Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

Supreme Court brief1985

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1 JAN 84 1985

— STEVAS,

CLERK |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

METROPOLITAN LIFE INSURANCE COMPANY,

Appellant

COMMONWEALTH OF MASSACHUSETTS

On Appeal from the Supreme Judicial Court

for the Commonwealth of Massachusetts

BRIEF FOR COMMITTEE FOR

COMPREHENSIVE INSURANCE COVERAGE,

AMICUS CURIAE,

IN SUPPORT OF APPELLEE

EDWARD A. SCALLET

(Counsel of Record)

THOMPSON & MITCHELL

1120 Vermont Avenue, N.W.

Suite 1000

Washington, D.C. 20005

(202) 857-0350

— SS

- 78S-O096 - WASHINGTON. D.C. 20001

WILSON - EPES PRINTING Co., INc.

Abi

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF AMICUS RARE

SUMMARY OF ARGUMENT ——

PN) | |, ————————

II.

III.

FEDERAL PREEMPTION OF STATE LAWS

IS NOT FAVORED BY THE COURTS...............

STATE LAWS MANDATING THE CONTENT

OF INSURANCE POLICIES ARE WITHIN

THE TRADITION OF INSURANCE REGU-

1118 1 —

A. Mandating Policy Terms Is an Integral Part

of the State Regulation of Insurancde

B. Assuring Comprehensive Coverage of Risks

Is an Integral Part of the State Regulation

—

ERISA WAS NOT INTENDED TO PREEMPT

MANDATED BENEFIT LAWS ..................--.-.---

A. Congress Was Aware of That Aspect of the

Tradition of Insurance Regulation Which

Includes Mandated Benefit Laws When It

I i asscepnismenennes

1. The language and structure of the statute

evidences Congress’ awareness of the

scope of state regulation

2. The relationship of mandated benefit

laws to national health insurance shows

Congress’ awareness of this aspect of in-

surance regulation

B. The History of the Preemption Provision

Does Not Show Any Intent To Limit State

Regulation of Insurance Contracts

TABLE OF CONTENTS—Continued

1. Congress deliberately limited the author-

ity of the states in three arees

2. The Conference Committee version of

preemption ~.............

C. State Insurance Regulation Plays A Major

Role In Effectuating the Purposes of

. aes taaimannaiaaiiaediia

IV. THE POLICY CONSIDERATIONS SUPPORT

MANDATED BENEFIT LAWS ..........................

A. Mandated Benefit Laws For Mental Health

and Alcohol/Drug Abuse Coverage Are In

. re

B. The Policy Concerns Raised By Appellant

Are Contradicted By The Evidence eee

1. Mandated benefit laws for mental health

and alcohol/drug abuse are cost-effective..

2. Appellant/amici have overstated the ad-

ministrative burdennss

8. Freedom of choice of benefits is not a

significant factor under ERISA ................

4. Mandated benefit laws are not a signifi-

cant factor in the decision to self-insure

Branch to Resolve the Policy Considerations..

. — —

— ss

Page

111

TABLE OF AUTHORITIES

CASES:

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

(1981) ..... a

American Family Life Assurance Co. v. Commis-

sioner of Insurance, 3888 Mass. 468, 446 N.E.2d

aia onsinicantnininiatnnennerenenmesasocseers

American Progressive Life & Health Insurance

Co. of New York v. Corcoran, 715 F.2d 784 (2d

Attorney General v. The Travelers Insurance Co.,

463 N.E.2d 548 (Mass. 1984)

Blue Cross of Virginia v. Commonwealth of Vir-

ginia, 269 S.E.2d 827 (Va. 1980)

California Auto Association Inter-Insurance Bu-

reau v. Maloney, 341 U.S. 105 (195177.

Chicago & North Western Transportation Co. v.

Kalo Brick & Tile Co., 450 U.S. 311 (1981)

Group Life & Health Ins. Co. v. Royal Drug Co.,

Health Insurance Association of America v. Har-

nett, 376 N.E.2d 1280 (N.Y. 19789)

Hewlett-Packard Co. v. Barnes, 571 F.2d 502 (9th

Hoopeston Canning Co. v. Cullen, 318 U.S. 313

Insurance Commissioner v. Metropolitan Life In-

surance Co., 463 A. 2d 793 (Md. 1983

Insurers’ Action Council, Inc. v. Heaton, 423 F.

Supp. 921 (D. Minn. 1976) —————

Insurers’ Action Council, Inc. v. Markman, 490 F.

Supp. 921 (D. Minn. 1980), aff'd, 653 F. 2d 344

Jones v. Rath Packing Co., 430 U.S. 519 (1977)

Lederman v. Pacific Mutual Life Insurance Co., 494

F. Supp. 1020 (C.D. Cal. 1980) .............................

Malone v. White Corp., 485 U.S. 497 (1978) ...........

McLaughlin v. Connecticut General Life Ins. Co.,

565 F. Supp. 434 (N.D. Cal. 1983)

Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

Ware, 414 U.S. 117 (1973) ———T/

Page

9, 27

TABLE OF AUTHORITIES—Continued

Page

Metropolitan Life Insurance Co. v. Whaland, 410

Bo a es HE siteesditnicnetenccittttiaiscieccnsintctintiincnninaiacint 10

Mutual Life Insurance Co. v. New York State Tax

Comm’n, 32 N.Y.2d 348, 298 N.E.2d 672 (1973). 14

New Hampshire-Vt. Health Service v. Whaland,

rr 10

New York State Dept. of Social Services v. Dublino,

rr, ̃ ccretirreetineccineseiiniinitaininaiinnies 5

Osborn v. Ozlin, 310 U.S. 53 (19407 22 — 9

Rehabilitation Institute v. Blue Cross & Blue

Shield, 5 E. B. C. 2265 (W. D. Pa. 1984) 17

Securities & Exchange Commission v. National

Securities, Inc., 393 U.S. 453 (196997 7

Shaw v. Delta Airlines, 103 S. Ct. 2890 (1983). 6, 7

State ex rel. Farmer v. Monsanto Co., 517 S. W. 2d

II 14

Taggart Corp. v. Life & Health Benefits Admin.,

e . ee 17

Wadsworth v. Whaland, 562 F.2d 70 (Ist Cir.

1977), cert. den., 435 U.S. 980 (1980) 10, 11

Wayne Chemical Corp. v. Columbus Agency Service

Corp., 426 F. Supp. 316 (N.D. Ind.), aff'd, 567

iy | ff... bt } | 10, 17, 18

STATUTES AND REGULATIONS:

Employee Retirement Income Security Act of

Section 4(b), 29 U.S.C. 1002 (b) 6

eee 14

Section 514, 29 U.S.C. 1144 ..._........................... passim

Health Maintenance Organizations Act of 1973,

SE TELE 16

Section 1302, 42 U.S.C. 300e-1 . 21

Section 1310, 42 U.S.C. 300e-9 ..........................-. 25

Section 1311, 42 U.S.C. 300e-10 ee. 16

P.L. 93-478, 96 Stat. E 11

TABLE OF AUTHORITIES—Continued

MISCELLANEOUS: Page

Congressional committee reports

S. Rep. No. 93-127, 93d Cong., Ist Sess. (1973) 14

S. Rep. No. 93-129, 93d Cong. Ist Sess. (1973) ...... 21

Staff of Conference Committee on H.R.2, Summary

of Differences Between the Senate Version and

House Version of H.R.2, 93d Cong., 2d Sess.

c 15

Congressional debates

120 Cong. Rec. (1974)

| As, Se eT re 15, 16

11111 ——ů ůůů ůj—jç— — 15

. 16

128 Cong. Rec. (1982)

p. H9608 b 12

Congressional hearings

Hearings on National Health Insurance before the

House Committee on Ways and Means, 93d

| 2 fo 13

Statement of Stanley C. DuRose, Jr., before the

Subcommittee on Private Pension Plans, Senate

Committee on Finance, 93d Cong., 2d Sess.

—»ͤüͤ-» » ã 14

OTHER:

43 Am. Jur. 2d Section 26 (1983 S upp.) 7

Barrie, et al., Mental Distress As A Problem For

Industry (Springer-Verlay 1980) 24

Brief of the Secretary of Labor, Donovan v. Dil-

lingham, 688 F.2d 1367 (11th Cir. 1982) 17

Cooper, Private Health Insurance Benefits for Al-

coholism, Drug Abuse and Mental Illness .......... 19, 24

2A Couch on Insurance 2d Section 21:31 (Rev. Ed.

