Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

(a) FILED

QW JAN 25 1985

ALEXANDER L sTeqas

CLERX

IN THE

Siuyreme Cunt of the United States

OCTOBER TERM, 1984

METROPOLITAN LIFE INSURANCE COMPANY,

. Appellant,

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

THE TRAVELERS INSURANCE COMPANY,

7 Appellant,

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal from the Supreme Judicial Court

for the Commonwealth of Massachusetts

BRIEF OF THE NATIONAL CONFERENCE OF

STATE LEGISLATURES,

THE COUNCIL OF STATE GOVERNMENTS,

THE NATIONAL LEAGUE OF CITIES,

THE NATIONAL ASSOCIATION OF COUNTIES,

THE U.S. CONFERENCE OF MAYORS, AND THE

INTERNATIONAL CITY MANAGEMENT ASSOCIATION

AS AMICI CURIAE IN SUPPORT OF APPELLEE

LAWRENCE R. VELVEL JOYCE HOLMES BENJAMIN

444 North Capitol Street, N.W. The State and Local Legal Center

Suite 349 444 North Capitol Street, N.W.

Washington, D.C. 20001 Suite 349

(202) 688-1445 Washington, D.C. 20001

Of Counsel (202) 638-1445

Counsel of Record for the

Amici Curiae

QUESTION PRESENTED

Whether the Employment Retirement Income Security

Act (ERISA) preempts state laws requiring health in-

surance policies to provide particular minimum benefits

to the insured.

(i)

TABLE OF CONTENTS

QUESTION PRESENTED ...................-...--.-----------------

TABLE OF AUTHORITIES.

INTEREST OF THE AMICI CURIAE .....00W.....

STATEMENT OF THE CASE ..W00200....22...------.s--s-e00--s

A. Health Insurance, Which Is an Essential Means

of Covering Health Costs, Often Has Gaps In

Coverage And Appears To Be Preeminently Ob-

tained By Means Other Than Collective Bar-

gaining Agreements ................... : ae

B. Massachusetts Adopted Section 47B Only After

Careful Consideration of the Problems of In-

adequate Coverage __.............--...--eeeeeeneneeeeceeeeeeeee

SUMMARY OF ARGUMENT .WW

TT

I. State Laws Mandating Minimum Health Insur-

ance Benefits Are Not Preempted by ERISA ....

A. Introduction

B. Congress Saved State Insurance Laws From.

Preemption by ERISA ~......_.....

II. Section 47B Is Not Preempted by the National

Labor Relations Act

CONCLUSION ....

(iii)

Page

11

17

iv

TABLE OF AUTHORITIES

CASES

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

SERIE iconeciccsnciaseineseunndtanisiinaetnauaniamteiiicmtaapinsiids 11,

Belknap, Inc. v. Hale, 103 S. Ct. 3172 (1983)..........

Farmer v. Carpenters, 430 U.S. 290 (1977) ...........

Florida Lime and Avocado Growers Inc. v. Paul,

I Ts I a sdiiteidies

Group Life & Health Insurance Co. v. Royal Drug

is ee eenmseummaes

Hines v. Davidowitz, 312 U.S. 52 (1941) 0.0...

Insurance Comm’r v. Metropolitan Life Ins. Co.,

296 Md. 334, 463 A.2d 7938 (1983) _..............2000...

International Ass’n of Machinists v. Gonzales, 356

FR ER Seer ae ee ee

Linn v. United Plant Guard Workers, 383 U.S. 53

Ee eae wee Nee we Sane

Machinists v. Wisconsin Employment Relations

Commission, 427 U.S. 182 (1976) .......000000000000...

New York Telephone Co. v. New York State De-

partment of Labor, 440 U.S. 519 (1979)............

Paul v. Virginia, 8 Wall. 168 (1869) 000.

Pennhurst State School & Hospital v. Halderman,

Se ee Oe I ici cittdtneiteceinedbdbietie

Prudential Insurance Co. v. Benjamin, 328 U.S.

IRS HE PARACEL E RA AAEN

San Diego Building Trades Council v. Garmon,

Ps I I ita i

Securities and Exchange Comm’n v. National Secu-

rities, Inc., 3938 U.S. 453 (1969) _......0.00

Shaw v. Delta Air Lines, Inc., 103 S.Ct. 2890

CREED <ismsnidsipeicetpsincinnnnnniediesiesininenmininecbitaiiis 10,

Taggart v. Weinacker’s Inc., 397 U.S. 223 (1970)..

