Passing Along Some Reading on Excessive Fee Cases and Other Timely ERISA Topics
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What would this blog be if it was done as a newsletter instead? Well, probably something like this new ERISA newsletter out of Proskauer Rose, with its detailed but readable length discussions of current events in the field, such as the Supreme Court’s recent decision in LaRue and the Supreme Court’s consideration of whether to hear a case that will allow it to return again to the problem of defining the available scope of equitable relief under ERISA. For me personally, I particularly liked the discussion of the latest trends at the trial level in the federal court system with regard to lawsuits filed over allegedly excessive fees charged on mutual fund investment options, as it takes an approach that I like to pursue whenever possible in my own posts here on this blog: it discusses the early decisions on the issue at the motions stage in the trial courts, and looks ahead to what this may mean for the industry as a whole and service providers. Its worth a read, and if you enjoy this blog, you will almost certainly enjoy this newsletter as well.
The Hard Headed Business Case for ERISA Preemption of State Health Insurance Mandates
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Why does ERISA preemption matter in the health insurance context, and why do many people think it should preclude state health insurance mandates, such as the Wal-Mart law already deemed preempted in Maryland and the San Francisco ordinance that is currently the subject of litigation over the question? Leaving aside the legal reasons why the acts are preempted, it is because employers, who provide most of the health benefits in the country, rely upon the stability and predictability generated by ERISA and the preemption doctrine. That, in any event, I think is a fair reading of this article here.
Back From Trial, But the World Kept Spinning In the Interim
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My trial finally concluded late yesterday after two weeks, with the jury returning a verdict in favor of my client (pause here for self-congratulatory pat on the back). While I was able to get some posts up last week, during the first week of trial, events during trial this past week left me with no time to post. A lot went on during that week that would be of interest to readers of this blog, running from the almost certain ERISA litigation that will follow from the Bear Stearns collapse, to further Department of Labor attempts to mandate transparency, to the Commonwealth of Massachusetts’ continuing efforts to single handedly prove that state regulation of employer provided health insurance benefits should, in fact, be preempted. We’ll return to these themes, and other topics, next week, now that we have time to get the printing press rolling again here.
A First Step Towards Supreme Court Consideration of Whether Fair Share Acts are Preempted
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Well now, at some point, I am convinced, we are going to get the Supreme Court to weigh in on exactly when and when not states can regulate employers’ provision of health care to their employees in light of ERISA preemption. As we have discussed here on numerous occasions, the Fourth Circuit has staked out a strong position precluding states from meddling in that relationship, while a panel of the Ninth Circuit, ruling on an interlocutory matter concerning injunctive relief over the institution of a similar act by the City of San Francisco, has found that local governments have some substantial leeway in this regard despite the existence of ERISA preemption. I, and I think most other commentators, think the Fourth Circuit has the upper hand in this conflict, given the existing Supreme Court case law on preemption.
This introduction is a long way of getting to the point of noting that a collection of businesses aggrieved by the San Francisco act may be speeding up the timetable for the Supreme Court’s consideration of this issue, at least to some extent, as they have now asked the Supreme Court to set aside the Ninth Circuit panel’s conclusion that the city’s act was not preempted and can go forward at this time. The whole story on this event is here.
Money Talks, Even About the Massachusetts Health Care Reform Act
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A number of different things I want to talk about, including an interesting decision discussing the obligations of plan sponsors when it comes to selecting advisors and some interesting thoughts on QDROs. I will sprinkle those in later, but for now I thought I would pass along Steve Bailey of the Boston Globe’s column today on the issues raised by the Massachusetts Health Care Reform Act, which basically mirrors what I have said in prior posts, such as my last one, about the statute and issues with its implementation. A couple of interesting tidbits to point out though, from his column. First note his reference to the fact that the statute effectively left the business community off the hook (in truth, this is only true financially, and even then only partly so; they still bear some administrative headaches, and some currently modest financial exposures), which fits exactly with my explanation in the past as to why the statute has not faced a preemption challenge in court to date. Second note his reference to the idea that the political and legislative will to continue with the program is strong. All well and good, but the issue now is the plan’s escalating costs, which are going to have to be borne by taxpayers or else by the business community; one wonders about the commitment of those who will actually have to pay the bill for this program. Anyone going to ask them?
The Massachusetts Health Care Reform Act as Evidence of the Need for Preemption
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Stories like this make clear that advocates of state fair share plans who like to point to the Massachusetts Health Care Reform Act as a shining exemplar of what could be accomplished if only ERISA preemption would go away are barking up the wrong tree. Rather, the article, with its discussion of spiraling costs to the state and the state’s need for federal funding to remedy the resulting shortfalls demonstrates the opposite, namely that, as I have argued in other posts, there is real reason to doubt whether the problem of the uninsured is one that can be cured on a state by state basis. Indeed, the fact that the Commonwealth needs significant - but as yet unpromised - infusions of federal money to effectuate coverage of the uninsured suggests that this problem cannot be solved by states and instead can only be solved on a larger playing field, namely at the federal level with the type of resources that only the federal government can commit to the issue. And if the issue can only be solved on a national level, and not on a state by state level, then isn’t that an argument for preemption? I hate to be a cynic, and prefer the title of skeptic, but there are a lot of reasons that ERISA preemption both exists and is valuable, and it is not the bogeyman preventing health insurance in this country that many of its critics make it out to be. There are real, fundamental problems in trying to increase health insurance coverage in this country, ones that are not solved by these state acts, which, as I have discussed before, basically play at the margins without addressing the real problem - cost - that is handicapping both the ability of employers to continue to provide health insurance to their employees and the ability of Massachusetts to actually successfully pull off its health insurance experiment.
And Still Another View on Preemption and the Massachusetts Health Care Reform Act
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I’ve noted in the past that the problem with state health care reform acts mandating health insurance is that they don’t tackle the issue that is deterring employers from providing broader health insurance benefits, namely the ever increasing and rapidly escalating cost of health insurance. In response, Massachusetts lawyer David Harlow argues on his blog that incremental steps towards resolving this problem are moving forward on their own schedule, separate from state legislation mandating employer provided health benefits, and cost control will come in time. Personally, I am skeptical that governments can actually control these costs, or even significantly reduce their annual rate of increase, but I would be happy to be wrong.
Someone Else's Thoughts On Preemption and the Massachusetts Health Care Reform Act
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People with thin skins - or who can’t laugh at themselves - shouldn’t write blogs. I got a good chuckle out of this over my morning coffee this morning.
The Lessons of the Massachusetts Health Care Reform Act's $400 Million Shortfall
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There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism - Trojan horse, some might say - to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.
The Ninth Circuit on the San Francisco Health Insurance Mandate Ordinance
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Workplace Prof has the story here of a three judge panel out of the Ninth Circuit staying the district court ruling that the San Francisco ordinance mandating the provision of health insurance by employers was preempted, and provides a link to the ruling. I second the surprise he describes in his post over the conclusion that the ordinance could legally be found to not be preempted, but in light of the media coverage of the appeal over the last week or so that I have been seeing indicating that the particular three judge panel hearing the action for a stay appeared critical of the lower court ruling, the fact that the stay itself was imposed doesn’t stun me.