117 7

Dowd & Herlihy, ERISA and Preemption (ABA

ccc 15

Fein, Alcoholism in America: The Price We Pay

(Care Institute 1984) 19

TABLE OF AUTHORITIES—Continued

Follman, Insurance Coverage for Mental Illness

(American. Man. Ass’n. 1970)

Goetz, The Regulation of Uninsured Employee

Welfare Plans Under State Insurance Laws,

1967 Wis. L. Rev. 319

Hanson, The Private Insurance Industry and ‘State

Insurance Regulatory Alternatives to Federally

Enacted Comprehensive National Health Insur-

ance Legislation, 6 Toledo L. Rev. 677 (1975)

Harwood, et al., Economic Costs to Society of Al-

cohol, Drug Abuse & Mental Illness—1980 (Re-

search Triangle Institute 1984)

Holder, et al., Medical Care and Alcoholism Costs

and Utilization: A Five-Year Analysis of the

California Pilot Project to Provide Health In-

surance Coverage For Alcoholism (1981)

Hollingshead, et al., Social Class and Mental IIl-

ness (John Wiley & Sons 1958 )

Huff, Development of Public Policy from the View-

point of a State Insurance Regulator, 1975 Ins.

L. J. 343 6 eS SN OR en Ak ae Re

Jameson, The Effects of Outpatient Psychiatric

Utilization on the Costs of Providing Third-

Party Coverage, 16 Medical Care 383 (1978)

Jones, et al., Summary of Impact of Alcoholism

Treatment on Medical Care Utilization & Cost

r . a

Kimball, The Purpose of Insurance Regulation: A

Preliminary Inquiry in the Theory of Insurance

Law, 45 Minn. L. Rev. 471 (1961)

Lowery, et al., Analysis of Insurance for Mental

Disorder, 137 Am. J. of Psychiatry 9 (1980)

McCarthy, Insurance Coverage for Treatment of

Alcoholism: Analysis and Proposed Actions

McGuire, Mandated Mental Health Benefits in Pri-

vate Health Insurance Policies: A Legal & Eco-

nomic Analysis (Yale U. 1981)

Page

vii

TABLE OF AUTHORITIES—Continued

Medicare Directory of Prevailing Charges 1983

(Health Care Financing Administration 1983) ..

Memorandum for the United States as Amicus Cu-

riae, Wadsworth v. Whaland, 435 U.S. 980

Page

„ 2 10, 27, 30

Mumford, et al., A New Look at Evidence About

Reduced Cost of Medical Utilization Following

Mental Health Treatment, 141 Am. J. of Psy-

chiatry 1145 (1984)

Il NAIC Proceedings 438 (1976) eee

I NAIC Proceedings 414, 425 (1974)

Il NAIC Proceedings 418 (1973) ooo.

II NAIC Proceedings 430 (1973)

I NAIC Proceedings 76 (1963)

National Drug and Alcoholism Treatment U tiliza-

tion Surveys: 1979-1982, 8 Alcohol Health &

Research World 44 (1983) ooeeceeee eee

New York State Health Advisory Council and New

York Business Group on Health, Self-Insurance

and Health Care Benefits in New York State:

An Explanatory Statement and Descriptive

Analysis (December, 1982)

Note, The Effect of ERISA on Prepaid Legal Serv-

ices, 27 Baylor L. Rev. 566 (1975)))))))

Okin, Federal Preemption of State Law Under

ERISA: An Examination of the Effects of the

Federal Mandate in the Light of Authoritative

Precedent Under the Supremacy Clause, the

McCarran-Ferguson Act & the Legislative His-

tory, 24 A. of Life Ins. Couns. Proc. 115 (1976)..

Peel, Regulatory Developments in Minimum Stand-

ards for Health Insurance Policies, 13 Forum

%% —ͤ ore ee a ee

Recent Developments, Health Maintenance Organi-

zations Act of 1978—Federal Regulation and

Support of Prepaid Group Health Care Plans—

Preemption of Restrictive State Laws and Prac-

tices, 27 Vand. L. Rev. 1043 (1974)

——— ſ—— g 2

viii

TABLE OF AUTHORITIES—Continued

Reed, et al. Health Insurance & Psychiatric Care:

Utilization and Cost (Am. Psych. Press 1972)..

Robins, et al., Lifetime Prevalence of Specific Psy-

chiatric Disorders in Three Communities, 41

Arch. Gen. Psych. 949 (1984) 000

Rosenburg, Survey of Health Insurance for Alco-

holism: Inpatient Coverage (1979)....................

Sharfstein, et al., Health Insurance and Psychi-

atric Care: Update and Appraisal (Am. Psych.

RR SRR Re i ied ee

Sullivan, Regulatory Aspects of the ERISA of

1974, 1974 Proc. Leg. Soc. Am. Life Conv. 15

Symposium Issue—Prepaid Legal Services, 27

Baylor L. Rev. 403 (1975)

U.S. Bureau of Labor Statistics, I Digest of Se-

lected Health & Insurance Plans, 1977-79 Edi-

r T

Von Korff, et al., Mental and Nervous Disorders:

Utilization and Cost Survey (NIMH 1979)

Wirthin, Trends in Patient Care Episodes in Men-

tal Health Facilities 1955-1977 (NIMH 1980)....

Page

22, 24

19, 22

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-325

METROPOLITAN LIFE INSURANCE COMPANY,

0 Appellant

COMMONWEALTH OF MASSACHUSETTS

On Appeal from the Supreme Judicial Court

for the Commonwealth of Massachusetts

BRIEF FOR COMMITTEE FOR

COMPREHENSIVE INSURANCE COVERAGE,

AMICUS CURIAE,

IN SUPPORT OF APPELLEE

INTEREST OF AMICUS CURIAE

The Committee for Comprehensive Insurance Coverage

(hereinafter referred to as “Committee”) is an ad hoc

coalition of public and private groups organized by the

National Mental Health Association to participate in this

case. For the past decade, these groups have been active

in presenting State legislatures with the facts concern-

ing mandated benefit laws, particularly those involving

coverage for mental illness and alcoholism and drug

abuse.

The groups that comprise the Committee are as fol-

lows: the State of Texas, the State of North Dakota,

National Mental Health Association, Alcohol and Drug

Abuse Problems Association of North America, Inc., Na-

tional Association of State Alcoho) and Drug Abuse Di-

rectors, National Council on Alcoholism, Inc., American

Mental Health Counselors Association, Association of

Mental Health Administrators, Association of Psychia-

tric Outpatient Centers of America, International Asso-

ciation of Psycho-Social Rehabilitation Services, National

Alliance for the Mentally IIl, National Association of

State Mental Health Program Directors, National Coun-

cil of Community Mental Health Centers, American As-

sociation for Marriage and Family Therzpv, American

Dental Association, American Nurses’ Association, Inc.,

American Occupational Therapy Association, Inc., Amer-

ican Podiatry Association, Child Welfare League of

America, Inc., Family Service America, National Asso-

ciation of Reimbursement Officers, National Association

of Social Workers, Inc., National Federation of Societies

for Clinical Social Work, Inc. A description of these

groups is contained in an Appendix to this brief.

SUMMARY OF ARGUMENT

This case falls within the presumption that state re-

sponses to social problems affecting its residents are, en-

titled to respect unless Congress has unmistakably in-

tended otherwise. This is no less true with respect to the

Employee Retirement Income Security Act of 1974 (here-

ir after referred to as “ERISA”); despite the existence

of a preemption provision, this Court has recognized the

principle of dual sovereignty in both the language and

holdings of its prior ERISA cases.

Unlike these prior cases, the law at issue here is within

the plain meaning of the exception from preemption for

laws regulating insurance. Contrary to appellant’s novel

interpretation of “traditional” insurance regulation, the

courts have repeatedly held that mandating policy terms

and/or imposing requirements on insurers to underwrite

risk throughout the population are within the recognized

power of the states to regulate insurance. There is no

authority to the contrary.

Both the language and structure of the preemption

provision indicate that the plain meaning of the savings

clause represented a deliberate choice by Congress to

sustain the full scope of insurance regulation. More gen-

erally, mandated benefit laws are related to Congress’

contemporaneous consideration of national health insur-

ance and were made known to Congress in that context.

It is unlikely that Congress intended to resolve this cru-

cial health insurance issue in pension reform legislation

without a single indication.

Appellant’s discussion of the ERISA preemption pro-

vision has ignored the fact that Congress dealt specifi-

cally with three aspects of state insurance regulation in

the context of preemption, but nowhere indicated an in-

tent to encroach on the much more fundamental author-

ity of the states to regulate insurers. The change in the

preemption provision made by the Conference Committee

was primarily motivated by state regulation of prepaid

legal service plans; there is no reason to believe that the

change was in any way related to state regulation of in-

surance.

Appellant’s interpretation is also inconsistent with the

primary purpose of ERISA to extend participant pro-

tections. Its attempt to preempt any insurance law that

indirectly affects the terms of an employee benefit plan

would deprive participants of remedies under state law.

The courts have repeatedly upheld such state insurance

laws; the alternative would be chaotic and inconsistent

decisions from federal courts fashioning a federal com-

mon law to replace specific statutory and judicial state

insurance laws and interpretations.

Mental health and alcohol/drug abuse disorders pre-

sent a widespread and costly human problem, despite re-

cent progress in treatment techniques and societal atti-

tudes. Mandated benefit laws are a key to that progress.