United Constr. Workers v. Laburnum Constr.

CP, Be Cris Ge CI cecntcccceeecccccvcsennststccnssenene

United States v. South-Eastern Underwriters

SOT, THe WT, GD CD veeexcctccecceresccncnsccecescweesess

Wadsworth v. Whaland, 562 F.2d 70 (1st Cir.

1977), cert. denied, 435 U.S. 980 (1978)

Page

14, 18

19

13, 17

19

19

Vv

TABLE OF AUTHORITIES—Continued

STATUTES AND REGULATIONS Page

Employee Retirement Income Security Act of 1974,

Se SA, I ssidapiaebernionel passim

Section 514(a), 29 U.S.C. § 1144(a) -................. 11

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

ii leas cinhip an cilaieltalilancinadiheliagealiicaitaaliomeiompananien 11

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

I sec bined cihanceidigiacaahiatipliette 1l

Massachusetts Gen. Laws ch. 175, § 47B ................ passim

McCarran-Ferguson Act:

LTR 14, 18

National Labor Relations Act:

6 Ree 9, 17, 18, 19

New Hampshire Rev. Stat. Ann., Laws of 1976,

cia oie asiaenlacenitaiinitpinnenmpnsaintiannsinuttintcoe 12

BOOKS AND PERIODICALS

Cox, Labor Law Preemption Revisited, 85 Har. L.

i Fe a tiicckicniciicicteseincipiadimenitinianiendtecees 19

Note, ERISA Preemption and Indirect Regulation

of Employee Welfare Plans Through State In-

surance Laws, 78 Col. L. Rev. 1536 (1978)......... 12

Health Insurance Ass’n. of America, Source Book

of Health Insurance Data, 1982-83, Table 1.1,

Table 4.1, Table 4.7, Table 5.1, Table 5.3 ............ 3,4

U.S. Dept. of Comm. Statistical Abstract of the

United States, 1984, 104th ed., Table 155, Per-

sons With Health Coverage by Type of Cover-

age; Table 726, Labor Union and Employee

Association Membership; Table 728, Labor Or-

ganizations and Membership; Table 729, Em-

ployed Workers in Labor Organizations ............ 5

U.S. Dept. of Labor, Growp Health Insurance Cov-

erage of Private Full-Time Wage and Salary

Re I i icesneeee 5

U.S. Dept. of Labor, Report of Labor Management

Services Administration (1982 report) ............... 5

vi

IN THE

TABLE OF AUTHORITIES—Continued ‘Supreme Court of the United States

MISCELLANEOUS Page OCTOBER TERM, 1984

Blue Cross Association, Legal Affairs Bulletin

(available at Blue Cross Association, Washing-

Ee ee Skee a Pe ae ee 2 No. 84-325 and 84-356

Blue Cross Association: G. Scandler, Total Num-

ber of States With Mandated Coverage (1984),

(unpublished report—available at Blue Cross

Asseclotion, Washington, D.C) on METROPOLITAN LIFE INSURANCE ye

General Court of Massachusetts, Report of the v.

Joint Committee on Insurance, August 1974, Jt. COMMONWEALTH OF MASSACHUSETTS

i 6, 7,8 Auneile

H. Rep. No. 148, 79th Cong., Ist Sess. (1945), re- —

printed in U.S. Code Cong. & Ad. News 670........ 18

Memorandum for the United States as amicus THE TRAVELERS INSURANCE COMPANY,

curiae, filed March 27, 1978, at the request of v. Appellant,

the Court, Wadsworth v. Whaland and Dawson

v. Whaland, Nos. 77-765 and 77-772, October

NN RNR eco Dalen aac 352k 12, 13

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal from the Supreme Judicial Court

for the Commonwealth of Massachusetts

BRIEF OF THE NATIONAL CONFERENCE OF

STATE LEGISLATURES,

THE COUNCIL OF STATE GOVERNMENTS,

THE NATIONAL LEAGUE OF CITIES,

THE NATIONAL ASSOCIATION OF COUNTIES,

THE U.S. CONFERENCE OF MAYORS, AND THE

INTERNATIONAL CITY MANAGEMENT ASSOCIATION

AS AMICI CURIAE IN SUPPORT OF APPELLEE

INTEREST OF AMICI CURIAE

The amici are organizations whose members include

, state, county and municipal governments and officials lo-

cated throughout the United States. Amici and their

members have a vital interest in legal issues that affect

2

the powers and responsibilities of state and local govern-

ment.