The panel’s ruling consists primarily of drawing distinctions among the facts of leading Supreme Court preemption decisions and the details of the San Francisco ordinance, rather than of any sweeping view of preemption that would place mandates and fair share acts outside the scope of preemption, something which would set up a direct conflict with the Fourth Circuit’s ruling in Fielder, which found the Maryland Fair Share Act to be preempted. The distinctions that the panel relies upon are in many ways in the eye of the beholder, and it would be just as easy to argue the opposite, that the similarities of the San Francisco ordinance to the facts of the leading preemption cases mean that the ordinance should be understood to be preempted. The ruling also reflects, although obviously the panel is controlled by Ninth Circuit law in areas not yet passed on by the Supreme Court, a heavy reliance on Ninth Circuit decisions that do not necessarily reflect where this issue will end up if and when the Supreme Court finally weighs in on the preemptive effect of ERISA on state health care mandates and fair share acts, something which one can bet will happen sooner rather than later if the eventual ruling out of the Ninth Circuit on the San Francisco ordinance sets up a direct conflict with the Fourth Circuit’s ruling in Fielder.
ERISA Preempts Another One: Striking Down the San Francisco Ordinance
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Well, I have talked before about dog bites man stories, and here’s another one. The United States District Court for the District of Northern California has now ruled that San Francisco’s ordinance requiring certain health care expenditures by employers was preempted by ERISA. The Workplace Prof sums up the ruling here, although he is wrong that there is any disjunct between the court’s recognition that ERISA protects plan participants and the court’s finding that the ordinance is preempted; ERISA does impose certain statutorily created protections for plan participants, as the court recognized in finding the ordinance preempted, but simultaneously imposes certain corresponding protections for those who sponsor plans, such as employers, including that the federal statute alone is to govern their obligations, which is the whole point of the statute’s express and broad preemption provision.
Anyway, the ruling is here, and don’t say I didn’t warn you, as I did here, that this statute was doomed to be preempted. These first generation attempts to impose health insurance mandates on the business communities, such as this San Francisco ordinance, and the New York local ordinance discussed here, and the Maryland statute struck down by the Fourth Circuit, simply universally run afoul of the preemption provisions of ERISA. Maybe states will do better when they move onto some sort of health insurance 2.0 approach that accomplishes the same goals in a framework that does not impose administrative and fee obligations on employers - which are the consistent failings of all of the statutes and ordinances to date that have been struck down or eventually will be on grounds of ERISA preemption - but I will believe that when I see it.
One thing of particular note that caught my attention in the court’s ruling in this case, by the way, was its discussion of how the statute ran afoul of ERISA preemption in light of the Fourth Circuit’s ruling in Fielder, which struck down Maryland’s Fair Share act as preempted. As I have discussed before, I believe that the Maryland legislature enacted in that instance about as bad a statute for purposes of trying to avoid ERISA preemption as any advocate of state fair share and health insurance acts could have envisioned, and thereby created a leading ruling that could not help but lead to the preemption of many subsequent state and local health insurance ordinances. This case out of the Northern District of California is a perfect example proving my thesis; while the San Francisco ordinance would likely have been struck down as preempted on its own accord in any event, having the Fielder ruling in play made doing so easy for the court.
You know, much of the progressive legal developments of the last forty years, from civil rights to the environment, was driven by pressing test cases that were carefully selected to move the ball forward; allowing the Maryland statute to have become the bellwether on this topic was, for those clamoring for state regulation of employer provided health insurance, the exact opposite of those historical examples.
California, Fair Share Acts and Preemption: Have We Learned Anything At All?
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I’ve got a few things lined up this week to talk about, running from long term disability benefits litigation to avoiding ERISA litigation to subprime mortgages, but first I am going to veer off of my planned course to pass along and comment on a pair of interesting posts that showed up in my in-box today. They are both on the subject of California’s interest in trying to enact a fair share type statute imposing employer mandates and requiring the provision of health insurance, and you can find them here and here. I have talked before about the fact that California, like other state and local governments who tread this path, are likely walking right smack into the buzz saw of ERISA preemption, and much like the legislature of Maryland did in enacting its fair share act that was struck down by the courts, appear to be simply sticking their heads in the sand when it comes to this issue. That’s really the point of the two posts, which ask why the state government in California is moving in this direction without anyone even addressing this issue or trying to resolve it preemptively, before enacting a law that parallels laws that have been struck down from coast to coast (see this post here and here, for instance) as preempted. I asked the question before about the Maryland statute, the so-called Wal-Mart act, as to how the Maryland legislature could have gone down this road without having considered the ERISA preemption problem in advance, and these posts suggest that California is doing the same. Perhaps I need to create a category over on the left side of this blog titled “those who ignore the past are condemned to repeat it,” for the sole purpose of covering the seemingly endless examples in the area of health insurance of one state after another repeating the earlier mistakes of other state governments.
One of the posts on California’s efforts in this regard, namely this one here, suggests that some elements of the state government effort believe that the state can craft a statute that will not run afoul of ERISA or be preempted by ERISA. I am pretty skeptical that this is anything more than whistling past the graveyard. The closest I can come to an example of a state fair share type act that has not yet been found preempted is the Massachusetts health care reform act, and in my view, the only reason that hasn’t been declared preempted yet is that its burdens on employers are sufficiently limited at this point that no one has been motivated to challenge it in court. If anyone thinks that the entire business community (who, in the clever words of the New Yorker, have been unofficially deputized to carry the costs of health insurance in this country) would take a pass on this as well and allow a bellwether state like California to enact such a statute without it being challenged, I’ve got a bridge in Brooklyn that I’d like to sell you.
What the Copyright Act Teaches Us About ERISA Preemption
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Mixing up two of my professional interests and litigation specialties, ERISA and intellectual property, the United States Court of Appeals for the First Circuit just decided a case involving the scope of preemption under the Copyright Act. What’s particularly interesting to me is the characterization by a dissenting member of the panel about the scope of preemption under that statute as opposed to the scope of preemption under ERISA. The judge explained:
Unlike the few federal statutes which have been found to effect complete preemption (e.g., the governance of the Employee Retirement Income Security Act (ERISA) over all plan-"related" causes of action, see Metro. Life, 481 U.S. at 67; Hotz v. Blue Cross and Blue Shield of Mass., Inc., 292 F.3d 57, 59 (1st Cir. 2002)), the Copyright Act does not encompass all claims simply because the parties' dispute happens to involve a copyrighted work. See Venegas-Hernandez v. Asociacion de Compositores y Editores de Musica Latinoamericana, 424 F.3d 50, 58 (1st Cir. 2005) ("The Copyright Act does not draw into federal court all matters that pertain to copyright."); Royal, 833 F.2d at 2. . . .Unlike ERISA, 29 U.S.C. § 1144(a) (providing that ERISA "shall supersede any and all State laws" to the extent that those laws "relate to any employee benefit plan") (emphasis added), the Copyright Act's preemption provisions are not even remotely panoptic. The Copyright Act preempts only those "legal and equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified in § 106." 17 U.S.C. § 301(a) (emphasis added). Further, "[n]othing in [the Act] annuls or limits any rights or remedies under the common law or statutes of any State with respect to -- . . . activities violating legal or equitable rights that are not the equivalent to any of the exclusive rights within the general scope of copyright as specified in section 106A with respect to works of visual art." Id. § 301(b)(3) (emphasis added); see Blab T.V. of Mobile, Inc. v. Comcast Cable Commc'ns, Inc., 182 F.3d 851, 857 (11th Cir. 1999) (finding no complete preemption because the federal Cable Act contained language which "preserv[ed] state authority except in areas in which the exercise of this authority would be inconsistent with federal law"); cf. Metro. Life, 481 U.S. at 65-66 (citing -- as affirmative evidence of complete preemption -- legislative history that "[a]ll such actions in Federal or State courts are to be regarded as arising under the laws of the United States in similar fashion to those brought under section 301 of the Labor-Management Relations Act of 1947").