These laws provide a climate for resolution of the prob-

lems caused by these disorders by lowering the cost of

coverage, accelerating the trend to outpatient treatment,

improving access to treatment for those least able to

afford it, and expressing societal recognition that these

disorders are illnesses that can be treated.

Appellant’s policy arguments are not supported by the

evidence. Coverage for mental health and alcohol/drug

abuse illnesses is not expensive, even without considering

the savings in productivity and avoidance of costly treat-

ment for related physical problems which result. from

treatment of the underlying causes. Nor is the adminis-

trative burden a meaningful negative consequence. Large

employee benefit plans already are structured to deal

with local and regional variations in costs and legal re-

quirements. While mandated benefit laws do remove

some discretion in choice of benefits, that is the essence

of the insurance function of risk-sharing, and has par-

ticular applicability for mental health and alcohol/drug

abuse disorders where individual denial of affliction is a

serious problem. More generally, ERISA was not in-

tended to insulate employee benefit plans from the market-

place in which every other purchaser of insurance must

operate. Finally, there is no evidence that mandate laws

are a significant factor in the decision to self-insure

health benefits; even if it were, Congress in ERISA ex-

pressed support for self-insurance.

Mandated benefit laws are a part of the emerging gov-

ernmental policy towards health care. Many of those

urging preemption of state law here are in the forefront

of urging more state control over the health care process

ir, other respects. This is an issue best dealt with by the

legislative branch, where it has been fully and fairly

debated in dozens of states across the country. The

Court should decline the invitation to overrule this in-

herently legislative judgment.

ARGUMENT

I. FEDERAL PREEMPTION OF STATE LAWS IS NOT

FAVORED BY THE COURTS.

This Court has previously considered federal preemp-

tion of state law in a variety of contexts. While the de-

cisions necessarily vary to comprehend individual fact

patterns, several themes have emerged. First and fore-

most, the “exercise of federal supremacy is not lightly to

be presumed.” New York State Dept. of Social Services

v. Dublino, 413 U.S. 405, 413 (1973), and preemption is

“not favored in the absence of persuasive reasons.” Chi-

cago & North Western Transportation Co. v. Kalo Brick

& Tile Co., 450 U.S. 311, 317 (1981). This is particu-

larly true where the area of law subject to the preemp-

tion claim is traditionally within the prerogative of the

states:

“Where, as here, the field which Congress is said to

have pre-empted has been traditionally occupied by

the States. . ‘we start with the assumption that

the historic police powers of the States were not to

be superseded by the Federal Act unless that was the

clear and manifest purpose of Congress.’ Rice v.

Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).

Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977).

The task of the Court is not to find an interpretation

that ousts state law (as appellant urges here), but rather

to “reconcile the operation of both statutory schemes.”

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414

U.S. 117, 127 (1973).

Appellant has argued that this Court’s decisions con-

cerning ERISA have, in effect, reversed the historical

presumption and enunciated an unequivocal rule that

Congress intended to preempt all state laws affecting em-

ployee benefit plans. This misrepresents both the lan-

guage and holdings of these cases.

In Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

(1981), the Court considered whether a New Jersey law

prohibiting offsets from pension benefits for workers

compensation payments was preempted by ERISA. The

Court’s affirmative holding followed a discussion of the

legislative history of ERISA which showed that Con-

gress had intended to permit such offsets. There is noth-

ing noteworthy about a decision that holds that a state

law in conflict with federal law is preempted. On the

contrary, the Court prefaced its holding with a discus-

sion of preemption generally, making it clear that the

presumption against preemption remained the general

rule under ERISA. See 451 U.S. at 522.

Similarly, the result in Shaw v. Delta Airlines, 103

S. Ct. 2890 (1983), does not aid appellant. In that case,

the Court held that New York could not compel an em-

ployer to amend its existing employee benefit plan to

comply with a disability benefits law mandating benefits,

but that it could require the employer to provide the dis-

puted coverage in some fashion because of the exemption

in Section 4(b) of ERISA, 29 U.S.C. Section 1002(b),

for plans “maintained solely for the purpose of comply-

ing with. . . disability insurance laws.” Thus, the de-

cision sustains the ability of the state to mandate bene-

fits. Moreover, the decision provides more opportunity

for states to mandate the provision of certain fringe

benefits than is arguably present here because Shaw ap-

plies to an employer regardless of the funding mecha-

nism it chooses, while this case affects only those employ-

ers which purchase insurance Perhaps most signifi-

cantly, the Court demonstrated its historical presumption

1 Thus, the protestations of appellant/amici concerning indirect

regulation of employee benefits by the states should not be accorded

any weight. As a general proposition, no state could, as appellant/

amici suggest, prohibit workers compensation offsets because such

laws would conflict with ERISA as interpreted by this Court in

Alessi. Under Shaw, however, any state could require even self-

insured employers to provide mental health or alcohol/drug abuse

coverage under its disability laws, regardless of the outcome of this

case.

against preemption by taking a circuitous route to save

New York’s law—a route which had seemingly been fore-

closed only two years previously in Alessi.“

In sum, this Court’s two previous ERISA decisions do

not manifest any departure from the general presump-

tion against preemption of state laws. On the contrary,

in language and result, the Court has emphasized its

commitment to respecting the sovereignty of the states.

II. STATE LAWS MANDATING THE CONTENTS OF

INSURANCE POLICIES ARE WITHIN THE TRA-

DITION OF INSURANCE REGULATION.

A. Mandating Policy Terms Is an Integral Part of the

State Regulation of Insurance.

Forty years ago, the Court held that state insurance

regulators had “full power to prescribe the forms of con-

tract [and] the terms of protection of the insured.”

Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 321

(1943). More recently, in Securities and Exchange Com-

mission v. National Securities, Inc., 393 U.S. 453, 460

(1969), the Court described state regulation of insurance

as focussing on, among other things, “the type of policy

which could be issued.” Thus, this Court has recognized

that control over insurance contracts is an integral part

of insurance regulation, and this conclusion has per-

meated the courts in all jurisdictions. See 2A Couch on

Insurance 2d Section 21:31 (Rev. Ed. 1984); 43 Am.

Jur.2d Section 26 (1983 Supp.).

2In Alessi, the Court rejected the argument that the provisions

of a state’s workers compensation law (which appears in the same

exemption in ERISA as the disability laws considered in Shaw)

survived preemption, reasoning that that section exempts plans, not

laws from ERISA. See 451 U.S. at 523, n. 20. This is no doubt a

better reading of the statute: Congress could have reasonably be-

lieved that plans maintained “solely” to comply with those laws

would be so pervasively regulated by the state as to obviate the

need for federal regulation under ERISA. Had Congress intended

to save the laws themselves, it would have done so in the savings

clause within the preemption provision.

Appellant has fared poorly in state courts with this

argument because those courts have a long history of

dealing with state insurance regulation. As the Court of

Appeals for the State of Maryland commented, in the

course of rejecting an identical argument by appellant

in a case presenting the issue here:

“A great many of the regulations contained in the

Maryland Insurance Code, as well as the insurance

law of other states, are provisions mandating spe-

cific coverages in various types of insurance policies.

Much of the litigation concerning state regulation of

Insurance involves statutory provisions requiring

specified coverages in different classes of insurance

policies.”

Insurance Commissioner v. Metropolitan Life Insurance

Co., 463 A.2d 793 (Md. 1983).

B. Assuring Comprehensive Coverage of Risks Is an

Integral Part of the State Regulation of Insurance.

This Court has recently held that spreading and under-

writing risk are the “primary elements” of insurance.

Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S.

205, 211 (1979). This is true not only with respect to

the operation of a single policy, but also to the function

insurance plays in the larger social context—what one

theorist has called the “socialization of risk.” See Kim-

ball, The Purpose of Insurance Regulation: A Preliminary

Inquiry in the Theory of Insurance Law, 45 Minn. L.

Rev. 471, 511-514 (1961). Not surprisingly, this concept

has been reflected in state insurance regulation. As one

regulator has commented:

“(This attitude is most strongly expressed concern-

ing those types of insurance coverages deemed to be

social in nature—for example, automobile, home-

owner, and health insurance. Government is now

expected to strengthen or replace the private insur-

ance mechanism when the shortage of coverage is

serious. Thus, ready availability of adequate cover-

age in certain lines has emerged as a fundamental

objective of insurance regulation.”

Huff, Development of Public Policy from the Viewpoint

of a State Insurance Regulator, 1975 Ins. L. J. 393, 395.

This Court has recognized and sanctioned the risk-

spreading nature of insurance regulation. In California

Auto Association Inter-Insurance Bureau v. Maloney, 341

U.S. 105 (1951), the Court held that a state may require

insurers to participate in a compulsory assigned risk pool

to assure the availability of insurance coverage. The

Court noted the states’ pervasive authority over insurers,

including the requirement “that local needs be serviced

by the business.” Id. at 110. See also Osborn v. Ozlin,

310 U.S. 53, 65 (1940) (explaining the states’ “special

relation to insurance’).

