Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

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FILE

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No. 84-325:

No. 84-356

Inu the Supreme

of the United States

OCTOBER TERM 1984

METROPOLITAN LIFE

INSURANCE COMPANY

Appellant,

©)

v. No. 84-325

COMMONWEALTH OF

MASSACHUSETTS,

Appellee.

THE TRAVELERS INSURANCE

COMPANY,

Appellant,

v. No, 84-356

COMMONWEALTH OF

MASSACHUSETTS,

ee ee ee ee ee, eee

Appellee.

ON APPEAL FROM THE SUPREME JUDICIAL COURT

FOR THE COMMONWEALTH OF MASSACHUSETTS

BRIEF AMICUS CURIAE

JAMES H. CLARKE

800 Pacific Building

520 S.W. Yamhill Street

Portland, Oregon 97204

Telephone: (503) 226-6151

Counsel for

MILTON R. HILL, RICHARD J. MIXER,

LEONARD ROTHENBERGER, JAMES A.

ARCHER, DOUGLAS McQUOWN, and

RICHARD RALSTON, Trustees of

Sheet Metal Workers Local 16

Health & Welfare Trust, Amici Curiae

STEVENS-NESS LAW PUB.CO., PORTLAND, OR. 97204 12-84

“supreme court, U

Office - Sup D

pec 10 1984 |

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TABLE OF CONTENTS

Issue Presented for Review. sist hcthhsnettensiieadine + ai

Interest of Amici Curiae ___ ER ie A Re

1. Mandated insurance benefits have a severe

adverse effect on benefit plans which, like

Local 16’s, are not self-insured. st—‘é«Q

2. Congress’s intent to preempt state regula-

tion of ERISA plans is inconsistent with

State laws which mandate coverages in

insurance policies purchased to provide

ERISA plan benefits. 6

SR a ceo 8

Appendix A App-l

TABLE OF CASES

Page

Alessi v. Raybestos-Manhattan, Inc., (1981) 451

UG i eee 6

Franchise Tax Bd. v. Laborers Vac. Trust,

(1984) — U.S. —, 77 L. Ed2d 420,

Shaw v. Delta Air Lines, Inc., (1983) — U.S. —,

77 L. Ed2d 490, 103 S.Ct. 2390 -.... 6

STATUTES

29 UBL. © BBR 60 BOD, neces tetelsaiiilaieas 1

29 U.S.C. § 1144 (ERISA § 914) --.---.___.. 1

wt tO) 8) Se

oN TO) 8) Se

ONT 8) a 2, App-2

te OG! te

BREE, TERMED seccmeninininnes soccsnninslensedaeshiiniiiaaaae 2, App-1

oS Ef ee 2

AMICUS CURIAE BRIEF

ISSUE PRESENTED FOR REVIEW

Whether a state law mandating benefits in in-

surance policies purchased by employee benefit plans

is preempted by § 514 of the Employee Retirement In-

come Security Act of 1974, 29 U.S.C. § 1144, or by

the National Labor Relations Act, 29 U.S.C. § 151 et

seq.

INTEREST OF AMICI CURIAE

This brief filed by Milton R. Hill, et al., supports

appellants The Travelers Insurance Company and

Metropolitan Life Insurance Company in the above

appeals.

Amici are trustees of Sheet Metal Workers Local

16 Health & Welfare Trust, an employee benefit

plan established under collective bargaining agree-

ments to provide health care benefits for employees of

more than 100 Oregon and Washington employers. In

March 1984 the trustees brought an action in the Dist-

rict Court for Oregon to prevent the state’s Insurance

Commissioner from enforcing statutes mandating

benefits in group health insurance policies purchased

by multi-employer plans. They alleged that the statutes

are preempted by § 514(a) of ERISA, and sought

declaratory and injunctive relief. Hill v. Driscoll, Civ.