What’s interesting in this comparing and contrasting of the scope of preemption under ERISA and the Copyright Act is the focus on the deliberately broader language of preemption contained in ERISA and the deliberately narrower language of preemption contained in the Copyright Act. Many complain about the expansive scope of ERISA preemption that courts have applied, but as the dissenting judge's analysis here of preemption under the Copyright Act reflects, there is a sound statutory basis for imposing broad preemption of state law theories pursuant to ERISA, as Congress can and does expressly declare a statutory scope of preemption to be narrow when that reflects its intent and ERISA doesn’t contain that type of language.
The case is Cambridge Literary Properties v. W. Goebel Porzellanfabrik G.M.B.H., which you can find right here.
Why Preemption?
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If, like me, you are fascinated not just by ERISA but by history and politics, this two part law review article, by James Wooten at the University at Buffalo Law School, on how ERISA preemption came to be, looks to be a must read. Here’s the abridged version of the story detailed in his articles:
[The first of his two articles] recounts the key role of preemption issues in Congress's decision to pass ERISA. Until shortly before ERISA's enactment, employers and the AFL-CIO opposed comprehensive pension reform legislation. When states threatened to regulate private pension and welfare plans, however, the business community's and the AFL-CIO's strong desire for preemption all but forced them to support a federal pension reform law. Their support made passage of such legislation a virtual certainty. [The second of his two articles continues the story, explaining] how preemption issues led Congress to pass a broader pension reform law than it might otherwise have done. Business groups and the Nixon Administration hoped the congressional tax committees would limit the scope of federal regulation of pension plans. The congressional rules, however, gave jurisdiction over Congress's power to preempt state employment laws to the labor committees. Their control over preemption allowed the labor committees to bargain for broader regulation than business groups and the Administration preferred.
Some twenty years or so ago, the historian Arthur Schlesinger published his book The Cycles of American History, on the idea that certain themes in American political life rise, fall, and then rise again over predictable periods of time. In much the same way, you can see, in the current rush by states to enact fair share and other health insurance reform laws, a rebirth of the same urge to regulate that, as Professor Wooten points out, gave rise to ERISA preemption in the first place, some thirty years ago.
You can download Professor Wooten’s articles detailing this history here (the first article) and here (the second).
Preemption of Fair Share Acts: Did the Maryland Legislature Manage to Set The Whole Issue Back a Thousand Years?
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Here is Darren Abernethy’s law review note on preemption of state fair share acts that mandate that employers provide certain levels of health insurance. His note, which I have discussed before, is very well done, and Darren has generously allowed me to share it here in full. As readers may recall from earlier posts, Darren discusses the fact that the Maryland Fair Share Act, which as he points out in his note targeted Wal-Mart, was found by the Fourth Circuit to be preempted, and Darren proposes ways to create statutes of this type that might avoid preemption. It’s a terrific note, and in particular his history of the preemption jurisprudence is an excellent tutorial on that particular issue, and I myself will be quick to cite it on that point when briefing the issue in the future.
One particular aspect of Darren’s note struck a chord with me, and provoked a somewhat chilling thought. In discussing ways to craft these types of legislation that might avoid the preemption problem, he recommends - in essence - that such legislation be broad based, which is the opposite, in many ways, of the Maryland Fair Share Act, which I have argued before can be seen almost as a punitive statute aimed at only one employer. We all know the old saying that bad facts make bad law (or is it hard cases make bad law?), and the question that arises is whether that is a fair understanding of the Fourth Circuit’s Fielder decision that found Maryland’s Fair Share Act to be preempted. The Maryland statute clearly aimed at only one employer and was drafted to avoid implicating favored large Maryland employers such as Johns Hopkins Hospital, and that aspect of the statute can be seen in the district court and Fourth Circuit rulings as at least influencing, and possibly animating, the holdings by those courts that the statute was preempted. Might things have come out differently in the district court and the Fourth Circuit absent that factor? The statute might still have been found to be preempted, but it seems to me that those courts may at the least have been more open - even if still finding the act to be preempted - to nudging the law of preemption along in a way more favorable to these types of statutes had the courts been presented with a better and fairer looking attempt to mandate health insurance benefits. In essence, would the development of this area of the law be a little different if the leading court of appeals analysis of such a statute were, for example, of Massachusetts’ somewhat problematic but nonetheless broader health care reform act, than it will be given that the Fielder decision striking down the Maryland act now holds place of pride in that area of the law? Did the Maryland legislature, by putting one of the worst possible versions of such a statute before the courts, prevent the law from moving in a direction that might have helped such statutes avoid preemption?
One Proposal for Enacting Fair Share Legislation While Simultaneously Avoiding ERISA Preemption
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We previously mentioned William and Mary law student Darren Abernethy’s upcoming law review note presenting ideas on how to enact so-called fair share legislation - which attempts to obligate employers to provide certain levels of health insurance coverage - without running afoul of ERISA preemption. His note is now out, and those of you who, like me, don’t subscribe to the William and Mary Law Review, can access it right here. Here’s his abstract on what the note argues:
This Note examines Maryland's preempted statute and the United States District Court case that granted its opponents declaratory relief. After reviewing the Fair Share Act, the federal ERISA statute, and the significant changes in Supreme Court jurisprudence towards ERISA preemption in the past decade, this Note will offer new approaches through which states can modify the analytical framework outlined by the Fair Share Act to achieve improvements in the state-financing of Medicaid through large private employers. The goal of this Note is to analyze ways to fit future "fair share" legislation within the non-preempted confines of ERISA.
The proposed modifications include: (1) rewriting "fair share" laws as unequivocal, non-regulatory Medicaid taxes from which compliant employers may become exempt; (2) dulling the sharp edge of the FSA's punitive texture through decreasing the 100% shortfall tax to 35-50%; (3) expanding the options that employers have as "outlets" for meeting the 8% health expenditure benchmark, such as through an increase in non-medical fringe benefits, thus giving the statute a less coercive feel; (4) a "total package" benefits approach analogous to unpreempted ERISA prevailing wage cases; and (5) a state-initiated higher minimum wage for very large employers, with an incentivized exemption provision stating that an employer can revert back to the state or federal government's general minimum wage if the employer spends a certain percentage of payroll wages on employee health insurance.
