Blogging Employee Benefits

August 19, 2006

State’s Healthcare Assignment Law Not Preempted

Filed under: ERISA Preemption, Healthcare, Litigation — Fuguerre @ 10:07 am

As is often the case, congressional silence whispers sweet nothings in the ears of both parties.

Unconvinced by the whispers of health insurers, the 5th Circuit has affirmed a district ruling that Louisiana law relating to assignment of healthcare benefits is not preempted by ERISA. [Louisiana Health Service & Indemnity Co. v. Rapides Healthcare System, 04-31114]

Louisiana state law requires an insurance company to honor assignments of healthcare benefit claims made by patients to hospitals. A provision under the insurer’s agreement with “participating providers” allowed direct payment to a healthcare provider; but payments for services from a “nonparticipating provider” were made solely to the patient, regardless of any assignment to the healthcare provider. When hospitals took noncompliance with the state’s assignment statute up with the Louisiana Department of Insurance, the insurers went to court seeking a declaration that the state law was preempted to the extent applicable to ERISA employee welfare benefit plans.

The appellate court first disagreed with the district court on weight given to language in the healthcare plans stating that assignments were not to be honored “except as required by law.” The insurers contested the district court conclusion that that plan provision required compliance with the state assignment law, arguing that plan provision to be trumped by another stating “except when preempted by federal law.” The appellate court disagreed with both sides, instructing —

Neither policy provision displaces the preemption analysis in this case. ERISA plans must always conform to state law, but only state law that is valid and not preempted by ERISA. The presence of the phrase “except as [sic] preempted by [federal] law” serves no additional purpose, as all state laws are potentially subject to ERISA’s preemptive force. The two provisions do not forestall determination of the preemption question.

Turning to the central issue of ERISA preemption, the court rejected the insurer’s contention that the state’s assignment statute conflicts with ERISA’s exclusive enforcement scheme, pointing out —

ERISA is silent on the assignability of employee welfare benefits; it neither prohibits nor mandates recognition of assignments.

Moreover, the state’s assignment statute does not create additional enforcement mechanisms that duplicate otherwise applicable ERISA duties. To insurer concerns that compliance with the assignment statute poses risks of double recovery through liability to a hospital after a patient had already been paid, the court responded that assignments simply ought not be ignored, observing —

Failure to follow the law cannot create preemption concerns.

As to the issue of whether the state assignment law is preempted because it “relate[s] to” employee benefit plans, the court heard from the opposing parties two contrasting interpretations of the whisperings gleaned from congressional silence regarding assignment of employee welfare benefits: from the insurers, that the issue is to be left to free negotiations of the contracting parties; from the hospitals, that ERISA is not to preclude state law on the issue. On this debate the 5th Circuit parted company with the 8th and 10th Circuits to side with the hospitals, rejecting insurer arguments that the assignment law imposes a set of rules requiring benefit payments in contravention of plan documents and impermissibly interferes with nationally uniform plan administrator. Viewing contrary precedent as uninformed by the “starting assumption that Congress did not intended [sic] to preempt state law in an area of traditional state regulation,” the court stood convinced that Louisiana’s assignment statute has no impermissible connection with ERISA plans.

Congressional silence cannot dictate our conclusion in this case, but we consider what Congress did in order to determine what Congress intended to preclude the states from doing.


March 6, 2006

Settlement Agreement Based on ERISA Plan

Filed under: Disability, ERISA Preemption, Litigation — Fuguerre @ 3:15 pm

Long-term disability benefits under a confidential settlement agreement between an employee and employer are governed by ERISA, since the settlement agreement expressly provided that the benefits would be controlled by the ERISA plan in which the employee had originally participated. The individual’s state law claims are therefore preempted by ERISA, which does not provide the relief sought by the individual, according to an unpublished summary order by the 2nd Circuit affirming district court dismissal of those claims. [Ross v. Liberty Mutual Insurance Company, 05-4138]

February 15, 2006

NYC’s Equal Benefits Law Preempted

Filed under: ERISA Preemption, Litigation — Fuguerre @ 4:55 pm

The Equal Benefits Law seemingly seeks to do exactly what ERISA, as interpreted in Shaw, prohibits — to prescribe the terms of benefit plans.

