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Disputes continue to arise about to what extent the Employee Retirement Income Security Act of 1974 (ERISA) preempts state prompt pay statutes. In America’s Health Insurance Plans v. Hudgens, 742 F.3d 1319 (Feb. 14, 2014), No. 13-10349, the United States Court of Appeals for the Eleventh Circuit held that ERISA preempts a Georgia law requiring self-funded health plans to pay submitted claims within 15 business days and enjoined Georgia Insurance Commissioner Ralph T. Hudgens (the Commissioner) from enforcing such “prompt pay” law.
Section 33-24-59.5(b)(1) of Georgia’s Insurance Code (the 1999 Prompt Pay Law) requires “insurers” either to pay a claim for benefits or provide notice of why a claim would not be paid within 15 working days after receiving a claim. Although the 1999 Prompt Pay Law applied to insured ERISA plans, the law expressly excluded self-funded ERISA plans and the administrators (TPAs) of those plans from the “prompt pay” requirements. In May 2011, likely in response to the trend by employers to create self-funded health plans, the Georgia General Assembly enacted the Insurance Delivery Enhancement Act of 2011 (the IDEA), which amended the 1999 Prompt Pay Law by expanding the definition of “administrator” and removing the self-funded ERISA plan exemption. Accordingly, as a result of the IDEA, both self-funded ERISA health plans and the TPAs that administer them were to have become subject to the 1999 Prompt Pay Law effective January 1, 2013.
However, in August 2012, before the effective date of the IDEA, America’s Health Insurance Plan (AHIP), a national trade association representing TPAs that administer employer health benefit plans, filed a declaratory judgment action in the United States District Court for the Northern District of Georgia against the Commissioner seeking a declaration that, as applied to self-funded ERISA health plans and the TPAs that administer them, ERISA preempts the relevant sections of the IDEA. In September 2012, AHIP filed a motion to enjoin the Commissioner from enforcing the disputed IDEA sections. On the day before the IDEA sections were to become effective, the District Court granted AHIP’s motion and preliminarily enjoined the Commissioner from enforcing the “prompt pay” provisions against self-funded ERISA health plans. In granting the injunction, the District Court found that ERISA preempts the IDEA because the IDEA required specific action by ERISA health plans and TPAs that interfered with the uniformity in regulating ERISA health plans. The Commissioner filed an interlocutory appeal to the United States Court of Appeals for the Eleventh Circuit, arguing that the District Court erred in concluding that ERISA preempted the IDEA. Upon appeal, several interested groups filed amicus curiae briefs in the case, some in support of the Commissioner such as the Medical Association of Georgia and American Medical Association, arguing that the “prompt pay” requirements should be applied to self-funded ERISA health plans, and others in favor of the injunction such as the Georgia Chamber of Commerce and U.S. Chamber of Commerce, arguing that ERISA preempted the state law “prompt pay” requirements.
After losing jurisdictional arguments regarding the AHIP’s lack of standing and the applicability of the Tax Injunction Act (28 U.S.C. § 1341), the Commissioner argued that the District Court had abused its discretion by enjoining the Commissioner from enforcing the IDEA. To determine whether the District Court erred in finding that ERISA preempted the state law “prompt pay” requirements, the Eleventh Circuit Court of Appeals analyzed whether ERISA “related to” the “prompt pay” requirements under Section 514 of ERISA, which states that ERISA’s provisions “shall supersede any and all State laws insofar as they may now or hereafter relate to any [ERISA] employee benefit plan.” 29 U.S.C. § 1144(a). The Commissioner argued that “prompt pay” requirements as authorized through the IDEA were procedural in nature and could not be found to “relate to” ERISA plans. The Eleventh Circuit Court of Appeals disagreed, concluding that the Commissioner’s position “r[an] contrary to [United States] Supreme Court precedent,” and that the impermissible provisions of the IDEA indeed “related to” ERISA plans. Likewise, the Commissioner argued that there was no “connection with” ERISA because the IDEA’s focus is on regulating the relationship between non-fiduciary TPAs and medical providers, which he claimed were not “ERISA entities.” In rejecting this argument, the Eleventh Circuit Court of Appeals found that “ERISA’s overarching purpose of uniform regulation of plan benefits overshadows this distinction.” The Eleventh Circuit Court of Appeals found that the IDEA amendments “regulate the timeliness of benefit payments under self-funded ERISA plans, and it is apparent that the purpose and effect of IDEA is to extend Georgia’s prompt pay laws to claims made under self-funded ERISA plans.”
After finding that ERISA preempted the “prompt pay” requirements under Section 514 of ERISA, the Eleventh Circuit Court of Appeals evaluated whether ERISA’s “Saving Clause,” which provides that “nothing in this [ERISA] subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities,” restricted the broad Section 514 preemption. Id. § 1144(b)(2)(A). The Eleventh Circuit Court of Appeals did not decide whether the Savings Clause applied in this situation, noting that ERISA’s “Deemer Clause,” which acts as an exception to the Saving Clause, expressly “exempts self-funded ERISA plans from state laws that ‘regulate insurance.’” Id. § 1144(b)(2)(B).
In affirming the district court’s decision to enjoin the Commissioner from enforcing the IDEA against self-funded ERISA health plans, the Eleventh Circuit Court of Appeals concluded that “IDEA is an impermissible encroachment upon federal law” and when “a state law relates to certain areas that Congress has explicitly determined are off limits, we must recognize that federal law prevails.”
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