No. 84-287. '

1 Oregon statutes (Appendix A) mandate benefits in

“Group Health Insurance” policies, including policies issued

to a multi-employer fund. O.R.S. 743.522(3). The trustees of

(footnote continued)

2

The district court concluded that the Oregon stat-

utes “regulate insurance” and are saved from pre-

emption by § 514(b)(2)(A) of ERISA. It entered

summary judgment in favor of defendants, and the

trustees appealed to the Ninth Circuit Court of Ap-

peals. Their appeal has been stayed pending a decision

of this Court in Travelers and Metropolitan Life.

Clearly, the decision in Travelers and Metropolitan

Life will be important to a final decision in Hill v.

Driscoll. However, the interests of insurance com-

panies asserted in those cases are not the true measure

of their significance to welfare benefit plans under

ERISA. The adverse impact on insured plans of state

laws mandating benefits in health insurance policies

can be severe, as in the case of Local 16, in which the

trustees’ fiduciary obligations and the economics of

the plan they administer make mandated benefits a

heavy burden which threatens employers and benefi-

ciaries alike with higher costs and reduced benefits.

SUMMARY OF ARGUMENT

The most serious impact of the decision below is on

insured plans which must pay the increased premiums

(footnote carried forward) ,

Loca! 16 objected to requirements that their policy provide a

specified level of chemical dependency treatment (alcoholism)

(O.R.S. 743.557) ; services of clinical social workers (O.R.S.

743.135)-; and maxillofacial prosthetic services (O.R.S8. 743.-

119). Those are only some of the benefits mandated by Oregon

statutes at the instance of interested groups of providers. See

O.R.S. 743.182 (denturist services) and O.R.S. 743.558 (treat-

ment of mental and nervous conditions).

3

that are generated by mandated benefits. Under that

decision, trustees cannot insure a plan’s obligations

without losing control over benefits and costs, on the

untenable ground that the state regulation falls on the

policy and not the plan.

This result is hostile to § 514, which, as interpreted

in Alessi, preempts all state regulation of ERISA

plans and relies on the collective bargaining process

and decisions of plan fiduciaries to define plan benefits.

That federal policy prevents the indirect assertion of

state control over ERISA plans by regulating insur-

ance benefits which constitute plan benefits.

ARGUMENT

1. Mandated insurance benefits have a severe adverse

effect on benefit plans which, like Local 16’s, are not self-

insured.

Local 16’s plan covers employees of more than 100

employers in the sheet metal industry in Oregon and

Washington, and is financed by employers’ contribu-

tions under collective bargaining agreements. Benefits

include hospital/medical and major medical coverages,

which are provided under a group health insurance

policy from Blue Cross and Blue Shield of Oregon

(BC/BSO). The plan is administered by three trustees

2 The problem facing Local 16’s trustees in dealing with

the Oregon statutes is reviewed because it illustrates the di-

lemma of all trustees of insured plans. The affiants are two

of the trustees of Local 16’s benefit plan. Their affidavits

were filed in the summary judgment proceedings in the

District Court.

4

representing employers and three representing the

employees. The trustees determine plan benefits and

perform administrative functions, and while most

benefit decisions are made by consensus (Hill Aff. 6),

the employee trustees initiate most benefit changes

(Archer Aff. 3).

In recent years, there has been a severe “financial

squeeze” on Local 16’s plan. The recession reduced

employers’ contributions by reducing the number of

members working and by limiting the available hours

of work and the negotiated level of employer contribu-

tions per hour worked (Archer Aff. 3-4; Hill Aff. 5).

This led to a “squeeze,” because the plan pays BC/

BSO a full premium for each eligible member and his

dependents, although the employer contributes only

for hours actually worked (Archer Aff. 4).

This loss of income has been accompanied by

“dramatic increases in benefit costs” exceeding the rate

of inflation, and as a result plan contributions by em-

ployers are less than premiums; reserves are subsidi-

zing current coverage, and reduced benefits are a possi-

bility (Archer Aff. 4-6). From January to October

1983 the average contribution per employee, based on

hours worked, was $134.56. The BC/BSO premium per

member was $151.71 (Archer Aff. 4).

