By: Sara Rosenbaum, George Washington University
On March 1, 2016, a divided United States Supreme Court ruled in Gobeille v. Liberty Mutual Insurance Company that the Employee Retirement Income Security Act (ERISA) preempts Vermont's all-payer claims database law–at least to the extent that the state seeks information from ERISA plans that self-fund their own health benefits. The Court did not reach the question of whether Vermont's laws and those like it can be "saved" (in ERISA parlance) when they are applied to insurance plans (i.e., ERISA plans that purchase state-regulated insurance products rather than self-insuring). This technically remains an open question, possibly to be answered at a later date.
The vote was not close; Vermont lost by a six-to-two margin. Writing for the Court, Justice Kennedy was joined by Justices Alito and Kagan and Chief Justice John Roberts. Justices Thomas and Breyer each wrote separate concurrences. Justice Ginsburg, joined by Justice Sotomayor, dissented.
Gobeille will have a significant impact on state efforts to create information tools that can produce a greater understanding of health care costs and quality across broad geographic regions. According to a study prepared for the United States Department of Labor (DOL), in 2009 health plans offered by employers accounted to 73 percent of all employees with employer-sponsored insurance. Self-insuring is popular, and ERISA applies to all health and welfare plans sponsored by employers other than those operated by churches. Thus, to the extent that states operating all-payer reporting systems rely on third party payers to produce the information they seek, Gobeille could shield a significant amount of data from state access, unless the federal government intervenes. All eyes now turn to the Secretary of Labor.
Gobeille's Origins
Along with 17 other states, Vermont has enacted an all-payer claims law, whose purpose is to address matters of cost, quality, and access through analysis of comprehensive payment information; as with other states, Vermont requires both public and private payers to report health expenditure data. Blue Cross/Blue Shield, which does business in Vermont, acts as the insurer or the third party administrator (TPA) for multiple employer plans; as noted by Justice Ginsburg in her dissent, about half of the claims data collected and managed by Blue Cross involve self-insured employers. A self-insuring employer, Liberty Mutual Insurance relies on Blue Cross for third party administrative services.
Blue Cross is subject to the Vermont law. When the state sought to enforce its provisions with respect to all of Blue Cross’s data holdings, Liberty Mutual Insurance refused, on fiduciary grounds, to authorize release of its data, raising potential confidentiality issues. Liberty Mutual then sued to stop Vermont from applying its law to Blue Cross insofar as the disclosure of Liberty Mutual data was concerned. Liberty Mutual alleged that Vermont’s law was preempted by ERISA, at least insofar as self-insured employers are concerned.
The federal trial court turned back Liberty Mutual, concluding that under Supreme Court precedent, ERISA did not preempt Vermont’s law, whose purpose is to promote the public welfare, and whose provisions did not violate the principles that underlie the preemption doctrine. The United States Court of Appeals for the Second Circuit reversed, holding that even though Vermont’s law was designed to promote the public welfare, the state’s law interfered with a “core function” under ERISA and was therefore preempted. Vermont, joined by other states, the Obama administration, and others, appealed.
Justice Kennedy's Opinion for the Court
Justice Kennedy began by reviewing the unusually broad sweep of ERISA’s preemption clause (indeed, so broad, that in his separate concurrence Justice Thomas pondered the statute’s constitutionality). In doing so, Justice Kennedy considered the Court’s landmark opinion in New York State Conference of Blue Cross & Blue Shield Plans v Travelers Ins. Co. 514 U.S. 645 (1995), in which the Court moved away from its earlier, literal application of the words of ERISA’s preemption statute and toward a more nuanced approach that recognizes the enormous consequences to the basic principle of federalism that is created when the preemption clause is read as eliminating broad swaths of state law. At the same time, he noted, even a more flexible Travelers approach requires state laws to give way to federal law when they have an “impermissible” connection with ERISA plans. Justice Kennedy clarified that by “impermissible,” the Court means a state law that “governs a central matter of plan administration” or “interferes with nationally uniform plan administration.” Under this formulation, according to Justice Kennedy, “laws that govern, or interfere with the uniformity of plan administration . . . have an impermissible connection with ERISA plans.” Slip op.
According to Justice Kennedy, because ERISA’s oversight provisions require the Labor Secretary to collect nationwide information about plan compliance with the terms of the law, the statute makes uniform nationwide reporting a necessity. For this reason, Justice Kennedy observed, Congress has made reporting “exclusively a federal concern”. Characterizing federal reporting requirements as “extensive,” Justice Kennedy pointed out that not only does DOL require annual reports covering assets and liabilities and receipts and disbursement of funds but furthermore, that the statute gives the Labor Secretary the authority to establish additional reporting and disclosure requirements. All of this, he concluded, makes reporting and disclosure “central to, and an essential part of” a uniform system of administration of the type contemplated by ERISA. Because Vermont requires information about claims and plan members, its law, in the Court’s view, interferes with this national uniformity. As such preemption becomes “necessary to prevent the states from imposing novel, inconsistent, and burdensome reporting requirements on plans” (slip op).