Relying on these precedents, a number of courts have

upheld the validity of mandated benefit laws. For exam-

ple, in Health Insurance Association of America v. Har-

nett, 376 N.E. 2d 1280, 1284 (N.Y. 1978), a unanimous

court held that a law mandating maternity care coverage

in health insurance contracts passed muster as an aspect

of “the Legislature’s regulatory authority over the insur-

ance industry.” See also Insurers’ Action Council, Inc. v.

Markman, 490 F. Supp. 921 (D. Minn. 1980), aff'd, 653

F.2d 344 (8th Cir. 1981); American Family Life Assur-

ance Co. v. Commissioner of Insurance, 388 Mass. 468,

446 N.E.2d 1061 (1983) ; Blue Cross of Virginia v. Com-

monwealth of Virginia, 269 S.E.2d 827 (Va. 1980). No

court has held that mandate laws exceed the authority of

the states to regulate insvrance.

There can be little dispute that both mandating policy

terms and requiring the underwriting of risk across the

population are well-recognized aspects of “traditional”

insurance regulation. We urge the Court to refrain from

sustaining appellant’s attempt to cast doubt on an issue

that has been conclusively and repeatedly resolved

against it.

III. ERISA WAS NOT INTENDED TO PREEMPT MAN-

DATED BENEFIT LAWS.

Nine courts have considered the issue before this

Court—with the exception of one district court decision

(now on appeal), all have sustained state mandated bene-

fit laws. See American Progressive Life & Health Insur-

ance Co. of New York v. Corcoran, 715 F.2d 784 (2d Cir.

1983) ; Wayne Chemical Corp. v. Columbus Agency Serv-

ice Corp., 567 F.2d 692 (7th Cir. 1977); Wadsworth v.

Whaland, 562 F.2d 70 (1st Cir. 1977), cert. den., 435

U.S. 980 (1980); Insurers’ Action Council, Inc. v.

Heaton, 423 F. Supp. 921 (D. Minn. 1976); Attorney

General v. The Travelers Insurance Co., 463 N.E. 2d 548

(Mass. 1984); Insurance Commissioner v. Metropolitan

Life Insurance Co., supra; New Hampshire-Vt. Health

Service v. Whaland, 410 A.2d 642 (N.H. 1979); Metro-

politan Life Insurance Co. v. Whaland, 410 A.2d 635

(N.H. 1979).* In addition, the Department of Labor,

through the Solicitor General, has taken the position that

mandated benefit laws are not preempted by ERISA.

See Memorandum for the United States as Amicus

Curiae, Wadsworth v. Whaland, 435 U.S. 980 (1978)

(hereinafter cited as “U.S. Memorandum”). This near-

unanimity from all sectors of the judicial system, sup-

ported by the opinion of the agency responsible for

enforcement of ERISA, demonstrates the comparative

strength of the legal arguments.

8 Appellant has argued that the American Progressive opinion

involved only state regulation of maximum commissions for sales

of life insurance, but it has ignored the court’s additional holding

that another law at issue which regulated “the terms of policies

sold to [employee benefit] plans” was not preempted. See 715 F.2d

at 787.

Similarly, appellant has argued that Wayne Chemical involved

only an Indiana insurance law forbidding the sale of insurance

without a certificate. The court, however, also sustained the ap-

plicability of a mandated benefit law which provides that all in-

surance policies must include a provision extending coverage to

disabled minors.

A. Congress Was Aware of That Aspect of the Tradi-

tion of Insurance Regulation Which Includes Man-

dated Benefit Laws When It Enacted ERISA.

1. The language and structure of the statute evi-

dences Congress’ awareness of the scope of state

regulation.

Appellant’s case is based on the proposition that Con-

gress intended to distinguish between different types of

insurance regulation for purposes of the savings clause.

No such distinction appears in the language. On the con-

trary, the clause applies to “any law of any state which

regulates insurance“ hardly an expression of an intent

to limit the type of law covered.*

The court’s holding in Wadsworth v. Whaland, supra,

was based primarily on an examination of the structure

of the preemption provision. It recognized that the sav-

ings provision would be meaningless unless it saved from

preemption state laws regulating insurance which also

indirectly regulate employee benefit plans since no other

state law regulating insurance would be subject to pre-

emption under ERISA even in the absence of the savings

provision. See also U.S. Memorandum, supra, at 6.

The language of the preemption provision also shows

Congressional awareness of the scope of insurance regu-

lation. Section 514(b) (2) (B), 29 U.S.C. 1144 (b) (2) (B)

the so-called “deemer” clause—creates an exception to

the savings clause for insurance regulation to prevent a

state from regulating a self-insured employee benefit plan

as an insurer. The language chosen by Congress is sig-

4 When Congress desires to make the kind of distinctions urged

by appellant, it knows how to do so directly. In 1983, Congress

amended the preemption provision to increase the authority of the

states to regulate certain self-insured welfare plans. The amend-

ment distinguishes between state insurance laws which assure that

benefits will be paid when due and “any law of any state which

regulates insurance.” See P.L. 93-473, Title III, Section 382(b),

96 Stat. 2613, codified, 29 U.S.C. 1144 (b) (6) (A).

nificant: it provides that an employee benefit plan shall

not be deemed to be an insurance company “for purposes

of any law of any state purporting to regulate insurance

companies [or] insurance contracts” (emphasis added).

Thus, Congress evidenced its awareness that insurance

regulation extended to the contracts issued by insurers,

as well as the insurers themselves.

2. The relationship of mandated benefit laws to na-

tional health insurance shows Congress’ aware-

ness of this aspect of insurance regulation.

As an Associate General Counsel of the Health Insur-

ance Association of America (“HIAA”) has written, “a

great deal of activity took place with respect to minimum

standards” in health insurance during the period 1972-

1974. Peel, Regulatory Developments in Minimum Stand-

ards for Health Insurance Policies, 13 Forum 680, 681

(1978). These included model acts and regulations pro-

mulgated by the National Association of Insurance Com-

missioners (“NAIC”) mandating benefits for individual

health insurance coverages, catastrophic coverage, conver-

sion requirements, and newborn coverage. See Hanson,

The Private Insurance Industry and State Insurance

Regulatory Alternatives to Federally Enacted Compre-

hensive National Health Insurance Legislation, 6 Toledo

L. Rev. 677, 712-713 (1975); II NAIC Proceedings 430

(1973) ; I NAIC Proceedings 414, 425 (1974).

The NAIC had a twofold objective for the emphasis on

mandated benefit laws in health insurance: one was to

address a series of problems on the merits, particularly

availability of adequate coverage for ail persons; the

other was to create a “viable alternative to national

health insurance.” II NAIC Proceedings 438 (1976).

See also 128 Cong. Rec. H9608 (Dec. 18, 1982) (testi-

mony of Sen. Matsunaga concerning the origin of the

Hawaii mandated benefits law).

Congress was aware of this activity, and the reasons for

it because the period of its consideration of ERISA coin-

cided with its detailed examination of twenty-two sepa-

rate bills dealing with national health insurance. In 1974,

a representative of the NAIC testified before the House

Ways & Means Committee—one of the committees then

considering ERISA—about state regulatory efforts under-

taken to respond to the issues highlighted by Congress in

the national health insurance debate. In discussing man-

dated benefits, he stated: “This is definitely going to be

the mainstream of legislative activity in health insurance

at the state level this year and next year.” Hearings on

National Health Insurance before the House Committee

on Ways and Means, 93d Cong., 2d Sess. 2647 (1974).

It is inconceivable that a Congress preoccupied with

national health insurance would have been unaware of

the maelstrom of activity on the state level concerning

mandated benefits during 1972-1974 undertaken in re-

sponse to its deliberations. It is equally inconceivable

that it chose to resolve an issue of critical importance to

its contemporaneous examination of national health insur-

ance in the context of pension reform legislation without

a single indication.

B. The History of the Preemption Provision Does Not

Show Any Intent To Limit State Regulation of In-

surance Contracts.

The legislative history of ERISA shows that Congress

deliberately limited the authority of state insurance regu-

lators in three areas: regulation of pension plans, regula-

tion of self-insured trusts, and joint enforcement of

ERISA. We contend that Congress did not also intend,

sub silentio, to enact the further limitation urged by

appellant.

1. Congress deliberately limited the authority of

the states in three areas.

The ten years of Congressional deliberation that pre-

ceded ERISA’s regulation of the private pension system

sparked a number of states to enact comprehensive pen-

sion laws. See Malone v. White Motor Corp., 435 U.S.

497 (1978). This became an area of contention between

federal and state regulation of employee benefit plans. In

1973, the NAIC presented testimony describing the new

pension legislation several states had enacted. See State-

ment of Stanley C. DuRose, Jr., before the Subcommittee

on Private Pension Plans, Senate Committee on Finance,

93d Cong., 2d Sess. (1973). In the alternative, the NAIC

sought a role in the administration and enforcement of

the federal standards imposed by ERISA. See id.; II

NAIC Proceedings 418 (1973). Congress, however, de-

clined to adopt either suggestion, opting instead for fed-

eral minimum standards for pensions and cooperative

enforcement arrangements between the Secretary of

Labor and state officials. See ERISA Section 506, 29

U.S.C. 1146; S. Rep. No. 93-127, 93d Cong., Ist Sess. 35

(1973).

