Courts Grapple With ERISA Ruling

A sweeping 2004 U.S. Supreme Court decision extracted most, but not all, of the teeth from state patients rights laws.

In Aetna Health Inc. vs. Davila, the Supreme Court ruled unanimously that the Texas Health Care Liability Act was pre-empted because it conflicted with the Employee Retirement Income Security Act.

Although few lower courts have directly applied Davila to other states patients rights laws, the initial trend suggests that states will still be able to regulate the procedures that govern health and disability plans. But participants will not be able to turn to state courts for help if they find themselves in a dispute with an ERISA-governed plan.

When the Supreme Court heard arguments on the Texas law in March 2004, Texas and 11 other states had statutes that attempted to make damages, including punitive damages, available in lawsuits involving health maintenance organization decisions dealing with medical treatment. The plan participants in the 2 cases that were before the Supreme Court had sought damages from their HMOs.

Damages are not recoverable in a federal lawsuit for benefits under ERISA.

The Supreme Court said Congress intended for ERISA to be the comprehensive and exclusive mechanism for governing employer-provided benefit plans. If a state law duplicates, replaces, or expands the remedies Congress has provided in ERISA, then the state law conflicts with, and must give way to, ERISA.

Since the Supreme Court issued its decision, a number of courts have acknowledged the broad scope of the Davila decision. For example, federal district courts in New York and California and an appellate court in Pennsylvania have held that the state insurance-law claims of participants in ERISA-governed plans failed under Davila because the participants sought damages.

However, about 2 years before Davila, in Rush Prudential HMO Inc. vs. Moran, the Supreme Court upheld an Illinois law that required HMOs to provide independent review of disputes between a primary care physician and the HMOs and to cover treatment declared medically necessary by the independent reviewer.

The Supreme Court reasoned that the Illinois statute survived ERISA pre-emption because it did not grant the participant any remedy not otherwise available under ERISA. Under the Illinois statute, a participant wanting to sue the HMO still had to bring a case under ERISA. In Davila, the Supreme Court relied on the Rush Prudential decision as support for its conclusion.

Sorting out the distinctions between the Rush Prudential and Davila decisions, the Supreme Court of Hawaii recently concluded that Hawaiis external review law could not withstand ERISA pre-emption because Hawaiis law let an independent panel determine whether the HMOs action was reasonable and granted both the participant and HMO the right to sue.

Peter M. Varney is an associate in the Atlanta office of Alston & Bird L.L.P.


Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.