From via Workplace Prof Blog comes word that lower state court dismissal of New York City’s Equal Benefit Law has been upheld by the New York Court of Appeals. [Council of the City of New York v. Bloomberg] The city’s Equal Benefits Law, enacted in 2004 over Mayor Bloomberg’s veto, provided that city agencies could not enter into contracts valued at least $100,000 annually with any firm that fails to provide employee benefits to domestic partners that are equal to benefits provided to spouses. Employee benefits covered under the Equal Benefits Law were to include health insurance, pensions, disability and life insurance, and dependent care insurance, among other employer-sponsored programs. The state’s highest court has now agreed with a lower state court finding that the Equal Benefits Law is preempted by both General Municipal Law and ERISA.

After addressing preemption under General Municipal Law, the court states, “The Equal Benefits Law is also preempted by ERISA, except to the extent that it governs benefits that are outside ERISA’s scope.” The city council argued that the Equal Benefits Law did not impermissibly compel any employer to offer domestic partner benefits; rather, the law merely provided that the city could not contract with firms that fail to do so. The court rejected that “market participant” argument as inconsistent with U.S. Supreme Court precedent in non-ERISA federal law preemption case law. “In enacting the Equal Benefits Law,” opines the court, “the Council was obviously ‘setting policy.'” Thus the market participant exception is inapplicable, leaving the law preempted by ERISA except to the extent of non-ERISA benefits.

Dissenting opinion questioned the judicial process for challenge of the law, without directly addressing the ERISA preemption issue.

February 13, 2006

State Contract Claim Not Preempted by ERISA

Filed under: ERISA Preemption, Litigation — Fuguerre @ 2:21 pm

Enforcing the contract between Apogee and Landmark will not create a multiplicity of regulation that would frustrate the nationally uniform administration of employee benefit plans.

Retirees’ state lawsuit to enforce a contract requiring assumption of retiree health benefit obligations is not preempted by ERISA, according to an unpublished 4th Circuit Court of Appeals ruling affirming a district court decision. [Craddock v. Apogee Coal Co., CA4, 05-1352, 2/9/06 (unpublished)]

Under the National Bituminous Coal Wage Agreement of 1993 (NBCWA), a collective bargaining agreement to which both employers involved in this litigation were signatories, an employee’s last signatory employer is to provide the employee’s lifetime health benefits. Under NBCWA, if an employer ceases all business operations and is unable to pay for the benefits, the United Mine Workers of America 1993 Benefit Plan would assume the responsibility. Pointing to the control of the collective bargaining agreement and the involvement of ERISA plans, Apogee argued that a lawsuit brought under state law to enforce a contract regarding retiree health benefits was preempted both by the Labor Management Relations Act and ERISA.

At issue was a 1993 contract between two coal companies, Landmark and Apogee, under which Landmark agreed to hire workers who had been laid off from Apogee. Concerned about NBCWA’s last-signatory rule, Landmark negotiated a contract provision under which Apogee assumed responsibility for post-employment liabilities for the first 20 employees hired under the agreement. As employees covered by the agreement began to retire, the two companies disputed responsibility for retiree health benefits. A West Virginia state court found the contract language “clear and unambiguous,” issuing a permanent injunction holding Apogee responsible. Thereafter, Landmark provided retiree health benefits for the covered employees and submitted invoices to Apogee for reimbursement.

