann., Title 18, Section 9410, and regulations thereunder created the Vermont Healthcare Claims Uniform
Reporting and Evaluation System, which requires “health insurers” to regularly submit to the state “medical claims data, pharmacy claims data, member
eligibility data, provider data and other information” related to healthcare for use in Vermont’s unified healthcare database. “Health insurers,” defined
to include self-insured healthcare benefit plans, must submit annual registration forms and report claims data at specified intervals in a format
prescribed by Vermont.
Vermont’s law is an example of an “All-Payer Claims Database” (APCD) of the type that at least 16 states now have or are developing, although only about 10 require submission of data. These large-scale databases collect healthcare claims data from a variety of payer sources in the state, including
claims from most healthcare providers. See APCD Council’s website at
http://www.apcdcouncil.org/apcd-legislation-state for a listing of states with mandatory or
voluntary programs. Advocates of APCDs contend that such data collections better control healthcare outcomes and costs.
For example, Virginia’s All-Payer Claims Database (VAPCD) exists under the authority of the Virginia Department of Health through legislation passed in
2012. VAPCD is a voluntary program with participation by Virginia’s major health insurers.
Liberty Mutual Resists Vermont’s Subpoena of Individual Medical Claims
Liberty Mutual Insurance Company (Liberty Mutual) maintains a self-insured employee health plan for over 80,000 individuals in all 50 states. Covered
individuals include employees of Liberty Mutual, their families and former employees. Concerned in part that disclosure of individuals’ medical information
to Vermont would violate its fiduciary duties under the plan, Liberty Mutual directed the plan’s third-party administrator not to provide the individual
medical claims data required by Vermont’s law. When Vermont issued a subpoena to the administrator seeking medical and pharmacy claims files, as well as
other information, for use in Vermont’s healthcare database, Liberty Mutual filed suit seeking (i) a declaration that Vermont’s reporting regime is
pre-empted by ERISA, to the extent it requires the reporting of data relating to self-insured plan participants; and (ii) an injunction against enforcement
of the subpoena.
The district court granted summary judgment for Vermont, but the Second Circuit reversed in a 2-1 decision. Liberty Mut. Ins. Co. v. Donegan, 746
F.3d 497 (2d Cir. 2014). The Court of Appeals observed that:
[m]ore recent [ERISA] precedent has pulled back by setting a rebuttable presumption against preemption of state health care regulations. Two constants,
however, remain: (1) recognition that ERISA’s preemption clause is intended to avoid a multiplicity of burdensome state requirements for ERISA plan
administration; and (2) acknowledgment that “reporting” is a core ERISA administrative function. These two considerations lead us to conclude that the
Vermont law, as applied to compel the reporting of Liberty Mutual plan data, is preempted.
The Court of Appeals also noted that the Vermont law could increase the cost of healthcare and risks disclosing individuals’ confidential medical
Vermont requires ERISA plans to record, in specified format, massive amounts of claims information and to report that information to third parties,
creating significant (and obvious) privacy risks and financial burdens that will be passed from the [third-party administrator] to the Plan and from the
Plan to the beneficiaries.
Supreme Court: State Data Collection Interferes with Uniform Plan Administration
The Supreme Court had little difficulty concluding that ERISA pre-empted the Vermont data collection law. Justice Kennedy’s majority opinion cites the
provision in ERISA Section 514(a) that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit
plan” but reaffirms the principle in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645
(1995), that this broad pre-emption language has been limited by Supreme Court precedents to two categories of state laws:
- State laws that have a “reference to” ERISA plans – that is, “[w]here a state law acts immediately and exclusively upon ERISA plans . . . or where the
existence of ERISA plans is essential to the law’s operation,” Cal. Div. of Labor Stds. Enforcement v. Dillingham Constr. N.A., 519 U.S. 316, 325
- State laws that have an impermissible “connection with” ERISA plans − meaning a state law that “governs . . . a central matter of plan administration” or
“interferes with nationally uniform plan administration,” Egelhoff v.
Egelhoff, 532 U.S. 141, 148 (2001)
The Supreme Court majority concluded that Vermont’s mandatory collection of medical claims would interfere with the uniformity of ERISA plan
administration. ERISA authorizes the Secretary − not the states − to administer the reporting requirements of ERISA plans, and pre-emption was necessary
“to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans.”
The majority was unpersuaded by Vermont’s argument that its reporting scheme should not be pre-empted because it was designed to achieve different
objectives than ERISA’s. The majority opinion notes that the purpose of a state law is relevant only for purposes of determining whether the law is within
the scope of laws that Congress intended to be pre-empted by ERISA. Because the Vermont law directly required ERISA plans to report detailed information
about their administration of plan benefits, the majority concluded that the law was “a direct regulation of a fundamental ERISA function” and thus
pre-empted under the Egelhoff standard.
