ERISA Preempts State Health Care Information Reporting Law Due To Effect On Uniform Benefit Administration

ERISA preempts a Vermont statute and regulation that requires health insurers, including self-insured plans, to file reports containing claims data and other health care information with the state, the Second Circuit U.S. Court of Appeals has ruled in Liberty Mutual Insurance Co. v. Donegan. The reporting requirements have a “connection with” ERISA plans, and reporting is a core ERISA function that is to be protected against multiple, possibly inconsistent, state requirements. As such, the court reversed the district court’s ruling and remanded the case with instructions to enter judgment for the insurance company.

Background. Liberty Mutual Insurance Company operates a self-insured employee health plan. A Vermont statute, which establishes and provides for the maintenance of “a unified health care database,” requires all health insurers, including self-insured plans, to file reports containing claims data and other health care information with the state. In 2008, Vermont’s Department of Banking, Insurance, Securities and Health Care Administration promulgated a regulation to implement the statute and create the Vermont Healthcare Claims Uniform Reporting and Evaluation System (the “Reporting System”). The regulation specifies how the information must be recorded and transmitted.

In August 2011, Vermont subpoenaed claims data from Liberty Mutual’s third-party administrator. Liberty Mutual filed suit in district court seeking a declaration that ERISA preempts the Vermont statute and regulation. Vermont sought to dismiss the complaint for lack of standing and for failure to state a claim. The court concluded that Liberty Mutual had Article III standing but that ERISA did not preempt the Vermont statute and regulation and that Vermont was therefore entitled to summary judgment.

Standing. Before addressing the ERISA preemption issue, the court agreed with the district court that Liberty Mutual had standing to challenge the subpoena. Liberty Mutual would suffer a redressable injury-in-fact as a direct result of Vermont’s threatened, imminent action of imposing fines on the third-party administrator, whom Liberty Mutual would be required to indemnify.

Preemption precedent. Based on Supreme Court precedent addressing ERISA preemption, the court held that the reporting requirements of the Vermont statute and regulation have a “connection with” ERISA plans and are therefore preempted as applied. The court explained that Shaw v. Delta Air Lines, Inc. formulated the modern ERISA preemption test: a state law is preempted if “it [1] has a connection with or [2] reference to [an ERISA] plan.” In that case, the Supreme Court found that ERISA preempted “state laws dealing with the subject matters covered by ERISA—reporting, disclosure, fiduciary responsibility, and the like.” Subsequent cases specifically re-emphasized that “reporting” and “disclosure” are core ERISA functions subject to a uniform federal standard. Those cases also cited the threat of conflicting state and local regulation as a paramount reason for preemption.

The court found that the reporting mandated by the Vermont statute and regulation is “burdensome, time-consuming, and risky” due to the numerous categories of data it seeks to collect and the frequency of collection. “Since other states can impose their own regimes for reporting—and many do—these burdens and risks must be multiplied,” the court wrote. Because ERISA’s preemption clause is intended to avoid a multiplicity of burdensome state requirements for ERISA plan administration, Vermont’s statute and regulation are preempted.

The court also noted that not every state law imposing a reporting requirement is preempted. In two of its own cases, the court allowed a slight reporting burden on plans where the requirements created “no impediment to an employer’s adoption of a uniform benefit administration scheme.”

Dissent. The dissent cited two reasons for its disagreement with the majority’s holding that the burden imposed by the Vermont reporting requirement warranted preemption. First, Vermont’s reporting requirements differ from ERISA’s reporting requirements and therefore was not the kind of state law Congress intended to preempt. Second, Liberty Mutual failed to show any actual burden, much less a burden that triggers ERISA preemption.

Visit our News Library to read more news stories.