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What About ERISA’s Tort Liability Pre-Emption?

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In addition to largely ignoring tort reform, the health reform process is ignoring the hash that Congress and courts previously have made of ERISA’s pre-emption of state tort suits against health insurers.  Readers will recall that, according to AETNA v. Davila, 542 U.S. 200 (2004), personal injuries caused by insurance claims denials cannot be adequately redressed either under state law or federal law, due to ERISA’s complete pre-emption of the former, and it’s stingy remedies for personal injury under the latter.

Years ago, it appeared there might be bipartisan support for fixing this problem, as part of “patients’ bill of rights” legislation, but that was side-tracked by 9/11 and Congress never came back to it.  So one might have thought Congress would take up this legal lacuna now.

Not so.  H.R. 3962, the House-passed reform bill, specifically states that ERISA law is preserved for employer-sponsored plans.  Phyllis Borzi, the head of ERISA, commented recently that it’s “a tragedy” not to fix this problem, and Republican Rep. Shadegg (Az.) has made it his cause to highlight this shortcoming, as grounds to oppose the House bill.

What about individual plans sold through the new exchange?  Under the House bill, they would be subject to state tort suits.  But, legal minds might ask, what about employer-sponsored plans sold through the exchange?  Here’s what the bill says (sec. 251):

in the case of employment-based health plans, the requirements of this title do not supercede any requirements applicable under [ERISA], or State law.  . . . In the case of health insurance coverage offered through the Health Insurance Exchange, the requirements of this title do not supercede . . . individual rights and remedies under State laws. . . . Nothing in [this] paragraph shall be construed as preventing the application of rights and remedies under State laws to health insurance issuers generally . . . . The previous sentence shall not be construed as providing for the applicability of rights or remedies under State laws with respect to requirements applicable to employers or other plan sponsors in connection with arrangements which are treated as group health plans under [ERISA].

You can tell that Congress is trying to say something here, but damned if I can figure out exactly what it is.  But here’s what I think it might be:  1) for insurance sold outside of the exchange, ERISA law and its preemption remains the same.  2) for insurance sold inside the exchange, ERISA preemption is rolled back, and state law applies – even if the coverage might be employer-sponsored in some fashion.

But, one can’t be sure, since ERISA’s definition of employer-sponsorship is so tricky.  For instance, it’s possible to interpret ERISA as covering individual insurance in some circumstances, if paid for by employers.  So, it’s not out of the realm of possibility that an employer subsidy for an exchanged-purchased insurance might fall under ERISA’s orbit.  In that case, good luck making sense of the convoluted legislative language above.  But, perhaps the shift of enrollment to the preemption-free zone of the exchange will help to highlight the inequities of inconsistent legal regimes between state and federal law.

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  • Richard Johnston says:

    Mr. Hall,

    The bill incorporates ERISA’s definition of a “group health plan,” which is found at 29 USC 1191b:

    “…an employee welfare benefit plan to the extent that the plan provides medical care … to employees or their dependents…”

    As you note the definition of “employee welfare benefit plan” is a bit on the murky side, and the possibility exists that some individual policies with any employer contribution or involvement may be swept in as an “employment-based health plan.” But I would expect the specific reference to any coverage sold through the Exchange would trump the convoluted path to preemption by going through ERISA definitions of “employee welfare benefit plan” to “group health plan” to “employment-based health plan in HR 3962. I would argue that if it’s sold through the Exchange then that makes state law applicable by the express terms of the provision, never mind about employer contributions. Section 251 says nothing in a particular paragraph (it says “nothing in paragraphs 1 or 2,” although the provision itself is paragraph 2 of section 251 — an apparent relic of previous editing) shall be deemed to affect section 514 preemption, but that does not sweep in the paragraph describing Exchange-purchased plans and the preservation of state law there.

    So I think Exchange-purchased plans are probably safe from preemption given the current language. Hope I am right — I hate ERISA. BTW I discussed your post today at

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