The question in this case—whether the Employee Re-

tirement Income Security Act (ERISA) preempts all state

laws requiring health insurance policies to provide mini-

mum mental health benefits to the insureds—is one of

vital importance to amici and their members.

States are deeply concerned that citizens suffering from

crucial medical problems be covered by insurance and

receive treatment. Many people first discover in the mid-

dle of a medical crisis that their health insurance policy

does not protect them from the ravaging cost of medical

care. To close unacceptable gaps in private health insur-

ance coverage, 49 states now mandate various forms of

minimum coverage in all health insurance policies sold in

the state. Mandated benefits include neo-natal care, de-

pendent care, coverage for catastrophic illness and cover-

age for alcohol and drug problems.? In addition, Massa-

chusetts and at least 27 other states mandate insurance

coverage for mental illness.

States have an additional interest in providing for ex-

panded insurance coverage of serious health problems

through insurance. Advances in medical science have cre-

ated a need for more private and public health programs.

The demand for high quality health care is enormous

and growing, but states have a limited fiscal capacity to

meet even the present call for services. Nor is the federal

government meeting the need for servics. The state policy

at issue here accommodates this need by promoting a

better level of health care for citizens and earlier treat-

1 Blue Cross Association: G. Scandler, Total Number of States

With Mandated Coverage (1984) (unpublished report available at

Blue Cross Association, Washington, D.C.).

? Blue Cross Association: Legal Affairs Bulletin and G. Scandler,

Total Number of States With Mandated Coverage (1984) (unpub-

lished report available at Blue Cross Association, Washington, D.C.).

3

ment for mental illness and other medical problems.

Moreover, the state policy accomplishes this without addi-

tional overwhelming economic burdens being placed on

state and local governments, which already spend approx-

imately $40 billion a year on health and medical care.*

The foregoing shows that the legal issues presented by

this case are of great importance to state governments,

especially since a decision adverse to Massachusetts would

eviscerate the mandated benefit laws of no less than 49

states. Thus amici are submitting this brief to assist the

Court in its resolution of this action.*

STATEMENT OF THE CASE

Amici agree with the statement of facts submitted by

the Commonwealth of Massachusetts. In addition, amici

wish to call the Court’s attention to the following facts,

which demonstrate the importance of this case to state

and local government:

A. Health Insurance, Which Is an Essential Means of

Covering Health Costs, Often Has Gaps In Coverage

And Appears To Be Preeminently Obtained By Means

Other Than Collective Bargaining Agreements.

1. Health care cost $286.6 billion nationally in 1981.

This was an estimated 9.8 percent of the gross uational

product.’ Because the cost also averaged $1,225 per per-

son, it is plain that few families could afford the entire

8 Total state and local government expenditures for health and

medical care in 1981 were $38.6 billion. Health Insurance Ass’n. of

America, Source Book of Health Insurance Data, 1982-83, Table 4.1.

The public health programs of State health agencies cost $4.9 bil-

lion a year. This does not include funds expended for public health

purposes by other state agencies. Nor does it include expenditures

of local health departments. Health Insurance Ass’n. of America,

Source Book of Health Insurance Data, 1982-83, Table 4.7.

4 Pursuant to Rule 36, the parties have consented to the filing of

this amicus brief. Their letters of consent have been lodged with

the Clerk of the Court.

5 Health Insurance Ass’n. of America, Source Book of Health In-

surance Data, 1982-83, Table 5.1 and Table 5.2.

4

costs of health care unaided.* An essential way of cover-

ing these costs is through health insurance.

By the end of 1981, more than 188 million Americans,

or 84 percent of the civilian non-institutional population,

were protected by some form of private health insurance.”

With the growth of private health insurance plans, how-

ever, states have become increasingly concerned about the

quality and the extent of coverage that these plans pro-

vide to insured individuals.