To deal with these problems, the trustees took two

steps. First, they concluded that it would not be pru-

dent to provide coverage on an uninsured basis, and

that the plan should provide hospital/medical and

5

major medical benefits under an insurance policy from

BC/BSO (Archer Aff. 2-2; Hill Aff. 5). Proceeding

without insurance “would expose our trust and its

thousands of beneficiaries to unacceptable risk, es-

pecially in view of the current financial squeeze” (Ar-

cher Aff. 3; see Hill Aff. 5).

Second, the trustees acted to modify or eliminate

certain benefits that Oregon law requires in health

insurance policies sold to multi-employer plans, They

reduced the benefit for “chemical dependency” (alco-

holism) treatment below the level prescribed by statute

in 1981 and 1983, and eliminated benefits for the serv-

ices of clinical social workers and for maxillofacial

prosthetic services (Archer Aff. 5; Hill Aff. 6-8).

These mandated coverages involve significant costs

during a contract period in which increased costs can-

not be recovered by increased contributions (Archer

Aff. 6).

The continued availability of basic coverages is im-

portant to plan members (Hill Aff. 5), and the trustees

took these actions only after careful consideration and

consultation with their professional advisors and their

members, and after evaluating their financial re-

sources (Hill Aff. 2-4, 6; Archer Aff. 6-7).

2. Congress’s intent to preempt regulation of ERISA

plans is inconsistent with state laws which mandate cover-

ages in insurance policies purchased to provide ERISA plan

benefits.

a. The Congressional intent to preempt state regu-

lation of ERISA plans, including plan benefits, has

6

been given substance by decisions of this Court in-

terpreting § 514 of the Act, Alessi v. Raybestos-Man-

hattan, Inc., (1981) 451 U.S. 504, subject only to “nar-

row, specific exceptions” in the statute. Shaw v. Delta

Air Lines, Inc., (1988) — U.S. —, 77 L. Ed.2d 490,

505, 108 S.Ct. 2390. In Alessi, a plan which coordinated

benefits received under state law was protected by pre-

emption from a state statute forbidding coordination

of Workers’ Compensation benefits. As applied to an

ERISA plan, the statute “related to” the plan and was

preempted. Under Alessi, the regulation of ERISA

plans is “exclusively a federal concern,” and benefit

decisions are protected from state interference. 451

U.S. at 523-24.

In Shaw v. Delta Airlines, supra, the Court re-

viewed the legislative history of ERISA and held that

§ 514 should be given broad effect, subject only to

‘narrow, specific exceptions” in the Act.* Shaw gives

no encouragement to the view that those narrow ex-

ceptions will be allowed to interfere with the overriding

purpose of § 514 to free ERISA plans from state reg-

ulation.

b. State mandated insurance benefit statutes un-

lawfully regulate ERISA benefits by regulating

benefits in policies that provide plan benefits. The

policy benefits, absent state regulation, reflect the

3 In Franchise Tax Bd. v. Laborers Vac. Trust, (1984) —

U.S. _, —, n. 26, 77 L. Ed.2d 420, 440, 103 S.Ct. the

Court referred to § 514 as a “virtually unique preemption pro-

vision.”

7

decisions of plan fiduciaries acting under collective

bargaining agreements and ERISA fiduciary stand-

ards, and its provisions defining and limiting policy

benefits merely carry out decisions about plan benefits

which the State cannot regulate.

Even if this plan had a true choice, and could pru-

dently elect between insuring and self-insuring its ob-

ligations, an insurance policy would be an attractive or

even important option, by committing to payment of

benefits and by providing claim services. In such cases,

a plan that wishes to have the benefits of insurance

must, like one that has no choice, give up its control

over plan benefits and costs if state regulation can

mandate policy benefits.

c. For Local 16 the effect is severe. The trustees

of Local 16’s plan have determined after careful study

that prudent management requires them to insure plan

benefits and eliminate marginal benefits. Their effort

to bring income and expenses into line, while preserv-

ing basic coverages for plan members, is threatened

with state regulation that imposes costly and unwanted

services on their plan.