The third limitation was more controversial. As early

as 1961, the NAIC had noted the trend towards self

insurance of health and welfare benefits. I NAIC Pro-

ceedings 76 (1963). A number of states had responded

by “deeming” self-insured trusts to be insurance com-

panies under state law. See Goetz, The Regulation of

Uninsured Employee Welfare Plans Under State Insur-

ance Laws, 1967 Wis. L. Rev. 319. While ERISA was

being considered, the highest courts in New York and

Missouri accepted cases presenting this issue. See State

ex rel. Farmer v. Monsanto Co., 517 S.W. 2d 129 (Mo.

1975); Mutual Life Ins. Co. v. New York State Tax

Comm'n., 32 N.Y. 2d 348, 298 N.E. 2d 672 (1973).

The House responded by drafting the deemer provision.

This made it clear that states could control neither the

solvency of such trusts, nor their content. The Senate,

however, did not address this issue, leaving the Confer-

ence Committee with the task of resolving the difference.

A further measure of the controversy surrounding the

issue is that the NAIC vigorously opposed the House pro-

vision and the Committee staff was evenly split. See

Staff of Conference Committee on H.R. 2, Summary of

Differences Between the Senate Version & House Ver-

sion of H.R. 2, 93d Cong., 2d Sess. 33 (1974) ; Sullivan,

Regulatory Aspects of the ERISA of 1974, 1974 Proc.

Leg. Soc. Am. Life Conv. 15, 49-52.

2. The Conference Committee version of preemption.

Appellant’s presentation of the floor debate on the Con-

ference Report does not explain what impelled the con-

ferees to make a change in the preemption provision. A

number of commentators, including the then-Associate

General Counsel of appellant Travelers Insurance Co.

have reached the same conclusion: “The concern with a

professional society or association seems, from the floor

debate, to have been the major impetus behind the

revised, compromise preemption provision.” Okin, Fed-

eral Preemption of State Law Under ERISA: An Exami-

nation of the Effects of the Federal Mandate in the Light

of Authoritative Precedent Under the Supremacy Clause,

the McCarran-Ferguson Act & the Legislative History,

24 A. of Life Ins. Couns. Proc. 115, 149 (1976); see also

Dowd & Herlihy, ERISA and Preemption (ABA 1975) ;

Note, The Effect of ERISA on Prepaid Legal Services,

27 Baylor L. Rev. 566 (1975).

Appellant’s editing of the floor debate has obscured this

focus on state regulation of prepaid legal service. For

example, the only laws specified by Representative Dent

as targets of the revised preemption provision were those

of “any professional society or association operating

under code of law.” 120 Cong. Rec. H8701 (Aug. 20,

1974). Similarly, Senator Williams explained that the

revision was to prevent “state professional associations”

from hindering the development of “prepaid legal service

programs.” 120 Cong. Rec. 815742 (Aug. 22, 1974).

5 Fearful that Representative Dent’s zeal for saving prepaid legal

service plans frorn state regulation had misrepresented the intent

of the conferees, Senators Javits and Williams engaged in a clari-

Finally, Representative Dent noted that the conferees had

“followed to a large extent the same approach” Congress

took in the Health Maintenance Organizations Act of

1973 (“HMO Act”) preemption provision. 120 Cong.

Rec. H8701 (Aug. 20, 1974). That provision does not

broadly preempt state law; * its intent is to prevent states

from controlling the structure of HMO’s, as state bar

associations were doing with prepaid legal service plans.

See Symposium Issue Prepaid Legal Services, 27 Baylor

L. Rev. 403 (1975).

We are not suggesting that preemption is limited to

prepaid legal service plans, but there is also no reason to

ignore the conferees’ identification of the reason behind

the expansion of the preemption provision. The Court

should be wary of enlarging Congressional intent beyond

the evidence, particularly in the area of insurance regu-

lation. Congress was aware of the extent of that regula-

tion of employee benefit plans and resolved the potential

conflicts in several specific areas. It is hardly likely that

a Congress that thoroughly debated the propriety of state

regulation of the terms of contracts for self-insured plans

also intended to encroach on the states’ historical power

over insurance companies and contracts sub silentio.

C. State Insurance Regulation Plays A Major Role In

Effectuating The Purposes of ERISA.

State health insurance regulation, including mandated

benefit Jaws, is not inconsistent with any provisions of

fying colloquy on the Senate floor—another indication that that was

the primary concern of the conferees. See 120 Cong. Rec. 815743

(Aug. 22, 1974).

See 42 U.S.C. Section 300e-10. In fact, the HMO Act “antici-

pates concurrent state regulation.” Hewlett -Packard Co. v. Barnes,

571 F.2d 502, 504 (9th Cir. 1978). Most states regulate HMO’s

extensively. See Recent Developments, Health Maintenance Or-

ganizations Act of 19783—Federal Regulation and Support of Pre-

paid Group Health Care Plans—Preemption of Restrictive State

Laws and Practices, 27 Vand. L. Rev. 1048 (1974).

ERISA, and neither appellant nor amici cite any such

provisions.“ In contrast to regulation of pension plans,

ERISA is virtually silent as to welfare plans, particularly

the substantive content of them. The only conclusion that

can be justifiably drawn from ERISA concerning welfare

plans is that Congress did not see fit to enact any special

protections for participants in those plans.

Subsequent judicial experience with ERISA demon-

strates the reason for Congress’ decision. Numerous

courts have held that state insurance law supplements

ERISA—that it, in appellant’s words, affects “the rela-

tionship between the plan itself and the plan’s benefi-

ciaries’—by providing remedies to welfare plan partic-

ipants. See Taggart Corp. v. Life & Health Benefits

Administration, 617 F.2d 1208 (5th Cir. 1980); Wayne

Chemical Corp. v. Columbus Agency Service Corp., supra;

Rehabilitation Institute v. Blue Cross & Blue Shield, 5

E.B.C. 2265 (W.D. Pa. 1984) ; McLaughlin v. Connecticut

General Life Ins. Co., 656 F. Supp. 434 (N.D. Cal 1983) ;

Lederman v. Pacific Mutual Life Ins. Co., 494 F. Supp.

1020 (C.D. Cal. 1980). See also Brief of the Secretary

of Labor, Donovan v. Dillingham, 688 F.2d 1367 (11th

Cir. 1982) (en banc) (expressing position of Department

of Labor that ERISA and state insurance law both pro-

vide remedies for participants of insured plans).

Thus, appellant’s interpretation of the savings clause

would not only affect mandated benefit laws; it would

also deprive participants of substantive remedies currently

available under state insurance law. Even assuming,

arguendo, that Congress was concerned about disincen-

tives to welfare plans, there can be no question that pro-

7 The only “inconsistency” claimed by appellant is that ERISA

expresses a Congressional recognition of the voluntary nature of

plans and the costs imposed upon them. But, the fragmentary evi-

dence in the legislative history is directed at pension plans; there

is no evidenec that Congress was concerned about disincentives to

welfare plans arising from ERISA or state insurance law.

viding protections for participants was the single most

important policy expressed in ERISA.

Appellant’s interpretation, however, would do more

than vitiate participant protections; it would lead to

chaotic and inconsistent adjudications that would be in

no one’s interest, least of all appellant and amici. Aside

from the difficulty of deciding what is “traditional” in-

surance regulation, we refer to the chaos created by the

preemption of state laws providing remedies under insur-

ance contracts.

This point is graphically demonstrated by comparing

the district court and appellate court decisions in Wayne

Chemical Corp. v. Columbus Agency Service Corp., 426

F. Supp. 316 (N.D. Ind.), aff'd, 567 F.2d 692 (7th Cir.

1977). The issue was whether a disabled minor lost

insurance coverage once he became nineteen years old.

The district court held that an Indiana insurance statute

extending coverage under such circumstances was pre-

empted by ERISA, but that the same result should be

reached under “federal common law.” The court, how-

ever, expressed concern that this approach could result in

excessive litigation costs and inconsistent results because

of uncertainty about a court’s notion of federal common

law (426 F. Supp. at 321, 326). The court of appeals

affirmed on a different basis, holding that the Indiana

statute extending coverage was not preempted by ERISA.

Not surprisingly, the court of appeals did not choose to

follow the district court across the rocky terrain of fash-

ioning a federal common law when there was a provision

of state insurance law that applied specifically to the

subject.

There is much mischief in appellant’s argument. It

has suggested that this Court overrule decades of legal

precedent concerning the scope of state insurance regu-

lation, thereby simultaneously opening a hole in the

heart of ERISA that will engage the ingenuity of federal

courts for years to come. It has suggested that the Court

radically change its historical approach to preemption by

encouraging legal “interpretation” created to ignore the

absence of any indication that Congress intended to pre-

empt certain laws. Where, as here, the statute, legisla-

tive history and judicial precedent all point to an answer

that preserves the coordinate sovereignty of our system

of government, the Court’s direction should be clear.

