Notice & Comment

Can Vermont ask its employers about health-care prices?

It was easy to overlook in the hubbub over the end-of-term cases, but the Supreme Court yesterday morning agreed to hear Gobeille v. Liberty Mutual, a case with significant implications for the states’ authority over the health-care sector.

At issue in the case is whether Vermont can force health insurers—including employers that self-insure—to tell state officials the prices they pay for medical care. Vermont wants to put that information in an “all-payer claims database” to enable regulators and consumers to get a picture of how the health-care market operates in the state. At least fifteen other states have laws creating similar databases.

In a split decision, the Second Circuit found that the Vermont law was invalid as to employers that self-insure. The reason? The Employee Retirement Income Security Act of 1974 (ERISA) says that the states can’t pass any laws that “relate to” employee benefit plans, including plans relating to health coverage. The court held that the Vermont law related so tightly to Liberty Mutual’s employee-benefit plan that it was preempted.

ERISA has a preemption carve-out for laws regulating insurance, but the carve-out doesn’t apply to self-insured employers like Liberty Mutual. Since 61% of those with employer-sponsored coverage work for self-insured employers, the Second Circuit’s decision threatens to blow an enormous hole in state efforts to improve price transparency.

Now, Gobeille is no King v. Burwell. But it’s still significant, both in what it will say about the scope of ERISA preemption and in what it means for the future of all-payer claims databases. I’ll have more to say about both issues in the future.

Right out of the gate, though, I’m not sympathetic to the Second Circuit’s view. As the Supreme Court has said, the number of state laws that potentially “relate to” employee-benefit plans is infinite: “for all practical purposes pre-emption would never run its course, for ‘really, universally, relations stop nowhere.’”

The Court has thus pulled back on the most expansive vision of ERISA preemption. It’s not enough for the state law in question to affect employee-benefit plans in some indirect way. There has to be a tighter connection—which is to say, some kind of reason to think that the state law frustrates ERISA’s goal of affording employers wide discretion in offering benefits their employees.

Vermont’s law infringes very little on the decision of how to structure an employee-benefit plan. It just tells insurers, as well as employers who act as insurers, to provide information to the state. Does Vermont’s law effectively impose some record-keeping requirements? Sure. But if that modest burden is enough to trigger ERISA preemption, then lots of state laws that bear on health care would also have to give way.

That’s why the stakes are so high here. Adopting the Second Circuit’s position in Gobeille would not only make it impossible for states to establish comprehensive all-payer claims databases. It could also circumscribe the states’ authority to experiment with different approaches to regulating their health-care markets. Given the political dysfunction in Washington, now seems like an especially inauspicious time to sideline the states.

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