Some Interesting Papers on the Issue of State Health Reform Mandates
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I have posted a fair amount on the impact of what are becoming known generically as “Fair Share” statutes, which are attempts to “reform” health insurance on a state level by means of mandating that employers provide health insurance benefits. I have talked about three main themes in my various posts on this topic, all of which stem from a certain skepticism as to whether these types of legislative responses to the problem of the uninsured are as well thought out as they are well intended. The first is the question of whether they are preempted by ERISA, and whether the rush by many states into this topic is a waste of resources, on the thesis that these state initiatives are likely to be found preempted, under the current state of the law. The second is the question of intended and unintended outcomes, and whether many of these state laws are really well thought out, or, two, whether the legislatures enacting them really know what they are getting into (for instance, just think of the Maryland legislature naively believing it could enact a statute that only mandated health insurance for Wal-Mart employees without running afoul of ERISA preemption, which of course ended in the federal courts striking the act down as preempted). And the third, finally, is the fact that these acts don’t target the real problem underlying the high rates of the uninsured, namely the ever increasing costs of health insurance. I have talked about all of these quite a bit, and you can find posts on them by clicking on the preemption, health insurance, or Massachusetts Health Care Reform Act headings over on the left hand side of this blog.
Here’s a couple of interesting articles I wanted to pass along that hit on at least two, and maybe three, of these themes. The first is this article here, titled “Labor Market Effects of Employer Provided Health Insurance,” which explores the question of how mandating that employers provide health insurance, as many of these state reform acts do, impacts employment. One of its findings? That mandating health insurance for all workers does in fact distort the labor market, but that even more interestingly, although perhaps as one would expect, “mandating the insurance only for full-time workers leads to higher [rates of] coverage than [without a mandate, but also to] an increased number of part-time workers.” If, as one would expect and this article suggests, there is a trade off between employment and the extent to which state laws mandate health insurance coverage, one would hope that state legislatures carefully analyze this issue before joining the current rush to mandate health insurance coverage.
Now, I am beginning to feel obliged by the tenor of my posts on this issue to note that I don’t disagree that the rate of the uninsured in this country is a real problem, and that my skepticism really runs to whether the increasing number of state attempts to address the problem - something they are probably foreclosed from doing by ERISA preemption anyway - represents the most thoughtful and effective way to tackle this problem. And this thought leads to the second paper I wanted to mention, which is law student Darren Abernathy’s upcoming law review note addressing the question of how to draft these types of laws to avoid ERISA preemption. This, at least, is a thoughtful attempt to get around some of the problems that arise when states target the problem of the uninsured by means of health insurance reform statutes. We need more of that type of forward looking and proactive analysis, and less of the willy nilly charge into the issue we are seeing by many state and local governments, who, having apparently learned nothing from Maryland’s experience, just keep enacting legislation on the slim hope that it won’t be preempted, rather than on an analysis and strategy that might place the statutes they enact outside the scope of ERISA preemption.
Bowater, Preemption, the Wall Street Journal Law Blog, Massachusetts Health Care Costs, and Whatever Else Is On My Mind This Morning
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If David Rossmiller can do a potpourri to avoid writing a full fledged blog post then, by gosh, so can I. Conveniently enough, I had some three small items on my mind this morning anyway, all of which I will mention here in one fell swoop:
? More on Bowater: For those of you who were interested in yesterday’s post about the First Circuit’s ruling in Bowater, concerning termination of a benefit plan and a foul up in executing it as part of a corporate acquisition, the ever watchful S.Cotus, who never misses anything on any subject at the First Circuit over at Appellate Law & Practice, has this in-depth review of the Bowater decision. S.Cotus delves into the labor law issues that were also at play in the case, in addition to the ERISA issue that I commented on yesterday.
? I posted earlier in the week on the question of rising health insurance costs and how that was the elephant in the room that all of these state based attempts to reform health insurance were avoiding, and how that justified the preemption of those state acts in favor of a federalized and consistent nationwide approach to the problem. The Boston Globe has a detailed article today laying out the extent of the increase in health insurance costs just here in Massachusetts. The essence of the article is in the opening paragraph: “Massachusetts health insurers are predicting their rates will increase by about 10 percent next year for most residents covered through employer health plans, marking the eighth consecutive year of double-digit premium hikes.” Funny, but Massachusetts just implemented health reform legislation, so how can this be? The answer, I suspect, is in this post here.
? And finally, on a sillier note, the Wall Street Journal Law Blog is fascinated right now with preemption, posting several times on various applications of the doctrine in the last few days. Yet despite the fixation on preemption, they omit entirely what we all know is the most important and interesting application of preemption, namely ERISA preemption. While I write slightly tounge in cheek on this point, the truth is that, as we see with the attempts of states to legislate health insurance coverage in the face of ERISA preemption, this is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people, as opposed to the smaller subset of directly affected businesses involved in the preemption cases discussed by the Wall Street Journal Law Blog over the last couple of days.
Why Health Care Inflation Numbers Justify ERISA Preemption of State Health Care Reform Legislation
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Someone once said that Marx was wrong about a lot of things, but he was right that everything is economics. Nothing illustrates this maxim more than the various attempts by states to get around ERISA preemption - such as discussed here and here - and mandate health insurance coverage in one manner or another. These attempts by states - which are simply doomed to eventual court declarations that they are preempted- seek to force employers to expand health care availability and, in some cases such as Massachusetts, to get those who fall outside of the employer provided health insurance system to buy their own coverage. The problem is that these legislative attempts don’t affect the real problem, which is that the costs of providing health insurance has escalated to the point where employers face huge financial disincentives to expand their offerings of health insurance and uncovered employees cannot afford their own policies. Here it is in stark black and white (literally, since it comes from the NY Times, rather than from the USA Today, where I guess it would be in stark color): “[t]he cost of employer-sponsored health insurance premiums has increased 6.1 percent this year, well ahead of wage trends and consumer price inflation, but below the 7.7 percent increase in 2006, the Kaiser Family Foundation reported today.” Beyond that, the article points out that “health costs had increased 78 percent since 2001, more than four times as fast as prices and wages.”
The ever increasing impact on the bottom line of providing health insurance is why the employer provided system isn’t expanding to cover more people, and why the uninsured cannot insure themselves. Although the Massachusetts reform act takes some steps towards altering that dynamic, at least with regards to those not covered by employer provided plans and who must instead insure themselves, the simple fact is the various state reform acts aren’t really directed at fixing this fundamental base line problem (and they probably can’t attack this problem effectively on a state by state basis, just further driving home a point I have made previously, that the availability of health insurance coverage probably should not be addressed on a state by state basis, should be addressed on a national basis, and that ERISA preemption of these types of state acts is a good thing as a result). Unless and until the base problem of the economic numbers is tackled, these reform acts aren’t targeting the actual disease, just some of the symptoms of it.
More on Preemption and Health Care Reform in California
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I posted a couple of days back about California’s interest in enacting a state health care reform law that, like the current law in Massachusetts and the Maryland Fair Share Act that was struck down by the courts, operates at least in part by imposing new obligations on employers who provide health insurance to their employees. In the post, I noted my skepticism that the state could pull this off without running afoul of ERISA preemption. The National Law Journal has an interesting article, available here, on the same subject, from which I took away two thoughts. The first is that the consensus opinion is exactly the one I voiced earlier this week, that California’s attempt is almost certain to be subject to preemption if challenged in court. The second is that any statutory enactment of this nature in California is, in fact, certain to be challenged in court, and quickly, if only because of California’s bellwether status in American economic and political culture, and the possible influence on other states if such a statute is allowed to stand in California.