IV. THE POLICY CONSIDERATIONS SUPPORT MAN-

DATED BENEFIT LAWS.

A. Mandated Benefit Laws For Mental Health and

Alcohol/Drug Abuse Coverage Are In the Public

Interest.

Fifty years ago, alcoholism, drug abuse and mental

illness were viewed as “different” from physical disor-

ders. Causes were mysterious, cures rare, and social

stigma was attached to victims. The medical establish-

ment treated only the physical problems related to these

diseases, while neglecting the less tangible underlying

causes. See Cooper, Private Health Insurance Benefits

for Alcoholism, Drug Abuse and Mental Illness (Inter-

governmental Health Policy Project 1983).

Today, these problems are considered illnesses that are

treatable by known therapies with effective cure rates.

Unfortunately, these treatments have evolved in large

measure because of the recognition by society of how

widespread and costly these disorders are. It has been

estimated that 28-39 percent of adults experience at least

one mental health disorder in their lifetime,* while an

estimated 14.7 million Americans suffer from alcoholism

or problem drinking and their numbers are increasing by

400,000 a year.“ The societal costs are staggering: an

8 Robins, et al., Lifetime Prevalence of Specific Psychiatric Dis-

orders in Three Communities, 41 Arch. Gen. Psych. 949 (1984).

o Fein, Alcoholism in America: The Price We Pay (Care Insti-

tute 1984).

estimated 823.6 billion in direct and $28.9 billion in in-

direct costs related to mental health; $11.9 billion direct

and $97.1 billion indirect costs relating to alcoholism and

substance abuse.“

As the prevalence and costs of these disorders have

intruded into the collective awareness of society, treat-

ment methods have undergone a radical transformation.

In the 1930’s, treatment for mental illness generally

meant long-term institutionalization in a public facility.

By the next decade, two major alternatives had emerged:

the development of effective psychoactive drugs and a

shift in care from institutions to community-based set-

tings. See Sharfstein, et al., Health Insurance and Psy-

chiatric Care: Update and Appraisal (Am. Psych. Press

1984) at 2-3.

A similar revolution has occurred in the treatment of

alcoholism and substance abuse. As recently as twenty

years ago, persons suffering from such disorders were not

even allowed admission to general hospitals. See Rosen-

burg, Survey of Health Insurance for Alcoholism: Inpa-

tient Coverage (1979). Today, community-based settings

and outpatient facilities specializing in treatment for

these disorders are well-known.

Despite the substantial progress in societal attitude

and treatment methods, many perplexing problems re-

main. Two of the most serious—assuring adequate cover-

age to all of those in need and financing that coverage—

10 Harwood, et al., Economic Costs to Society of Alcohol, Drug

Abuse & Mental Iliness—1980 (Research Triangle Institute 1984).

These costs include the facts that more people are admitted to

hospitals because of these disorders than for any other illness;

industry suffers reduced productivity (emotional illness accounts

for more abstenteeism from work than any other illness, except for

the common cold) ; alcohol and substance abuse disorders are linked

to motor vehicle crashes and household and workplace accidents, and

those afflicted commit a disproportionate amount of criminal acts.

are the motivating factors behind mandated benefits laws.

As both the federal and state governments have con-

cluded, it is not enough to recognize the severity of the

problem and that solutions are available; one must also

express the political will to make those solutions a reality.

The federal government’s role in the treatment of men-

tal health and alcohol/drug abuse disorders has been

crucial. Congress has repeatedly acted to shift the focus

of treatment away from institutionalization and to

broaden coverage throughout the population. See

Wirthin, Trends in Patient Care Episodes in Mental

Health Facilities 1955-1977 (NIMH 1980). Even more

significant was the action of the Congress in the HMO

Act, which is, in part, a mandated benefit law because it

requires federally qualified HMO’s to offer coverage for

mental health and alcohol/drug abuse disorders. See 42

U.S.C. 300e-1(1). As the Senate Report explains:

“The Committee heard impressive testimony con-

cerning the inclusion of mental health services as a

basic required benefit. The Committee views the in-

clusion of mental health service as . . a wise in-

vestment of money and personnel.

The Committee has included preventive diagnostic

and medical and psychological treatment of the

abuse of or addiction to alcohol and drugs as a basic

benefit requirement. The Committee wishes to em-

phasize its view that drug abuse and alcoholism are

diseases and should be treated as such.”

S. Rep. No. 93-129, 93d Cong., Ist Sess. (1973), reprinted

in 2 U.S. Code Cong. & Ad. News 3044 (1973).

While Congress was attacking the problem by man-

dating benefits offered by federally-qualified HMO’s,

many states were doing precisely the same thing by man-

dating benefits offered by state-licensed insurance com-

panies. Unlike the financing of other ailments, treatment

of mental health and alcohol/drug abuse disorders has

been primarily public." The predominant reason was

that the insurance industry had failed to react to the

evolution of societal attitude and treatment methods

with respect to these diseases. Many insurers either of-

fered no coverage at all, or limited coverage to treatment

in a hospital, thereby impeding the trend to outpatient

treatment. See Reed, et al., Health Insurance & Psychi-

atric Care: Utilization and Cost (Am. Psych. Press

1972); Rosenburg, supra. Even more distressing was

that the relation of a lower soceoeconomic class to mental

health and alcohol/drug abuse problems had been clearly

established, leaving those most in need of treatment

without the means of obtaining it. See Hollingshead, et

al., Social Class and Mental Illness (John Wiley & Sons

1958).

Despite the posture of the insurance industry here, it

has also recognized that the changes in public attitude

and treatment methods must be reflected in its attitude

towards insurance coverage. In 1968, the HIAA warned

its members that “the absence of coverage for mental

illness treatment can result in under-insurance,” and rec-

ommended that insurers include coverage for mental ill-

ness, alcoholism and drug addiction. Follman, Insurance

Coverage for Mental Illness (American. Man. Ass'n.

1970) at p. 58. The goal, according to Mr. Follman

(then on the staff of the HIAA) was “to assure an ade-

quate and pluralistic system of financing that will en-

able all persons to enter the mainstream of health care

on an equal basis and with a reasonable level of quality

assured.” Id. at 37.

State mandate laws are intended to respond to that

challenge through the insurance mechanism of spreading

risk throughout the population. The Massachusetts law

11 See, National Drug and Alcoholism Treatment Utilization Sur-

veys: 1979-1982, 8 Alcohol Health & Research World 44 (1983);

Sharfstein, et al., Health Insurance and Psychiatric Care: Update

and Appraisal, supra at 7.

at issue here is an example of why mandated benefit laws

are an integral part of the fight against these illnesses.

As the Superior Court found, the law has had the fol-

lowing effects:

—recognition that mental illness is a national health

problem with a staggering price tag;

—a shift from in-patient to outpatient delivery of

treatment;

—an increase in treatment for poor, working and

middle class persons; and

—a shift in financing from the public to the private

sector.

Appendix to Jurisdictional Statement 51a-53a.

In sum, we urge this Court to recognize both the rea-

sons for and the effectiveness of mandated benefit laws

in solving these important health problems.

B. The Policy Concerns Raised By Appellant Are Con-

tradicted By The Evidence.

1. Mandated benefit laws for mental health and

alchohol/drug abuse are cost-effective.

Amicus HIAA has asserted that mandated benefit laws

raise the cost of insurance 10-20 percent. There is no

citation to any authority that supports this assertion. In

fact, the evidence is to the contrary.

First, one of the principal objectives of mandated

benefit laws is to reduce the cost of coverage by elimi-

nating adverse selection. Where only a few insurers in a

market offer coverage for a particular disorder, those

persons who need that coverage will choose that insurer

in disproportionate numbers, and the insurer with the

coverage must price it higher to account for the adverse

selection of poor risks. But, where all insurers must

offer the coverage, there is less risk of adverse selection

and the rates can be lowered to reflect the assumption

that each insurer will attract a pool of average risks.”

Second, the evidence from a variety of sources is that

coverage for mental health and alcohol/drug abuse dis-

orders is not expensive compared to the total cost of in-

surance, and is nowhere near the “estimate” provided

by HIAA to the Court. This is true for both mental

health“ and alcohol/drug abuse.“ Mandated benefit

laws moderate that cost by providing a financing base

and encouraging use of less expensive outpatient serv-

ices.15

Finally, no discussion of cost can ignore the “offset”

effect of treatment for these disorders. This includes

benefits to employers in the form of improved productiv-

ity and reduced absenteeism.* It also includes the re-

12 The effect of mandated benefit laws on adverse selection and

the cost of insurance was the subject of expert testimony in Su-

perior Court (Joint Appendix 225-230) and a finding of that court

(Appendix to Jurisdictional Statement 51a).