It has been found that private plans too often have

serious gaps in coverage, gaps which exist until states

mandate the necessary coverage. For example, neo-natal

care or newborn coverage was not provided in most

health insurance policies until mandated by law. New-

born babies usually were not covered by insurance until

10 to 30 days after birth. Parents of newborn children

with congenital medical problems often found themselves

uninsured and faced with devastating medical bills.

Gaps in coverage have also been found in other im-

portant medical areas, including maternity care, cata-

strophic illness, mental health, and alcohol and drug prob-

lems. A major reason for the gaps in coverage is the

problem of adverse selection of risks. This problem ex-

ists when particular forms of coverage are optional. To

illustrate, persons of an age where they do not expect

catastrophic illness may not purchase optional insurance

providing for coverage of such illness. This limits the

pool of applicants for the insurance and drives up the

price to prohibitive levels. A state law which mandates

coverage for catastrophic illness spreads the risks and

costs over a wider pool of insureds, and thereby causes

the insurance to be available at a reasonable price.

2. Private health insurance plans are predominantly

group plans, and it seems highly likely that vast numbers

® Source Book of Health Insurance Data, supra, Table 5.3.

7 Source Book of Health Insurance Data, supra, at 7 and Table 1.1.

5

of individuals covered by health insurance—probably

even the overwhelming majority of such persons—have

not received their coverage as a result of collective bar-

gaining agreements. This is indicated by statistics. As

said above, by the end of 1981 over 188 million Amer-

icans had some form of private health insurance. Al-

though over 137 million of these people were members of

group plans by 1980,* in 1978, the most recent year for

which statistics are available, labor union membership

nationally was only 21,784,000.° Furthermore, by 1979,

when 43.6 million full-time private sector employees were

covered by group health plans, only 14.01 million of them

were union members with a right of collective bargaining.

Similarly, though by 1979 11.4 million full-time govern-

ment workers were covered by group health plans, in

1980 oniy 4.9 million full-time government employees

were union members with a right of collective bargain-

ing. Thus though definitive statistics are not available,

it seems obvious that most covered individuals obtain in-

surance not because of collective bargaining agreemenis,

but because of voluntary provision by an employer or

by means of self purchase.

B. Massachusetts Adopted Section 47B Only After Care-

ful Consideration of the Problems of Inadequate

Coverage.

In 1973, Massachusetts enacted a law requiring any

general health insurance policy to provide minimum bene-

8 In 1981, 855,000 group plans were on file nationally. U.S. Dept.

of Labor, Report of Labor Management Services Administration 32

(1982 report).

®U.S. Dept. of Comm., Statistical Abstract of the United States,

1984, 104th ed. No. 155, Persons With Health Care Coverage by

Type of Coverage; Number 729, Employed Workers in Labor Or-

ganizations; No. 728, Labor Organization Membership; No. 726,

Labor Union and Employee Association Membership.

10 U.S. Dept. of Labor, Group Health Insurance Coverage of Pri-

vate Full-Time Wage and Salary Workers, 1979 (1981).

6

fits for beneficiaries suffering from mental health condi-

tions (Massachusetts Gen. Laws ch. 175, § 47B)." This

law was adopted only after extensive legislative consid-

eration and hearings, and a lengthy report of the Legis-

lature’s Joint Committee On Insurance.”* It was enacted

to meet the serious health problem caused by inadequate

and delayed treatment of mental illness.

Massachusetts was acting “on some grave problem

areas since years were passing without any policy emerg-

ing from Washington.” ** The legislature was especially

concerned with the spread of mental illness among work-

ers and among the poor. However, because mental illness

strikes indiscriminately, the coverage “safeguards the

. . » young and old, rich and poor, against the burden-

11 The law requires that minimum mental health care benefits for

inpatient care must be provided in all general health insurance

policies. And, to the extent of $500 over a 12-month period, out-

patient care must also be covered, if provided by comprehensive

mental health organizations, licensed or accredited hospitals or com-

munity mental health centers. See Appendix, infra.