California, Health Insurance and ERISA Preemption
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There’s an entertaining little story today in the Boston Globe on the question of whether, in the next few weeks, the California legislature and the Governor will roll out a state plan to reform health insurance by adding fees and other obligations to the employer provided health care system with the intent of providing universal health insurance, similar in some ways to what Massachusetts has done. I have talked frequently here about Massachusetts’ plan, which is in its earliest stages of implementation, with some concomitant glitches. Readers of this blog know I am highly skeptical of the ability of states to fashion these types of plans without running afoul of ERISA preemption, and, without knowing the details of the California plan, I am pretty skeptical they can pull it off either. In a nice little juxtaposition, for those of you who are interested in the question of how ERISA preemption impacts these types of attempts by states to change the health insurance paradigm, Sharon Reece out of the University of Maryland Law School has a very timely paper that is just out addressing the barrier posed by ERISA preemption to these types of state laws. The paper itself is available here, and the post from Richard Bales at Workplace Prof that brought it to my attention a few weeks back is here.
Go West for Health Care Young Man? Preemption and Employer Provided Health Care in San Francisco
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Here’s an article on Law.com today, out of the Recorder, on whether San Francisco’s version of a pay or play law mandating certain health care payments by businesses in the interest of bringing about the holy grail of universal health care coverage can survive ERISA preemption. The article points out, similar to what I discussed here, that federal courts have struck down similar laws in New York and Maryland. Based on the description of the San Francisco act in the article, I can’t say it sounds sufficiently different from the laws struck down in those cases that I would give it much chance of surviving a preemption challenge, with one caveat, that the Ninth Circuit, as it recently did with regard to the standard of review of benefit denial cases under ERISA, may be willing to shift the parameters of the law in this area. If it does, you will see the issue before the Supreme Court, as it is likely to create a direct conflict with the Fourth Circuit’s findings in Fielder, and on an issue - state regulation of employer provided health benefits - that is at play in more and more states every day.
Another Local Health Care Initiative Preempted, and What It Foretells for the Massachusetts Health Care Reform Act
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Roy Harmon over at his excellent Health Plan Law blog has the story of the decision last week by the United States District Court for the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, in which the court ruled that the Suffolk County Fair Share for Health Care Act (basically yet another local initiative directed at forcing Wal-Mart to provide greater health care coverage for its employees) is preempted by ERISA. The court’s opinion makes much of the fact that any attempt by a multi-state employer to comply with the statute would require the employer to create a different and separate administrative structure for that lone jurisdiction covered by the act, and that ERISA preemption applies as a result. The court’s approach drives home two points that I have commented on earlier in other posts on this blog.
First, with each local or state ordinance that is struck down as preempted, despite the attempt of each locality to insist that its statute is so fair or unintrusive that it should be left standing and it is alright if an employer has to do something different just with respect to that particular jurisdiction, it becomes apparent- or should, anyway, to anyone thinking through the issue - that, whatever the intentions of proponents of state laws altering health insurance on a state wide level, problems with the availability of health care and health insurance simply cannot be solved currently by a balkanized, state by state approach. Only addressing the problem at the federal level can possibly succeed; any other approach will result in employers facing the type of multiple and diverse administrative regimes that was rejected by the court in this most recent decision and that can only result in preemption.
Second, this decision points out that those who do not think that Massachusetts’ Health Care Reform Act is probably preempted are likely just whistling past the graveyard. Massachusetts’ statute is a fairly written and broadly applicable statute, and not the type of statute, like the one found preempted by the Eastern District of New York in this most recent preemption decision, that is simply a punitive statute, masquerading as a piece of broad based health care reform, directed at essentially one employer or one small class of employers (think big box retailers). Nonetheless, the exact same structural burdens and case law analyzed in the Eastern District’s decision likewise lead to the exact same conclusion - that ERISA preempts the act - when applied to the Massachusetts Health Care Reform Act. In truth, all you really need to do is globally replace the references in the Eastern District’s decision to the Suffolk County act with references to the Massachusetts statute, and you have the future ruling finding that the Massachusetts act is preempted.
More Thoughts on Whether the Massachusetts Health Care Reform Act is Preempted
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Wow, don’t think Massachusetts’ health care reform law doesn’t dictate to employers what type of health insurance to provide, only in a more subtle way than the state of Maryland did with its Fair Share Act based - but unsuccessful, thanks to ERISA preemption- attempted bludgeoning of Wal-Mart? At the risk of picking a fight, which isn’t the reason I write this blog (trust me, with my practice, I have enough fights going on at any given time, without looking for one more), this seems to be what Brian King, over at his ERISA Law Blog, thinks. But it is hard to square that view with this article right here, from the Boston Globe today, explaining how the state’s largest health insurer has abandoned plans to offer employers the opportunity to provide employees with a healthcare plan involving only a 33% contribution by the employer, because of pressure from the state government, which wants higher contribution limits so as to better implement the state’s health care reform act.
Now I am not saying that a one third contribution by employers is what we should want, but there may well be businesses for whom that type of plan makes sense, and for whose employees it is a better option than whatever else the employer could afford. And there is little doubt, as you see in this article, that this is a choice that is being taken away from employers by state action, as a result of the health care reform act. In essence, the state is dictating higher employer contribution limits, apparently wanting them to be at 50% or better.
Now Brian’s post is about preemption, and whether the state act imposes the types of restrictions on employers that could render the act preempted. Requiring these higher levels of contribution by employers doesn’t necessarily mean the act is subject to ERISA preemption, but it is the kind of action that defeats the argument that the state’s health care reform act only minimally infringes on employers’ operation of their benefit plans and thus is not invasive enough to warrant preemption, an argument that I seem to see more and more when it comes to the Massachusetts health reform act.
Partners, Domestic and Otherwise, and ERISA Preemption
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Here’s the Massachusetts Lawyers Weekly article on Partners Healthcare System v. Sullivan, the case I posted on a couple weeks back involving the question of whether preemption prevented the Massachusetts Commission Against Discrimination from taking action against Partners over its decision to allow benefits to be granted to its employees’ same sex, but not opposite sex, partners. It’s a good article that provides some nice context and background to the case. The Partners case is important to a certain extent, even if not doctrinally, because when you combine that case with Judge Gertner’s recent inquiry, addressed here, as to whether an employer could likewise limit benefits only to opposite sex, but not same sex, spouses, you see the complexities presented by trying to bring ERISA and state anti-discrimination laws into line with Massachusetts’ acceptance of same sex marriages.
ERISA and Same Sex Marriage
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Here’s a great story out of Boston, by means of the Workplace Prof, that touches on several obsessions of this blog - ERISA, the federal arbitration act, and court review of arbitration awards. As the Prof explains in this post here, a federal judge for the District of Massachusetts is seeking amicus briefs related to whether or not the court should affirm or instead vacate an arbitrator’s finding that an employer could limit ERISA governed health insurance benefits provided to employees’ spouses only to spouses of the opposite sex. The arbitrator had determined that the benefits were collectively bargained for and that the limitation was appropriate under the collective bargaining agreement.
Now, presumably, the matter is before the District Court here on a motion by the losing party in the arbitration to vacate the award, given that the court is asking for amicus to address the question of whether the arbitration award and the employee benefit plan approved of by the arbitrator violate a clear Massachusetts public policy, given the state’s protection of same sex marriages. The court is inquiring as well into the question of whether that public policy, if it can trump the arbitrator’s award and thereby justify setting aside the arbitration award, is itself trumped by ERISA preemption, with the result, presumably, that the benefits offered by the employer have to be left as is.