18 See e.g., VonKorff, et al., Mental and Nervous Disorders:

Utilization and Cost Survey (NIMH 1979); Reed, et al., Health

Insurance and Psychiatric Care: Utilization and Cost, supra;

Jameson, The Effects of Outpatient Psychiatric Utilization on the

Costs of Providing Third-Party Coverage, 16 Medical Care 383

(1978) ; Lowery, et al., Analysis of Insurance for Mental Disorder,

137 Am. J. of Psychiatry 9 (1980).

14 See, e.g., Cooper, Private Insurance Benefits for Alcoholism,

Drug Abuse and Mental Iliness, supra; Holder, et al., Medical Care

and Alcoholism Costs and Utilization: A Five-Year Analysis of

the California Pilot Project to Provide Health Insurance Coverage

For Alcoholism (1981); McCarthy, Insurance Coverage for Treat-

ment of Alcoholism: Analysis and Proposed Actions (1982).

15 See McGuire, Mandated Mental Health Benefits in Private

Health Insurance Policies: A Legal & Economic Analysis (Yale

U. 1981).

16 See Barrie, et al., Mental Distress As A Problem For Industry

(Springer-Verlay 1980); Jones, et al., Summary of Impact of Al-

coholism Treatment on Medical Care Utilization & Cost (ADAMHA

1979).

duction in health care costs associated with treating phys-

ical ailments related to these disorders.“

In sum, the addition of coverage may increase the cost

of insurance in the context of an individual case, but

public policy is not based on one case, particularly in the

area of insurance. Viewed from the perspective of social

policy, coverage for mental health and alcohol/drug abuse

illness is both inexpensive and cost-effective.

2. Appellant /amici have overstated the administra-

tive burdens.

Appellant/amici have offered no data concerning the

prevalence of totally uniform plans allegedly affected by

mandate laws. As the Bureau of Labor Statistics has

pointed out, benefits may well vary in establishments for

a number of reasons. Indeed, “hospital, surgical, and

medical benefits through Blue Cross and Blue Shield pro-

grams generally vary from locality to locality.” U.S.

Bureau of Labor Statistics, I Digest of Selected Health

& Insurance Plans, 1977-79 Edition, p. vii (1978). in

addition, virtually all large employers and Taft-Hartley

plans include participants with at least two different

types of health coverage. Pursuant to the HMO Act, 42

U.S.C. Section 300e-9, all employers and Taft-Hartley

plans with more than twenty-five participants must offer

employees the option to join an HMO.

Even within a supposed “uniform” health insurance

contract, the plan cannot avoid local and regional differ-

ences and the administrative complexities those differ-

ences create. Under most major medical programs, re-

imbursement for physician fees is determined by usual,

customary and reasonable criteria, established by the

prevailing charges of practitioners in a geographic area

for each procedure. Thus, a participant in New York

17 See, e.g., Id.; Mumford, et al., A New Look at Evidence About

Reduced Cost of Medical Utilization Following Mental Health

Treatment, 141 Am. J. of Psychiatry 1145 (1984).

who has an appendectomy will be charged, on the average,

$875, while a participant in Wyoming will be charged

5399.“ Under the common UCR benefit structure, these

participants will have different out-of-pocket costs, and

the plan or insurance company will have to take the

residence of the participant into account when paying

the benefit.

Insurers and plans have been notably unsuccessful in

arguing that variations in state laws create excessive

administrative burdens. As the Superior Court concluded

in this case after trial:

“Mandated benefit laws do impose an administrative

burden. However, the diversity of eligibility require-

ments for each state for example, would not be any

more complex or burdensome to interstate commerce

than various other diverse multi-state regulatory

schemes such as workmen’s compensation laws.”

Appendix to Jurisdictional Statements 54a. Similarly,

one court, after hearing evidence in a case brought by

eleven insurers challenging Minnesota’s mandated benefit

law, concluded:

“(T]he evidence indicates that insurance companies

and employers with multistate group policies are

regularly faced with meeting varying state require-

ments, and that the insurers can do so by merely

attaching a rider or an endorsement which limits

certain coverages to specific states.”

Insurers’ Action Council, Inc. v. Markman, supra, 490

F. Supp. at 928.

Benefit administration on the level of a multistate

welfare plan is inherently a time-consuming, expensive

and detailed task that is designed to deal with numerous

18 These figures are from the Medicare Directory of Prevailing

Charges 1983 (Health Care Financing Administration 1983) at

pages 167, 275. .The Medicare Part B program uses a UCR system

for paying benefits.

variables. Mandated benefit laws do not change that

process; whether or not such laws exist, the plan must

engage in the same administrative process applicable to

all benefits. Appellant/amici have not proved how the

addition of coverages would cause any significant addi-

tional cost or complexity.

3. Freedom of choice of benefits is not a significant

factor under ERISA.

Many purchasers of insurance pay for coverages they

do not need. That is one of the principles of insurance—

to spread the risk across the population of those purchas-

ing a policy to include persons who will never incur the

risk insured against. Thus, the Court of Appeals for

New York has held, in rejecting this argument against

a mandated benefit law, that providing coverages to those

who might not want it is part of the “concept—basic to

insurance—of risk sharing.” Health Insurance Associa-

tion of America v. Harnett, supra, 376 N.E.2d at 1285.

Second, removal of choice is essential to providing

adequate coverage for mental health and alcohol/drug

abuse disorders. One of the most difficult problems in

treating these illnesses is that those suffering from them

deny that they have a problem, or are afraid to admit it

because of the fear of adverse reactions from co-workers

or their employer. In this respect, mandated benefit laws

do not restrict choice as much as they remove the neces-

sity of publicly announcing choice.

Finally, and most fundamentally, there is no indica-

tion that Congress intended to isolate employee benefit

plans from the realities of the marketplace. The United

States made this point clearly in its support of mandated

benefit laws under ERISA: “Congress did not intend to

confer any special exemption or privilege on [plans] as

insurance buyers. Insurance sales to them must conform

to the same rules as those to any other insurance buyer

.. US. Memorandum, supra, at 8.

4, Mandated benefit laws are not a significant fac-

tor in the decision to self-insure health benefits.

The trend towards self-insurance began in the decade

prior to the passage of ERISA. Congress’ view was ex-

pressed in ERISA; there is no way tw read the “deemer”

clause as other than Congressional approval of self-insur-

ance. Thus, even if appellant/amici were correct that

mandated benefit laws encourage self-insurance, their ar-

gument would founder on the ground that discouraging

self-insurance is not one of the policies expressed by

Congress in ERISA.

Appellant/amici are not, however, correct in arguing

that mandated benefit laws are a significant factor in the

decision to self-insure. As the Superior Court found

here:

“There is no credible evidence that the potential cost

impact of [the Massachusetts statute] has forced

any policyholder of any insurance which has pre-

viously complied with [the statute] to discontinue

such coverage and become a self-insurer .

There is no credible evidence that the trend towards

self-insurance is more pronounced in Massachusetts

by virtue of the enactment of [the statute].”

Appendix to Jurisdictional Statement 55a.

Similarly, a New York study identified the following

factors encouraging self-insurance: savings through a

“one-shot” cash flow advantage due to the lag in first

year claims; control of costs by assuming more direct

administrative control over benefits; and investment

yields of unused assets. See New York State Health Ad-

visory Council and New York Business Group on Health,

Self-Insurance and Health Care Benefits in New York

State: An Explanatory Statement and Descriptive Anal-

ysis 17 (December, 1982). Its conclusion on mandate

laws was direct:

“Self-insured .. . plans — responded that the

purden of state insurance mandates’ or ‘redirection

in mandated services’ did not figure prominently in

their decision to self-insure. .. .”

Id. at 21.

C. The Court Should Defer to the Legislative Branch

to Resolve the Policy Considerations.

The groups which comprise the Committee are no

strangers to the policy considerations presented by this

case. We have been arguing them in State legislatures

across the country—an arena in which the insurance in-

dustry, organized labor and large employers are not ex-

actly unrepresented. The prevalence of mandated benefit

laws is eloquent testimony to the merit of the two op-

posing points of view.

Whatever one’s views, however, it is clear that policy

arguments should be made to the legislative branch.

This is particularly true with respect to regulation of

health care. Faced with serious problems of cost and

availability, government on all levels has begun to de-

. velop policies appropriate to its sphere of activities.

Significantly, many of the amici which urge federal

preemption of this state initiative are active participants

in the effort to expand state regulation of health care

into other areas, particularly controls over the price of

health care services.

The ultimate direction of this evolution in health care

policy is uncertain. One thing is, however, certain: the

choices will follow the kind of thorough debate of policy

considerations that forms the basis of any reasoned legis-

lative decision—in short, the kind of debate that did not

occur in the Congress which enacted ERISA.

We urge this Court not te fill this vacuum with its

own judgment. As the United States concluded its dis-

cussion of this issue:

“Congress preserved authority in the states to regu-

late insurance, and if petitioners find the result

burdensome their recourse is to Congress, or to the

state legislatures, rather than to this Court.”