But in March 2000, Landmark ceased operations, filed for bankruptcy, ceased providing benefits to the employees . . . and ceased sending invoices, whereupon Apogee refused to provide further benefits to the employees. Individuals covered by the 1993 contract sued to enforce the state court’s permanent injunction. After Apogee moved the case to federal court and further legal maneuvers clarified jurisdiction and parties to the action, the retirees filed a new complaint asserting a state-law contract claim against Apogee, with an alternative claim under federal law seeking relief against the plan. The district court granted summary judgment for the retirees, concluding that Apogee was responsible for the benefits under its contract with Landmark.

On appeal, Apogee first argued that the district court had erred in concluding that the doctrine of res judicata had barred the federal court from reconsidering the permanent injunction previously issued by the state court. The appellate court found it unnecessary to resolve this particular dispute, since any reconsideration “would reach the same conclusion as the state court.”

Which is not to say that the state court’s permanent injunction settled the current dispute, since the state court had not addressed the key issue that subsequently emerged: did Landmark’s obligation under NBCWA to provide retiree health benefits survive its bankruptcy? If not, then Apogee would have no surviving obligation, since Apogee was obligated only to the extent Landmark was. But having drawn that critical distinction, the court observes that Apogee itself concedes that Landmark’s obligation survived its bankruptcy. Leaving Apogee, in the opinion of the court, with its contractual obligation for the benefits.

As to LMRA preemption, the court stated that since NBCWA had imposed a permanent obligation on Landmark regardless of its bankruptcy, no further analysis of the collective bargaining agreement was necessary to conclude that the contractual claim is not preempted by LMRA. That is, since the terms of the CBA itself were not the subject of the dispute, the state-law claim remained active.

Apogee next argued that since the practical effect of enforcing the contract would be to require coverage of the retirees under its own ERISA plan, the state-law claim should be preempted by ERISA. Concluding that enforcing the contact under state law would not implicate preemption concerns, the appellate court concluded that Apogee’s ERISA preemption claim was without merit.

January 13, 2006

Maryland Requires Wal-Mart Healthcare Contribution

Filed under: ERISA Preemption, Healthcare, Legislation - State — Fuguerre @ 9:08 am

The Maryland state legislature has voted to override Republican Governor Ehrlich’s veto of the Fair Share Health Care Act [SB 790, HB 1284], the so-called “Wal-Mart bill.” The state legislation will require companies with more than 10,000 employees in Maryland to pay at least 8 percent of payroll (6 percent for non-profit employers) toward employee healthcare, beginning in 2007. A large employer that fails to meet the cost standard must pay the deficit amount into a state-run fund.

Of four employers that meet the headcount threshold, only Wal-Mart is said to currently be paying healthcare costs that fail to meet the 8% standard. Johns Hopkins University, Giant Food, and Northrop Grumman are large Maryland employers that meet the legislation’s healthcare cost standard.

Some reading –

  • Statement from Maryland Governor Ehrlich prior to the veto override: “This is the first step toward government-run health care. Maryland would be the first state in America with a government-imposed, arbitrary payroll tax based on a private employer’s health care expenditures.”
  • Wal-Mart responds to the veto override: “This vote was never about health care. This was about partisan politics in the Maryland gubernatorial race. In allowing a bad bill to become a bad law, the General Assembly took a giant step backward and placed the special interests of Washington, D.C. union leaders ahead of the well-being of the people they serve.”
  • Teamsters look beyond Maryland: “Enacting Fair Share Health Care legislation in state houses across the nation tops the Teamsters’ legislative agenda. ‘While we celebrate today’s victory, the Teamsters recognize that this is only the beginning of a nationwide effort,’ Hoffa said. ‘We’re going to bring our message to state capitols from coast to coast — Stop Wal-Mart welfare, enact Fair Share Health Care!'”
  • Workplace Prof Blog opines on ERISA preemption: “[I]t all depends on whether Wal-Mart self-insures its health plans. If it does, the deemer clause should lead to ERISA preemption of the state law; if not (that is, it insures its health plans through another company), it should be saved from ERISA preemption as a law that regulates insurance under ERISA’s Savings Clause.”

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