There aren’t many states where this issue could really come into play, one would think, although I don’t know how many other states other than Massachusetts allow gay marriage, and thus can have employee spouses who are not of the same sex. Beyond that, the court’s response shows a serious involvement by the court in the question of whether an arbitration award was proper, which I have argued before in this blog is the appropriate approach of a court presented with a challenge to an arbitration award. While one might say the court is really reaching out quite far to address this issue, more than one would normally expect from a district court judge, I will take that any day over the situation I have noted in other posts on this blog, where judges sometimes seems to simply reflexively approve arbitration awards, or at least start with some sort of barely rebuttable presumption that the award should be upheld, both of which are approaches that I do not believe are justified under the Federal Arbitration Act. In addition, it is not particularly out of the norm in this particular federal district to reach out for help from the legal and business community in this way in this type of a case, as I can recall other judges in this district requesting amicus briefs on difficult questions involving the interplay of ERISA and federal or state anti-discrimination laws. Moreover, other judges, as discussed in this post of mine from a little while back, in this district are likewise continuing to struggle with the impact of ERISA on employers as they try to figure out how to structure their employee benefits when it comes to spouses, partners and other dependents, in this brave new world we live in here in the Commonwealth of Massachusetts.
Incidentally, the underlying arbitration award is one that I discussed here, in this post, some time ago, in case you want to know more about the underlying controversy.
Can Partners Healthcare Systems Provide Different Benefits to Different Kinds of Partners?
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Judge Tauro of the United States District Court for the District of Massachusetts issued an interesting opinion this week as to the power, if any, of the Massachusetts Commission Against Discrimination to continue to investigate whether an employer, in this instance Partners Healthcare Systems - which operates major teaching hospitals, among other operations - violates state anti-discrimination laws by granting employee benefits to the unmarried partners of employees only in cases of same sex partners and not in cases involving heterosexual unmarried partners. As the court described the facts, Partners Healthcare “offers its employees a variety of health and welfare plans, which it alleges to be regulated by ERISA. Under these plans, [Partners Healthcare] offers employee benefits to unmarried same-sex domestic partners of its employees, but not to unmarried heterosexual domestic partners. . . . [An] employee of [Partners Healthcare] who has a heterosexual domestic partner, filed a charge of discrimination.”
At issue in the court’s opinion was whether the federal court should enter an order barring the state agency from investigating or taking other action against Partners Healthcare for the alleged discrimination on the ground that such state action would be precluded by ERISA preemption; the agency responded that the doctrine of Younger abstention - one of those doctrines that most of us never come across again once we have finished our law school exams - actually precludes the court from intervening with the agency’s investigation, regardless of the possibility of ERISA preemption.
Where did the court come out? It concluded that, in this circuit anyway, abstention is not appropriate where there is a facially conclusive case of preemption under ERISA, and that to the extent the agency is investigating ERISA governed plans offered by Partners Healthcare, the agency is barred from taking action; at the same time, however, the agency was free to proceed with regard to any benefits provided by Partners Healthcare that allegedly discriminate in the manner charged by the complainant where those benefits are not provided under an ERISA governed plan.
Although I admit I have little knowledge of the underlying employee benefit plans at issue, I doubt the ruling leaves much, if any, of the employee benefits offered by Partners Healthcare open to the state agency’s jurisdiction.
The case is Partners Healthcare System v. Sullivan, available right here.
The Massachusetts Health Care Reform Act and the Purposes of Preemption
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I have been meaning to come back to some issues concerning the Massachusetts Health Care Reform Act, the state’s potentially groundbreaking attempt to combine individual, employer and government roles to provide health insurance coverage for most of the Commonwealth’s uninsured, and now seems like a good time to do so, with its effective date coming up right around the corner. I have discussed before the question of whether the Act may be preempted by ERISA, and, if challenged, it would not surprise me if the employer obligations under the Act are struck as preempted. At the same time, it is important to bear in mind that the requirements imposed on employers by this particular statute are relatively benign, and this Act is nowhere near being the sort of heavy handed smackdown of particular targeted employers that was the now preempted and not particularly lamented law passed by the Maryland legislature that targeted Wal-Mart.
At the same time, the underlying issue with regard to preemption of state regulation of employer provided health insurance has to do with whether we should insist upon maintaining one consistent overlay of federal law and regulation on the subject, as is the case if state acts of this nature are consistently preempted, or whether we should instead, as the old saying goes, allow “a thousand flowers to bloom,” in the guise of allowing multiple different state experiments to address the problem of the uninsured. If the latter is to be the case, then that is where you really begin to run into problems of the type that underlie the preemption debate. It is one thing to say that the Massachusetts Act imposes only the most benign of record keeping and costs on nationwide employers, so perhaps preemption should not apply to it. But the issue becomes something entirely different when you instead consider having 30 or 40 or 50 states come up with their own experiments that likewise impose only minimal obligations on employers, each one so relatively benign, standing alone, that it is hard to justify declaring it preempted; when you combine all of those different regulatory regimes, however, then you start to get into the kind of conflicting and burdensome web of state actions that can become a real and legitimate burden to a nationwide employer. It is that ultimate result, that web of inconsistent state by state mandates, that the preemption requirement under ERISA is intended to guard against.
And a couple of other points on this question beg to be mentioned, although I don’t feel like I have seen them anywhere with regard to the preemption question. First, if you take away consistent overarching federal control of the question and allow state by state regulation of employer provided health insurance, how quick will we start to see a “race to the bottom” mentality, with at least some states looking to impose the least health care requirements possible on nationwide employers so as to attract businesses to relocate or at least site facilities there? We have seen it in the past with other subject areas that states pitch as competitive advantages over other states; I see no reason why health insurance should be one that is immune from such economic pressures and realities. There are certainly aspects of the Massachusetts Health Care Reform Act that I can think of right off the top of my head that a competing state could leave out, while incorporating in their own statutes all the other aspects of the Massachusetts Act, that might well tilt the balance - in at least a close case - for an employer deciding where to site its business.
Second, the idea of preferring state regulation of a health insurance marketplace that is predominately an employer provided product is premised, at heart, on the assumption that the state approaches will be an improvement over what could be done under the sort of federalized employer provided system we currently have. How confident really are we about this? It is probably fair to say we really won't know until at least some state - here Massachusetts - is allowed to impose its own regime and we wait and see how well it works out.
And when you consider all of these issues, this is when you start to get an inkling of why solving the uninsured problem on a federal level, rather than on a state by state level, with a consistent overall approach structured on the already existing infrastructure of the employer provided, ERISA governed model, may actually be the better approach.
ERISA Preemption and Universal Health Care in Massachusetts
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Well, the world of ERISA preemption, without Maryland’s Wal-Mart law to focus on anymore, turns its lonely eyes to Massachusetts’ universal health insurance statute, with the Boston Business Journal posting a front page article this week that says, in essence, it might be preempted but then again, maybe not.