These trustees face a Hobson’s choice. They can

take imprudent action and self-insure the plan, or they

can provide mandated coverages which exacerbate their

financial problem and interfere with their determina-

tion of plan benefits. That interference, through the

pretense of regulating an essential insurance policy,

8

dictates plan benefits precisely as if the Oregon law

operated directly on the plan itself.

The “narrow, specific exception” in § 514(b)

(2)(A) for statutes regulating insurance does not

compromise Congress’s intent to exclude the states

from any role in regulating ERISA plans. State laws

mandating insurance benefits are preempted by § 514,

because their primary purpose and effect is not to

assure the integrity of insurers or the payment of bene-

fits to plan members, but to control plan benefits.

CONCLUSION

Amici support the appeals of Travelers and Metro-

politan Life and ask the Court to reverse the judgment.

Respectfully submitted,

JAMES H. “LARKE

800 Pacific Building

520 S.W. Yamhill Street

Portland, Oregon 97204

Telephone: (503) 226-6151

Counsel for MILTON R. HILL,

RICHARD J. MIXER, LEONARD

ROTHENBERGER, JAMES A. ARCHER,

DOUGLAS McQuowWN, and RICHARD

RALSTON, Trustees of Sheet Metal

Workers Local 16 Health &

Welfare Trust, Amici Curiae

December 7, 1984

App-1

APPENDIX A

O.R.S. 743.522 “Group health insurance” defined.

“Group health insurance’ means that form of

health insurance '*! covering groups of persons as

defined in this section, with or without one or more

members of their families or one or more of their

dependents, or covering one or more members of

the families or one or more dependents of such

groups of persons, and issued upon one of the fol-

lowing bases:

* * * * *

“(3) Under a policy issued to the trustees of

a fund established by two or more employers in

the same or related industry or by one or more

labor unions or by an association as defined in

subsection (2) of this section, which trustees shall

be deemed the policy-holder, insuring employes of

the employers or members of the unions or of such

association, or employes of members of such asso-

ciation for the benefit of persons other than the

employers or the | cs or such association * * *.”

(

O.R.S. 743.557 Group health insurance coverage for

treatment for chemical dependency including alcoholism;

limitation on deductibles and coinsurance; eligible treat-

ments and programs; allowable limits on payments; cost

containment.

“A group health insurance policy providing

coverage for hospital or medical expenses shall

provide coverage for expenses arising from treat-

ment for chemical dependency including alcohol-

4 Health insurance is defined in O.R.S. 731.162.

App-2

ism. The following conditions apply to the require-

ment for such coverage:

* x * * *

“(2) Treatment shall include treatment pro-

vided in health facilities, residential facilities or

outpatient services, as defined in O.R.S. 430.010,

within the limits specified in this section. Notwith-

standing the limits for particular types of services

specified in subsections (6) to (8) of this section,

a policy may limit the total of payments for all

treatment of any kind under this section for chemi-

cal dependency including alcoholism, together with

payments for all treatment of any kind under

O.R.S. 743.558 for mental or nervous conditions,

to $6,000 in any 24-consecutive month period, ex-

cept as otherwise provided in O.R.S. 743.558. For

persons requesting, in any 24-consecutive month

period, payments for treatment of any kind for

chemical dependency including alcoholism, but not

requesting payments for treatment of any kind of

mental or nervous conditions, a policy may limit

the total of payments for all treatment to $6,000

in that 24-consecutive month period.”

O.R.S. 743.135 Reimbursement for services of clinical

social worker.

“Whenever any individual or group health in-

surance policy provides for payment or reimburse-

ment for any service which is within the lawful

scope of service of a clinical social worker regis-

tered under O.R.S. 675.510 to 675.610:

App-3

“(1) The insured under the policy shall be en-

titled to the services of a clinical social worker

registered under O.R.S, 675.510 to 675.610, upon

referral by a physician or psychologist.”

O.R.S. 743.119 Reimbursement for maxillofacial pros-

thetic services.

“(1) The Legislative Assembly declares that

all group health insurance policies providing hos-

pital, medical or surgical expense benefits include

coverage for maxillofacial prosthetic services con-

sidered necessary for adjunctive treatment.”