The Future of All-Payer Claims Databases After Gobeille
does not appear to prevent a state from requiring that insured ERISA plans submit medical claims data to a state database because ERISA Section
514(b)(2)(A) exempts from pre-emption state laws that “regulate insurance.” As Justice Ginsburg’s dissent observes, the federal government already supplies
Medicare claims data to states that maintain APCDs, and the Department of Health and Human Services has authorized the states to include Medicaid claims
data in their databases.
Nor does Gobeille prohibit self-insured ERISA plans from voluntarily contributing medical claims data to state databases, as many third-party
medical plan providers currently do in states that have voluntary APCDs. Indeed, the record in Gobeille suggests that the Liberty Mutual plan was the only
self-insured ERISA plan that objected to submitting its medical claims data to Vermont.
The Supreme Court, without deciding the issue, observed that the Secretary “may be authorized to require ERISA plans to report data similar to
that which Vermont seeks.” Justice Breyer’s concurring opinion flatly states his view that the Secretary has such power. For instance, the Secretary is
already using his investigative authority to compel ERISA medical plans to produce claims data with respect to audits for compliance with ERISA, COBRA, the
Mental Health Parity and Addiction Equity Act and other laws enforced by the Department of Labor (DOL).
In short, enthusiasts of state-run APCDs may not be able to compel self-insured ERISA medical plans to submit individual claims data, but that is not
likely to slow the APCD movement.
Privacy Concerns about APCDs Not Addressed in Gobeille
Although the majority in Gobeille noted that Liberty Mutual challenged the Vermont law in part to protect the confidentiality of individuals’
medical records and the Second Circuit struck down the Vermont law in part because of “privacy risks,” issues of privacy did not appear to be a concern for
most of the justices.
The Association of American Physicians and Vermonters for Health Care Freedom filed an amicus brief in Gobeille arguing that:
[t]he appellate decision below protects medical record privacy against intrusion by a Vermont regulatory scheme that requires production to the State of
massive amounts of data related to individual care of patients. The Second Circuit properly found that there was a “significant” risk to the privacy of
patients associated with the demand by Vermont for the wholesale transfer of medical records about unsuspecting patients.
The argument that the Second Circuit’s decision was proper based on medical privacy concerns was never addressed by the Supreme Court. Neither Justices
Ginsburg and Sotomayor in dissent, nor Justices Breyer and Thomas in their respective concurring opinions, express qualms about government collection of
individual medical claims. Gobeille’s majority opinion did not decide whether the Secretary could require ERISA medical plans to report individual
claims data to a national or state database, but that possibility was clearly suggested. No privacy concerns were expressed in any of the justices’
Future Pre-emption Issues: State Retirement Savings Arrangements
Gobeille’s discussion of the limits of ERISA pre-emption and Justice Thomas’ concerns with potential constitutional limits to pre-emption will be cited by
advocates of greater state law involvement in employee benefits.
The case has implications for the DOL’s proposed regulation concerning state-sponsored retirement savings arrangements, 80 Fed. Reg. 72006 (Nov. 18, 2015).
The proposed regulation sets forth a “safe harbor” describing circumstances in which a payroll deduction state-run savings program, including one with
automatic enrollment, would not be an “employee pension benefit plan” subject to ERISA. Several states are considering or have adopted measures to increase
access to payroll deduction savings for individuals employed or residing in their jurisdictions. The DOL is proposing the safe harbor to reduce the risk of
such state programs being pre-empted if they were ever challenged under ERISA.
Gobeille’s ruling that the Vermont statute was a “direct regulation of a fundamental ERISA function” might equally be applied to a state-sponsored retirement
program for private sector employees where benefits are provided through employer payroll deduction. The rather cursory analysis provided in the preamble
to the proposed regulation to support the DOL’s rationale for exempting such a program from ERISA, and the recognition that state voluntary payroll
decision arrangements might still be pre-empted depending on the specific terms of the applicable state law, would seem to require some re-examination in
light of the relatively direct analysis in Gobeille.
Justice Breyer’s concurring opinion − as well as Justices Ginsburg’s and Sotomayor’s view that that the majority’s ERISA pre-emption doctrine “belongs in
the discard bin” − may motivate the Secretary to boldly authorize state action in the area of employee benefits. State “regulation by proxy," as Justice Breyer seems to suggest, might be used to justify additional types of savings plans, by treating such plans as subject to ERISA but authorized by DOL exemption
or waiver from some of ERISA’s substantive requirements.
Given the current administration’s evolving view of ERISA pre-emption and the receptivity of some Supreme Court justices to that view, the future may see
greater state activity in the area of employee benefits.
For further information, please contact any of the authors of this article − James P. McElligott Jr., Jeffrey R. Capwell and Robert B. Wynne − or any other member of the McGuireWoods employee benefits team.