Avoiding a Patchwork of Pitfalls: Gobeille v. Liberty Mutual Insurance Co.

In the first decision issued since the passing of Justice Scalia, the Supreme Court of the United States held that ERISA preempts a Vermont statute requiring third party administrators of self-insured group health plans to report claims information to state health care databases. Gobeille v. Liberty Mut. Ins. Co. addresses two important issues for benefit plans: (1) the scope of ERISA preemption; and (2) mandated reporting to state maintained “all-payer claims databases” (APCDs), which an increasing number of states are attempting to create in an effort to assess the cost, quality, and utilization of health services. Employers should benefit from the broad ERISA preemption standard re-affirmed in the majority opinion authored by Justice Kennedy. Plan sponsors, insurance carriers, and third party administrators should also take comfort in avoiding a patchwork of state APCD reporting requirements that may create foot faults for these entities.

At issue in Gobeille was Vermont’s APCD system, designed to collect information from parties that pay for health services (including self-insured health plans governed by ERISA) about the services provided to Vermont residents. Under the Vermont APCD statute, Blue Cross Blue Shield of Massachusetts, Inc., in its capacity as a third party administrator for the Liberty Mutual Insurance Company health plan, was ordered to transmit eligibility and claims files for the plan’s Vermont members. Liberty Mutual instructed Blue Cross not to comply and filed suit, seeking a declaration that ERISA preempts the Vermont APCD statute and seeking to enjoin Vermont from acquiring the requested data. Ultimately, the Supreme Court affirmed the U.S. Court of Appeals for the Second Circuit, holding that ERISA preempts the Vermont statute as applied to ERISA plans.

The majority opinion distills the Court’s tortuous ERISA preemption jurisprudence to the simple rule that ERISA preempts state laws having a “reference to” or “connection with” ERISA plans. Specifically, the Court held that ERISA preempts a state law that “acts immediately and exclusively upon ERISA plans . . . or where the existence of ERISA plans is essential to the law’s operation . . .” or that ” ‘governs . . . a central matter of plan administration’ or ‘interferes with nationally uniform plan administration.’ ” By applying this rule, the Court found the Vermont APCD statute had an impermissible connection with ERISA plans as it intruded on a central matter of plan administration and interfered with uniform plan administration. The majority also took issue with the potential for administrative waste and enhanced liability exposure that could result from the application to ERISA plans of inconsistent reporting requirements.

Justice Kennedy’s majority opinion does not question whether the medical and pharmacy claims, eligibility, and provider data required by APCD programs will be beneficial to states in attempting to manage costs and improve services. Rather, it reflects comments during oral argument and reiterated by Justice Breyer in his concurring opinion that efforts to collect the type of information sought by the Vermont ADCP statute from ERISA plans should be administered by the U.S. Secretary of Labor. Consequently, Gobeille provides new insight into a larger debate generated by health care reform about whether more responsibility for healthcare management (typically the province of the states) belongs with the federal government. Fortunately for ERISA plan sponsors, the majority recognized the cost and administrative burden that would result if ERISA plans were forced to comply with a variety of state reporting regimes.

Although the majority found that state attempts to create APCD programs were prohibited by the broad scope of ERISA preemption and that such programs are more appropriately administered by federal agencies, several questions remain. For example, it is not clear whether states will actually push for the creation of medical data reporting requirements at the federal level, whether the political will exists (or will exist) to create and implement such a reporting regime, and whether the task should ultimately fall to the Department of Labor or to the Department of Health and Human Services. In addition, the concurring and dissenting opinions suggests that the Gobeille decision may not be the final word on the scope of ERISA preemption. Justice Thomas’ concurrence shows his continuing discomfort with the constitutional basis for the broad pre-emption language of ERISA and Justices Ginsburg and Sotomayor appear to disagree entirely with the majority’s re-articulated preemption doctrine. In the immediate term, however, plan sponsors, third party administrators, and insurers should enjoy victory on two fronts: a broad restatement of the ERISA preemption standard and the avoidance of a patchwork of state-based health care data collection requirements.