U.S. Memorandum, supra, at 9.

CONCI USION

For the foregoing reasons, ve urge the Court to af-

firm the judgment of the court below.

Respectfully submitted,

EDWARD A. SCALLET

(Counsel of Record)

THOMPSON & MITCHELL

1120 Vermont Avenue, N.W.

Suite 1000

Washington, D.C. 20005

(202) 857-0350

January 24, 1985

APPENDIX

DESCRIPTION OF

PARTICIPANTS IN THE COMMITTEE

FOR COMPREHENSIVE INSURANCE COVERAGE

State of Texas

The State of Texas has enacted mandated benefit laws

for treatment of alcohol and drug abuse disorders.

State of North Dakota

In 1975, the State of North Dakota enacted mandated

benefit laws for treatment of mental health, alcohol and

drug abuse disorders.

National Mental Health Association

Founded in 1909, the NMHA is the nation’s largest

consumer advocacy organization for mental health dedi-

cated to promoting mental health, preventing mental ill-

ness, and improving the care and treatment of mentally

ill individuals. The 650 Mental Health Association local

chapters and state divisions and its more than one million

citizen volunteers work toward these goals through a

wide range of activities in social action, education,

advocacy and public information. ,

Alcohol and Drug Problems

Association of North America, Inc.

Since its formation in 1949, the ADPA has sought

unity of action for the benefit of individuals who suffer

from alcohol and drug related problems. ADPA is a mem-

bership association consisting of alcohol and drug abuse

professionals in all sectors of the field. Its services

include advocacy and leadership on national legislative

and public policy issues, sponsorship of a variety of con-

ferences and professional education opportunities, and

publication of newsletters and information designed to

disseminate current field developments to professionals.

National Association of State

Alcohol and Drug Abuse Directors

NASADAD is a not-for-profit organization composed

of directors of State alcoholism agencies and of single

State agencies for drug abuse prevention. The association

was originally incorporated in 1971 to serve State drug

agency directors; in 1978, the membership was expanded

to include State alcoholism agency directors. NASADAD’s

basic purpose is to foster and support the development of

effective alcohol and drug abuse prevention and treatment

programs throughout every State.

National Council on Alcoholism, Inc.

The NCA is the only national voluntary health organ-

ization founded to combat alcoholism. Since 1944, it has

fought to reduce the stigma attached to this tragic

disease and to gain recognition for it as a major national

health problem. NCA’s main activity is educating the

public about alcoholism through its network of over 200

state and local affiliates. NCA offers vital information

and referral services to alcoholics and their families, is

their major advocate at the national policy-making level,

and has been instrumental in the establishment of effec-

tive treatment services.

American Mental

Health Counselors Association

AMHCA is a multidisciplinary group of professional

mental health counselors, working in a wide range of

settings, dedicated to maintaining and improving the

quality of mental health services and its providers by

promoting licensure and certification, improved training

standards, freedom of choice and client advocacy.

AMHCA has sponsored the creation of the National Acad-

emy of Certified Clinical Mental Health Counselors, the

recognized certification body for mental health counselors.

With nearly 9,000 members, the American Mental Health

Counselors Association is the second largest division of the

American Association for Counseling and Development.

Association of

Mental Health Administrators

AMHA is composed of administrators of institutions,

community mental health centers and programs dealing

with mental illness, mental retardation, developmental

disabilities, alcoholism and drug abuse.

Association of Psychiatric

Outpatient Centers of America

Membership consists of individual outpatient psy-

chiatric centers. There are 109 members in the United

States and Canada.

International Association of

Psycho- Social Rehabilitation Services

IAPSRS is a non-profit, membership association of

organizations and individuals involved in providing com-

munity-oriented services to psychiatrically disabled

adults. Primarily based in the United States, the Asso-

eiation's purpose is to advance the role, scope and quality

of services designed to facilitate the community readjust-

ment of the psychiatrically disabled.

National Alliance for the Mentally Ill

NAMI is a self-help movement of families, friends, and

former mental patients that advocates for the chronically

mentally ill, including research into the causes and treat-

ment of mental illness and support services for mentally

ill persons, and that provides information, education, and

emotional support to families with a member afflicted

with serious mental illness. Since its inception in 1979,

NAMI has rapidly developed into a national movement

with 363 affiliates including 20 statewide associations in

all 50 states with nearly 30,000 family members that are

united in their common cause through the national office

in Washington, D.C.

National Association of State

Mental Health Program Directors

NASMHPD is the mental health arm of the National

Governors’ Association. The NASMHPD membership

consists of the agencies in each of the 55 states and terri-

tories that administer and fund the state government

programs serving mentally disabled persons. The

NASMHPD member agencies expend $8 billion annually

in the care of mentally ill people. Many of the member

agencies also administer programs for the mentally

retarded, developmentally disabled, alcohol abusers and

drug abusers, totally an additional $5 billion.

National Council of

Community Mental Health Centers

Founded in 1970, the National Council represents more

than 700 agencies comprising some 62,000 staff and board

members nationwide. Through its sections and divisions,

the National Council also provides membership opportu-

nities for individuals who share common interests in

specialized areas of community mental health.

American Association

for Marriage & Family Therapy

The Association represents over 11,000 family thera-

pists. It sets high standards for clinical practice, promotes

professional education, accredits educational and training

programs, publishes professional journals, and is active

in public policymaking.

American Dental Association

The ADA is a voluntary, nonprofit organization of

130,000 dentists dedicated to encourage the improvement

of the health of the public and to promote the art and

science of dentistry.

American Nurses’ Association, Inc.

ANA is a not-for-profit professional organization rep-

resenting approximately 180,000 registered nurses who

are members of ANA’s constituent associations in the

50 states, the District of Columbia, the Virgin Islands

and Guam. Approximately 12,000 registered nurses are

members of ANA’s constitutent in the Commonwealth of

Massachusetts. The Council on Psychiatric and Mental

Health Nursing exists within the structure of ANA to

foster high standards of psychiatric/mental health nurs-

ing practice and to facilitate the advancement of psy-

chiatric/mental health nursing as a significant specialty

in the mental health field.

American Occupational

Therapy Association, Inc.

AOTA is a nonprofit association of health professionals

that was founded in 1917 and now represents over 39,000

registered occupational therapists, certified occupational

therapy assistants, and students of occupational therapy.

Affiliated with the national Association are associations

located in each state, the District of Columbia, and

Puerto Rico. The health professionals represented by the

AOTA specialize in increasing the independent function-

ing and productivity of people of all ages who are phys-

ically, psychologically, or developmentally disabled.

American Podiatry Association

APA is a professional society with 8,500 members in

52 component societies, one in each state, Puerto Rico,

and the District of Columbia. It has two main objectives:

(1) to create greater public awareness of the benefits of

good foot care; and (2) to encourage and initiate pro-

grams to meet the foot health needs of an expanding

population.

Child Welfare League of America, Inc.

The League is a privately supported organization of

over 300 child welfare agencies and 1200 affiliates whose

efforts are directed to the improvement of care and serv-

ices to children and their families. The League was the

first national, not-for-profit voluntary membership organ-

ization which set standards for child welfare services

in the United States and Canada. League member agen-

cies provide a variety of services, including day care,

residential and group care, foster family care, day treat-

ment, protective services, maternity care, and shelter

care.

Family Service America

FSA represents 280 family service agencies in the

United States and Canada. Founded in 1911, it is the

leading organization in the family service movement in

North America. Through its member agencies, approxi-

mately 3 million persons annually receive direct services

and programs to resolve issues of family life.

National Association of Reimbursement Officers

NARO is a professional organization of employees

from small, medium, and large governmental agencies

who are directly involved in multi-faceted private and

public reimbursement programs. NARO members are

public or nonprofit employees representing a cross sec-

tion of many disciplines from states, counties, and com-

munities. Core membership is directly engaged in or is

responsible for reimbursement of costs related to govern-

mental health care agencies. Other members are from

medical and related services, legal services, and admin-

istrative services. This year NARO celebrates its thir-

tieth (30th) anniversary.

National Association of Social Workers, Inc.

NASW is a non-profit national organization of profes-

sional social workers which is devoted to the advance-

ment of sound public policy for the consumers of social

work services as well as for social work professionals.

More than one-third of its 98,000 members are engaged

in providing health and mental health services in public,

voluntary and private institutional and outpatient set-

tings throughout the country.

National Federation of

Societies For Clinical Social Work, Inc.

NFSCSW is a federation of state organizations work-

ing to advance the interests of clinical social workers and

their patients in state and federal mental health pro-

grams; increase the knowledge and skills of individual

social workers through sponsorship of continuing educa-

tion programs and professional publications; expand the

availability and accessibility of mental health services by

promoting the inclusion of clinical social workers as re-

imbursable providers of mental health services in group

health insurance programs; and assure consistently high

quality and integrity of services rendered to patients by

promoting high standards for licensure and certification

of clinical social workers.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.