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Supreme Court Might Use ERISA to Limit State Plan Administrator Rules

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The U.S. Supreme Court may issue a ruling that will check state efforts to regulate benefit plan administrators in ways that affect large employers’ health benefit plans.

Supreme Court justices seem to be leaning toward ruling in favor of the plan administrators in Rutledge v. the Pharmaceutical Manufacturers Association of America (PCMA) (Case Number 18-540), a case that pits the state of Arkansas against pharmacy benefits managers (PBMs).

The court heard oral arguments on the case earlier this week.


If the Supreme Court rules in favor of the PBMs in the Rutledge v. PCMA case, and it also rules to overturn much or all of the Affordable Care Act, in connection with the California v. Texas ACA individual mandate case, the court’s  Rutledge ruling could sharply limit the ability of states like California and New York state to use state laws to keep ACA health insurance rules in place.

The Background

Federal law leaves most regulation of insurance as insurance to the states, but the federal Employee Retirement Income Security Act of 1974 normally promotes national uniformity in U.S. benefits rules by “preempting,” or blocking, any state efforts to regulate self-insured employer-sponsored benefit plans. Arkansas has tried to protect independent pharmacies against the PBMs by setting standards that apply to all PBMs, including PBM arrangements that serve self-insured employer health plans.

Arkansas has argued that ERISA governs the relationship between health plans and beneficiaries, not the relationship between PBMs and pharmacies, and that about 45 states have their own PBM laws.

The PCMA, a trade group contends that the Arkansas PBM law does regulate group health plans and does violate ERISA.

The U.S. District Court in Arkansas dismissed PCMA efforts to overturn the Arkansas PBM law.

The 8th U.S. Circuit Court of Appeals ruled in favor of the PCMA and said that ERISA does preempt the Arkansas law.

The U.S. Solicitor General’s Office is helping the U.S. Labor Department and the U.S. Justice Department participate in the case in support of Arkansas. Trump administration officials contend that the Arkansas law does not mention ERISA, does not have an impermissible connection with ERISA plans, and

Members of the Supreme Court have traditionally been sympathetic to group health plans asking for protection against state rules that might interfere with ERISA preemption.

In 2016, for example, members of the court ruled 6-2 against the state of Vermont in Gobeille v. Liberty Mutual (Case Number 14-181). The court had only eight justices at the time. Justice Ruth Bader Ginsburg joined Justice Sonia Sotomayor in opposing the ruling

The Oral Arguments

Frederick Liu, a lawyer from the U.S. Solicitor General’s Office, said the Arkansas law doesn’t apply directly to ERISA plans, according to the oral arguments transcript.

If the law did apply to ERISA plans, “it wouldn’t matter because, at the end of the day, pharmacy reimbursement just isn’t a central matter of plan administration,” Liu said.

Justice Clarence Thomas, who seldom speaks during oral arguments, asked Nicholas Bronni, the lawyer for Arkansas, whether the effects of the Arkansas law on matters such as billing weren’t central to the operations of a health plan. Thomas also asked about the impact of the Arkansas law on benefits law uniformity.

Chief Justice John Roberts, who tends to vote with the majority, seemed in oral arguments to be skeptical about Arkansas’s argument that its law relates mainly to regulation of drug prices, which is allowed by ERISA, and not to plan rules.

The Arkansas law “doesn’t say anything about drug prices,” Roberts said. Instead, it talks about what plans have to pay for benefits, the methodology of determining the amount to be paid, the timing and procedures for updating payment schedules, the dispute resolution processes, remedies. It has things like the authorizing, declining to dispense. I mean, at the end of the day, all this might have an impact on drug prices, but it seems to me that it’s very different, and those differences really do go to what ERISA is trying to regulate.”

Justice Elena Kagan asked about 45 states having their own PBM laws.

“I’m wondering why that doesn’t raise exactly the specter that the drafters of ERISA were concerned about, where the PBMs, you know, are trying to do 45 different things in 45 different states in a way that really does affect plan administration,” Kagan said.

The Affordable Care Act

About half of the 218 million U.S. residents with private health coverage get their coverage from employer plans governed by ERISA preemption rules, according to figures from the U.S. Census Bureau and the Henry J. Kaiser Family Foundation.

One reason Congress began working on the Affordable Care Act is state complaints that states were unable to do much to regulate the group health coverage market, due to ERISA preemption.

Before ERISA came along, states like California and New York frequently adopted health insurance standards that excluded self-insured health plans.

Because the likelihood that younger, healthier individuals and employers with younger, healthier workers would find ways to migrate into the large group market, states found that antiselection considerations made applying benefits and pricing rules solely to non-ERISA coverage difficult.

The Supreme Court is preparing to hear oral arguments in California v. Texas in early November. The U.S. government is asking the court to use the case as an opportunity to throw out all of the ACA.

Some have argued that ACA-supporting states could respond to the elimination of the ACA by enforcing ACA-like standards at the state level, but, because of ERISA preemption, states could end up facing the same obstacles to state health insurance rules that they encountered in the early 2000s.

— Read Supreme Court Rules on ERISA Fiduciary Obligationson ThinkAdvisor.

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© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.