A recent federal appeals court decision exempting self-insured companies from reporting health care claims information to Vermont’s comprehensive payer database has no bearing on the state’s plans for financing a universal health care system, said Robin Lunge, Vermont’s director of health care reform.
The 2nd Circuit Court of Appeals in New York ruled that Liberty Mutual, which offers self-insured health benefit plans to its employees, is exempted from reporting claims data to the state under the the Employee Retirement Income Security Act (ERISA).
Lunge said the decision is specific to reporting and will not affect the state’s decision to incorporate companies that offer ERISA health plans into Green Mountain Care, the state’s planned universal health care program.
ERISA is a federal law that regulates employee benefit plans, sets minimum standards for those plans and allows employees to sue for those benefits. It also protects companies that offer benefits in multiple states from a patchwork of state regulations through what is known as the ERISA preemption clause.
There are 100,000 Vermonters with coverage through a self-insured employer.
The ERISA preemption formed the basis for Liberty Mutual’s argument that the state couldn’t impose its own reporting requirements on them.
Vermont law requires that all health insurers report claims data. The information is held by VHCURES, a database the state uses to track capacity, costs and inform policy.
“The loss of data from self-insured entities will make the database less complete,” Lunge said, “But we’re hopeful that self-insured entities in Vermont will continue to voluntarily submit claims data to VHCURES as it assists our efforts to curb the growth in health care costs and ensure Vermonters get better health outcomes.”
Liberty Mutual sued Vermont after the state subpoenaed claims data from its third-party health insurance administrator.
The state’s claims data reporting law allows it to impose up to $10,000 in civil penalties per violation for shirking the reporting requirements.
Reporting to VHCURES is voluntary for insurers that cover fewer than 200 people. Only 137 of Liberty Mutual’s 80,000 employees are in Vermont, but because its third-party administrator, Blue Cross Blue Shield of Massachusetts, covers more than 200 people in the state, Vermont subpoenaed Liberty Mutual’s claims data from Blue Cross.
Liberty Mutual brought the suit because its contract with Blue Cross held the company liable for the civil penalties.
The 2nd Circuit Court of Appeals reversed an earlier district court decision that had directed Liberty Mutual to turn over its claims data. In a split decision, the federal appeals court accepted the company’s argument that Vermont’s reporting requirement violated ERISA.
The decision states “the reporting mandated by the Vermont statute and regulation is burdensome, time-consuming and risky.”
“The use of preemption to avoid proliferation of state administrative regimes also remains a vital feature of the law,” it continues.
In a dissent, one justice argued that Liberty Mutual couldn’t show that Vermont’s reporting requirement was a burden.
The dissent posits that Vermont’s reporting requirements “differ in kind” from the annual reports required by ERISA and was not the type of state law Congress intended to preempt.
The state has two weeks from when the decision was made last Tuesday to appeal the ruling to a full panel of the 2nd Circuit — the case was only heard by three of the justices. There is also a 90-day window for an appeal to the Supreme Court.
Assistant Attorney General Bridget Asay, who is handling the case for Vermont, said her office is discussing what the next step will be.
The wide variation in the circuit court’s interpretation of ERISA preemptions makes them fertile ground for Supreme Court appeals, said Jennifer Carbee, an attorney for the Legislature.
ERISA PREEMPTION AND GREEN MOUNTAIN CARE
There is also what’s known as the savings clause, which allows states to regulate private insurers, giving them the ability to preempt ERISA law in some situations.
The two ERISA preemptions have been seen by the courts as at odds, and have led to a wide array of dissonant case law.
Or as the Supreme Court put it in a 1985 ruling, “… while the general preemption clause broadly preempts state law, the saving clause appears broadly to preserve the States’ lawmaking power over much of the same regulation. While Congress occasionally decides to return to the States what it has previously taken away, it does not normally do both at the same time.”
In a presentation to the House Ways and Means Committee, Carbee explained that ERISA gives little guidance in its statutory language, so most of what is known about how the law applies comes from the courts.
“Even the precedent isn’t always incredibly instructive in determining how a particular set of facts would be decided by the court,” Carbee told lawmakers.
Eliminating premiums for nearly all health insurance plans and paying for coverage through taxes is central to Vermont’s planned universal health care program, but what that means for Vermonters enrolled in ERISA plans offered by their employer is unclear.
Sen. Peter Galbraith, D-Windham, has suggested making the switch using a mix of taxes that relies primarily on a payroll tax.
The state would impose the payroll tax on Vermont’s ERISA employers and their employees. Green Mountain Care could serve as a secondary payer to provide supplemental coverage if necessary to bring those plans in line with what’s offered by the state.
Galbraith said without tax revenue from people covered by an ERISA plan, the state won’t be able to sustainably finance its universal health care system.
Sen. Kevin Mullin, R-Rutland, has said taxing the ERISA companies effectively railroads them into Green Mountain Care, and is likely to result in lawsuits. The employers won’t want to pay twice, but also won’t want to deal with the administrative challenge of offering separate health care to their Vermont employees.
An ERISA preemption is often triggered when state or local laws don’t preserve employers’ ability to choose, said Carbee, but there is also case law that reads “choice” broadly.
That leaves open the possibility that a court would interpret the employer offering ERISA plans as having the choice to pay both premiums and a payroll tax or switch to Green Mountain Care.
Mullin has suggested giving employers offering an ERISA plan a credit against whatever taxes are imposed to pay for Green Mountain Care, because the state wouldn’t have to pay to cover those employees.
There is also legal precedent established by courts that have struck down state laws specifically designed to discriminate in favor of or against companies offering ERISA plans, Galbraith has pointed out.
In responding to Galbraith’s question of whether the state could 1) create a tax that would not impact ERISA companies and 2) that would still be able to sustainably fund Green Mountain Care, Michael Costa, the state’s health care financing architect, responded:
“As you’re designing options for a financing plan it’s important to note that the state has broad authority to tax, and within any tax system you can design credits or deductions or exemptions that might help businesses of a variety of sizes,” Costa said. “I think you can still do that while raising sufficient money to care for all Vermonters.”
Further complicating matters is a case out of Maryland where the court ruled that a state law was preempted by ERISA because the only company affected was Wal-Mart.
In that case, the court looked at legislative intent in making its decision, and found the law was specifically intended to coerce Wal-Mart into certain behavior.
The floor speeches of legislators were used as evidence in the case, according to Carbee’s testimony, which could mean lawmakers’ deliberations will be cited in legal challenges to however Vermont decides to handle the ERISA companies.