Whether or not this statute is actually preempted is one of those questions on which I could credibly argue either way, so there is some room for debate here. However, Ed Zelinsky of Cardozo School of Law, who generally knows what he is talking about with regard to preemption, has concluded in one of the first, if not the first, detailed academic analysis of the question that the Massachusetts statute is in fact preempted. Zelinsky’s paper finds that:
Major features of the new Massachusetts health law are ERISA-preempted as forbidden regulation of employer-provided health care.
This is a regrettable conclusion but one mandated by the ERISA Section 514 and the controlling case law. ERISA preempts the new law's mandate requiring covered Massachusetts employers to sponsor medical plans for their employees and to make “fair and reasonable” contributions to such plans. ERISA also preempts the new law's requirement that Massachusetts residents maintain “minimum creditable coverage” for health care as that requirement effectively mandates for Massachusetts employers the substantive medical coverage they must offer their employees...
As is often the case when law review papers cross my desk, credit is due the Workplace Prof blog for bringing Professor Zelinsky’s law review article to my attention.
Preemption and Health Insurance Benefits
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Maryland has given up the fight over its Wal-Mart bill, which essentially targeted Wal-Mart and tried to force it to increase the health care benefits provided to its employees; as many of you will recall, the Fourth Circuit and the district court both found the act to be preempted by ERISA. Most commentators, including this one, agree that it is preempted, under current law. Maryland officials will not try to take the issue to the Supreme Court, feeling that they are unlikely to be successful. I suggested as much a while back, in this post.
An interesting counterpoint, for those of you with access to the National Law Journal and/or its subscription only website, is an opinion piece by law school professor Ed Zelinsky, whose work I have commented on in the past here in this blog, that Congress should address the problems of availability and affordability of health insurance by revoking federal preemption of the issue and allowing states to pass their own initiatives to try to solve the problem. I guess I have a few thoughts and concerns on that issue, the first of which is that, for every example, such as Massachusetts’ effort to provide universal health insurance for the currently uninsured, of a broad based effort to address a fundamental problem, there is a countervailing example, such as the Maryland act, of a statute that is narrowly crafted at only one small piece of the problem, often one, such as Wal-Mart, that can be easily vilified. In addition, state by state regulation in other areas is certainly not devoid of a “race to the bottom” mentality, where states seek competitive advantage over others in attracting employers by imposing lesser burdens on companies than do other states. I would hate to see that happen in health care and health insurance, which is an area already bedeviled by enough problems; a universal, national health care solution, rather than the removal of preemption with a resulting state by state system, avoids this problem.
Equitable Relief Under ERISA in the First Circuit Post-Sereboff
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The district courts in the First Circuit have been so busy issuing ERISA related decisions recently that it has become difficult to find time to post on other things that I also want to talk about. That said, however, the District Court for the District of Maine just issued a remarkable opinion that I both wanted to comment on and to be sure to spotlight. The case is Curran v. Camden National Bank, and it involved the question of whether the defendant bank owed hundreds of thousands of dollars to a multi-employer health care trust upon its withdrawal from the group. There are a few things that are really note worthy about the ruling. First of all, the decision is a nicely crafted survey of the law in this circuit as it currently stands on a number of topics, in particular: the extent to which, after Sereboff, equitable relief is available under ERISA in this circuit; the proper analysis of preemption; and the determination of fiduciary status for purposes of a claim for breach of fiduciary duty.
One could pick the court’s analysis of any of these three issues to focus on, and have plenty to write about, but today I will comment in particular on the court’s discussion of the viability of claims for equitable relief in this circuit after Sereboff, particularly since the court points out that the First Circuit itself has not yet found reason to interpret and apply Sereboff, other than to cite the case for the proposition that “what forms of relief are considered equitable is a matter in dispute.” On this issue, the district court began by providing a handy blueprint for analyzing claims for equitable relief in this circuit, and whether they can proceed without running afoul of Supreme Court precedent. Addressing “29 U.S.C. § 1132(a)(3), which provides [that a] civil action may be brought by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (I) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan,” the court stated:
By its terms, however, section 1132(a)(3) authorizes only "those categories of relief that were typically available in equity." Sereboff v. Mid Atl. Med. Servs., U.S. , 126 S. Ct. 1869 (2006) (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993) (emphasis in original)). If the plaintiffs seek legal as opposed to equitable relief, "their suit is not authorized by § [1132(a)(3)]." Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 218 (2002).
The First Circuit has set forth a two-step inquiry to evaluate a cause of action under § 1132(a)(3): "1) is the proposed relief equitable, and 2) if so, is it appropriate?" LaRocca v. Borden, Inc., 276 F.3d 22, 27-28 (1st Cir. 2002). With respect to the first prong, under ERISA, "'equitable relief' includes 'those categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).'" Id. at 28 (quoting Mertens, 508 U.S. at 256). Turning to the second step, the purpose of § 1132(a)(3) is to serve as a "safety net, offering appropriate equitable relief for injuries caused by violations that § [1132] does not elsewhere adequately remedy." Id. (quoting Varity Corp. v. Howe, 516 U.S. 489, 512 (1996)).
This is a very handy formulation that one can borrow to begin the section of any brief submitted in this circuit arguing over whether or not a particular claim can proceed under this section of ERISA. The court then went on, however, to provide far more analysis and guidance on this issue, explaining how a proper analysis of Sereboff and subsequent history from other circuits established that the plaintiffs were seeking a legal remedy dressed in the clothing of equitable relief, and that the claim therefore could not proceed under this statutory section.
Second of all, the bank’s lawyers did a terrific job here, drawing the court across a diverse range of ERISA issues and convincing the court that none of the plaintiffs’ claims were viable in light of the statute and case law interpreting it. I tip my hat to the bank’s lawyers for a terrific win.
Insurance Brokers as ERISA Defendants
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Roy Harmon, over at his Health Plan Law blog, has his typically scholarly take on two recent rulings out of the United States District Court for the District of New Hampshire in the case of Hopper v. Standard Insurance Company. The rulings primarily revolve around the question of which claims in the lawsuit are preempted under ERISA, and the law, reasoning and rulings of the court on these issues is consistent with First Circuit law, which grants a pretty broad sweep to ERISA preemption. What caught my eye about the case, however, and was of particular interest to me, was the discussion of whether the claims against one of the defendant entities that was involved in the insurance program at issue, namely the insurance broker, were preempted. The court, in one of its two rulings, determined that the broker did not play the role of a fiduciary, was not subject to ERISA, and that the claims against it were not preempted as a result. The court explained:
Hopper's misrepresentation claims against WGA [the insurance broker], however, are different. Unlike Standard, which functions as an ERISA entity, see Hampers, 202 F.3d at 53 (citing Stetson v. PFL Ins. Co., 16 F. Supp. 2d 28, 33 (D. Me. 1998))(explaining that the "primary ERISA entities are the employer, the plan, the plan fiduciaries, and the beneficiaries of the plan"), WGA is strictly an insurance broker, engaged in sales and marketing functions.
WGA had no direct control over Standard's insurance policy or the benefits plan. WGA did not administer the plan, and did not determine participant eligibility for benefits or consider appeals of benefit denial. Put differently, Hopper's claims against WGA are limited to WGA's "role as a seller of insurance, not as an administrator of an employee benefits plan." Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 991 (10th Cir. 1999).