Does the Labor Secretary have the power to develop and implement a national reporting system that would yield the type of information sought by states? Here the Court was less than clear:
"The Secretary of Labor, not the States, is authorized to administer the reporting requirements of plans governed by ERISA. He may exempt plans from ERISA reporting requirements altogether...And he may [emphasis added] be authorized to require ERISA plans to report data similar to that which Vermont seeks, though that question is not presented here." - Justice Kennedy's opinion for the Court, slip op.
In other words, it is possible, but by no means a legal certainty, that the grant of powers under ERISA may be broad enough to authorize the Labor Secretary to establish a claims reporting system geared to quality and cost measurement of health care itself and covering ERISA plans. The answer to this question appears to remain an open one as far as the Court is concerned.
Justice Breyer's Concurrence
In his concurrence, Justice Breyer ventured further than the majority appeared willing to do and added his own perspective on the breadth of the Labor Department’s powers. According to Justice Breyer, ERISA’s grant of oversight powers to the Labor Secretary is broad enough to permit the Secretary either to establish a federally-administered claims reporting system or, alternatively, a system under which DOL specifies broad standards governing state systems and then authorizes states to collect data as long as their systems operate in conformance with these broad standards.
"I see no reason why the Secretary of Labor could not develop reporting requirements that satisfy the States' needs, including some state-specific requirements as appropriate. Nor do I see why the Department could not delegate to a particular state the authority to obtain data related to the state, while also providing the data to the Federal Secretary for use by other States or at the federal level." - Justice Breyer's concurrence, slip op.
Justice Ginsburg's Dissent
Justice Ginsburg took a more careful approach. She described ERISA’s preemption principles as ones that require careful attention to the purpose and impact of state laws, especially laws that, like Vermont’s, fit squarely within the role of states as sovereigns acting on behalf of the welfare of their residents. In considering the issue of preemption, Justice Ginsburg brought her usual attention to detail, separating the purpose and specifics of DOL’s ERISA reporting system from those that undergird state all-payer claims reporting systems. She concluded that not only did the two sets of reporting requirements serve entirely different purposes (federal oversight of the fiduciary practices of employer plans versus state oversight of matters of access, cost, and quality in the case of state all-payer claims systems), but furthermore, that as a practical matter, the two systems did not clash. Nor, in her opinion, did Vermont’s system imposed the types of burdens that have proven fatal to other state laws in ERISA preemption cases, since Vermont’s law sought to regulate neither the solvency nor design nor operation of ERISA plans.
"Vermont seeks a better understanding of how its residents obtain health care and how effective that care is. Unlike ERISA superintendence, Vermont's interest does not lie in reviewing whether a self-insured provider is keeping its bargain to covered employees." - Justice Ginsburg's dissent, slip op.
Furthermore, Justice Ginsburg pointed out that the Court has, on numerous occasions, upheld state laws in the face of preemption challenges even though the laws in questions carry reporting and record-keeping requirements.
What Comes Next?
Although it did not do so unambiguously, the Court left the door open to federal action. Perhaps one should not over-read the Justice Kennedy’s hesitation, since courts never decide more than the issues directly before them (or at least purport not to do so).
Justice Breyer identified two possible options: (1) a federally administered reporting system that collects nationally uniform claims data and makes such information available to states; or (2) a federal standard-setting and approval role, in which federal agencies identify the key content, structural, and operational elements of approved state claims payment reporting systems and then certify state systems that meet federal standards while also requiring states also to transmit their data to a central warehouse. Although these two approaches both may be legally feasible, each approach raises distinct policy, financial, and technical considerations. A federal system – whether administered directly by the government or via contract, could make nationally uniform data available. But the costs associated with proceeding in this manner, not to mention the policy challenges inherent in efforts to expand the federal ERISA reporting system, could be great, as would be the time to bring such an approach to fruition. Possibly less burdensome would be development of federal certification standards that would enable states that were ready to do so to proceed.
Whether either approach ultimately would pass legal scrutiny remains to be seen, of course.
Sara Rosenbaum, J.D., is the Harold and Jane Hirsh Professor of Health Law and Policy and Founding Chair of the Department of Health Policy, George Washington University Milken Institute School of Public Health. She also holds a Professorship by Courtesy in the GW Law School and is a member of the faculty of the School of Medicine and Health Sciences. Professor Rosenbaum is best known for her work on the expansion of Medicaid, the expansion of community health centers, patients' rights in managed care, civil rights and health care, and national health reform. She also regularly advises state governments on health policy matters and has served as a testifying expert in legal actions involving the rights of children under Medicaid. She has received national awards for her work, serves on governmental advisory committees, private organizational and foundation boards, and is a past Chair of AcademyHealth.