This result is consistent with the underlying goal of ERISA "to protect the interests of employees and other beneficiaries of employee benefit plans." Morstein v. Nat'l Ins. Servs., Inc., 93 F.3d 715, 723 (11th Cir. 1996). "If ERISA preempts a beneficiary's potential cause of action for misrepresentation, employees, beneficiaries, and employers choosing among various plans will no longer be able to rely on the representations of the insurance agent regarding the terms of the plan." Id. As a result "[t]hese employees, whom Congress sought to protect, will find themselves unable to make informed choices regarding available benefit plans where state law places the duty on agents to deal honestly with applicants." Id. at 723-24.
Accordingly, Hopper's misrepresentation claims against WGA are not preempted by ERISA.
I think at least this part of the ruling, though arguable, is correct, so I don’t have any real quibble with it. What catches my eye, however, is the issue it raises, of whether an entity involved with an ERISA governed plan is better off staying out of the eye of the storm by avoiding a role that would grant it fiduciary status, or is instead better off playing a large enough role in the administration of the plan to end up being assigned that status. Falling outside of the ERISA framework leaves the entity exposed, as was the broker here, to a range of common law and state statutory claims; indeed, the potential exposure of such a defendant is limited only by the imagination of plaintiffs’ lawyers (and to a certain degree, the actual facts). On the other hand, coming within the realm of entities regulated by ERISA would preclude those types of claims from being asserted against the entity, while limiting recovery to that which is authorized by ERISA.
Granted, it is probably not something that the insurance broker in the Hopper case gave any thought to at the commencement of its involvement with the plan in question, but it might be something for any entity playing a role in an ERISA governed plan to consider at the outset of their retention: should they put themselves in a position to be a fiduciary subject to ERISA, or should they avoid that like the plague?
ERISA, Interpleader and Qualified Domestic Relations Orders
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Recently, waiting for a pretrial conference in federal court on one of my cases, I listened as a judge explained to the lawyers in a different case, based on only knowing the causes of action, what the actual facts of the case before him must be, even though he had never heard from the parties before. He did, in fact, actually nail the general outline of the case off the top of his head, and the lawyers for the parties simply had to fill in a few of the more specific facts for him. The judge explained that he had seen that type of case a thousand times before, and the fact patterns were always basically the same.
I was reminded of this when I read this recent decision by Judge Tauro in the Massachusetts federal district court, which concerns competing claims to life insurance proceeds provided under an ERISA governed plan. It seems as though the facts of this case are likewise always the facts in these types of claims: a divorce proceeding, followed by a standard state probate court order forbidding the husband from removing his soon to be ex-wife as the beneficiary, followed in short order of course, by the husband changing the beneficiary to his girlfriend (usually followed not long afterward by the husband’s demise, although no one has proven - to my satisfaction anyway - a causal linkage between that and either the girlfriend or the change in beneficiary).
Now of course what happens in that case is you end up with two competing claimants to the life insurance proceeds, one of whom - the ex-wife - asserts that she could not have legally been removed as the beneficiary, and the other of whom - the girlfriend - claims that she is the beneficiary pursuant to the plan’s terms and therefore must be paid the proceeds, at least if the plan’s terms are going to be enforced. And then what happens next of course, is that the plan administrator, quite rightly, files an interpleader action asking the court to figure out which one of the two should get the proceeds. A plan administrator would err if it did anything else, as ERISA preemption and the plan’s terms would suggest that the girlfriend should get the proceeds, but this would be in direct contradiction of a probate court order; there is no reason for the plan and its administrator to be stuck between the rock of the plan and the hard place of the probate court order. And avoiding being stuck in this type of position is exactly why federal law allows interpleader in this situation.
Judge Tauro, in his opinion at the end of January in Unicare Life & Health v Chantal Phanor et al, presents in a very logical manner exactly how this issue should be considered and resolved, finding that the proceeds should be paid out to the former wife under this scenario, so long as the probate court order qualifies as a qualified domestic relations order (“QDRO”) for purposes of ERISA. As the court explained, Congress expressly exempted QDROs from preemption, so as to allow probate courts to properly divvy up marital assets. The key issue with QDROs, and whether the beneficiary designation mandated by them should govern instead of the beneficiary designation that would govern if the terms of the plan controlled the issue, is that there are specific characteristics of the order that must exist for it to qualify as a QDRO. An issue of controversy, and which was at the center of the dispute in Unicare, is how strictly those requirements should be applied, and whether a probate court order that only loosely fits the requirements can qualify as a QDRO for these purposes. Judge Tauro came down squarely on the side of not taking those requirements literally, instead requiring only that the probate court order fit generally within the requirements and fall within the purpose intended to be served by QDROs.
For some reason, the Unicare decision is not currently available on the Massachusetts District Court's website, but I will keep an eye out and post a link to it when it becomes available. For now, it can be found on Lexis, at 2007 U.S.Dist. LEXIS 6136.
Wal-Mart and Preemption
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It is likely that if you are interested in the subject of this blog you already know that the Fourth Circuit has now affirmed the District Court decision striking down Maryland's Fair Share Act. Workplace prof has a nice post summing up the issue here, and major media accounts can be found here and here. Workplace prof poses the question of whether this is a decision on its way to the Supreme Court, and expresses some skepticism on that point. I am skeptical as well, but for a different reason, namely that the decision is essentially a preemption case, and there is nothing really novel going on in that area, either in general or in this particular decision, that would make me think it is obvious grist for the Supreme Court mill. Rather, the case is in essence a routine application of the law of preemption, only to a politically and socially - rather than legally - charged set of facts.
Mandated Health Benefits and Preemption in San Francisco
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Here is a neat post about the latest skirmish over state or local attempts to mandate health benefits and whether doing so is preempted by ERISA, this time in San Francisco, where an organization representing restaurant owners is challenging a city ordinance mandating the provision of health benefits. This is echoes of the Maryland Fair Share Act and its attempt to make Wal-Mart provide health care for its employees, something I talked about here and here and here, an attempt that was deemed preempted by ERISA. I have talked in the past about how that ruling set the stage for fighting out the same battles elsewhere, as states and municipalities try to address the problem of uninsured workers in the face of ERISA preemption.
One thing that is interesting to me about these types of stories is the manner in which these attempts to mandate the provision of health care benefits run up against what has long been a central tenet and long held understanding of ERISA, which is that it was enacted by Congress not to mandate the provision of benefits but instead to encourage employers to do so, in part by creating a self-contained universe governing the issue. But it may be that we have now reached a point where the bigger societal issue and the one that many elected bodies are struggling mightily with is whether to require health care benefits, something entirely different than the issues of import when ERISA was enacted. In some ways, one can think of the preemption conflict over these types of state and local mandates as reflecting a clash of two eras, the earlier one in which ERISA, including the preemption requirement that is preventing these types of mandates, was created and the current era, in which the need to address gaps in the employer based health care system has come to the forefront as a significant issue. While there may be a lot to be said about this point, at a minimum we can safely say that the past right now is trumping (or perhaps preempting?) the present.
Employee Welfare Benefit Plans and the Small Employer
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Preemption is a tough defense to get around, particularly in the First Circuit, where it is taken quite seriously and numerous decisions expressly declare particular state law causes of action to be preempted by ERISA. One clever response to this problem, at least when the facts will allow the argument, is to try to sidestep any fight over preemption itself by arguing that the benefit at issue was not even provided by an employee welfare benefit plan and that as a re