12 The Report of the Joint Committee on Insurance was carefully

considered by the courts below in reaching their decision. For

example, the Supreme Judicial Court of Massachusetts in its

March 24, 1982 opinion stated in footnote 24:

“A report of the Joint Committee on Insurance of the General

Court, incorporated into the findings of the judge below, demon-

strates “hat the Legislature was concerned with the spread of

mental . Iness among workers and among the poor. In the com-

mittee’s view, mental health insurance programs would encour-

age community-based, out-patient care and decrease the need

for institutionalization. ‘Mental illness strikes indiscriminately

2mong young and old, rich and poor. A néed therefore exists

for all people to be safeguarded against the high and some-

times crippling costs of professional mental health care today.’

General Court Joint Committee on Insurance, Advances in

Health Insurance in Massachusetts 9 (1974).”

18 Report on the legislation, the Joint Committee on Insurance

of the Massachusetts General Court. Joint Appendix of the Parties

(hereafter J.A.)-427.

7

some cost of professional mental health services and

care.” ** The legislature found that inpatient institu-

tional care in mental hospitals was often obsolete and in

many cases very damaging.” But “[o]utpatient care

given at a local community mental health center...

enables the mentally ill to receive adequate treatment

without costly institutionalization .. .” **

The Committee noted that because only one percent of

the people of the Commonwealth were previously insured

for outpatient care, community mental health centers had

been publicly supported, costing Massachusetts taxpayers

millions of dollars annually. However, “[b]y making

mental health care coverage mandatory, Massachusetts

can continue the thrust toward community-based care...

increas[ing] the availability for treatment in privately

run mental health centers but savling] the taxpayers

money as well.” 7”

Mental health insurance, the Committee found, can be

offered at a reasonable cost only when included in large

group policies. Also, for the cost to be reasonable, in-

surance for mental illness has to be a mandatory feature

of all policies sold in the state. “An optional offer to

cover mental illness is contrary to the most basic prin-

ciple of insurance—that of ‘risk sharing’.” **

The committee also found that insurance coverage for

mental health was not abused where it was offered and

14 Report on the legislation, supra, J.A.-430-431.

15 Report on the legislation, supra, J.A.-431.

16 Report on the legislation, supra, J.A.-432. Deinstitutionalization

of the mentally ill and mentally retarded is a policy that has received

considerable support and encouragement from the federal govern-

ment. See, e.g., Pennhurst State School and Hospital v. Halderman,

451 U.S. 1 (1981).

17 Report on the legislation, supra, J.A.-432.

18 Report on the legislation, supra, J.A.-433.

that it decreased non-psychiatric medical care for so-

called physical ailments. A study by the Group Health

Association in Washington, DC, for example, demon-

strated that providing mental health services substan-

tially reduced the amount of nonpsychiatric care that was

needed.** The patients who received outpatient psychia-

tric treatment required a significantly smaller amount of

services from physicians and fewer laboratory and X-ray

procedures.

The Committee concluded that to enlarge the commu-

nity health care system “and make [outpatient treat-

ment] available to millions of Massachusetts residents

mental health insurance must be mandatory .. .” ”

SUMMARY OF ARGUMENT

I.

Forty-nine states have enacted laws which require

health insurance companies to include various types of

medical benefits in their insurance policies. The states

passed these laws to protect their citizens against medical

problems which are a menace to public health. If the

laws are held preempted, millions of citizens will be left

unprotected against these problems.

However, when it enacted ERISA, Congress did not

intend to preempt the state laws. This is not only the

position of amici, but is the position that has been ex-

pressed to the Court by the federal government, whose

law is involved.

Such position is supported by ERISA’s broad savings

clause, under which state laws regulating insurance are

exempted from preemption. Moreover, when it enacted

ERISA, Congress was aware of state insurance laws re-

19 Report on the legislation, supra, J.A.-435.

2» Report on the legislation, supra, J.A.-437.

9

quiring carriers to provide various benefits, yet it never-

theless inserted the broad savings clause exempting state

insurance laws from preemption. In so doing, Congress

adhered to its traditional position that regulation of in-

surance is for the states.

Furthermore, Congress did not deal in any way with

the substantive content of health insurance policies when

it enacted ERISA. Thus, if state mandated benefit laws

such as Section 47B are struck down, citizens will have

no government protection, be it federal or state. Nor

will vast numbers of citizens obtain whatever protection

can be secured through collective bargaining. For mil-

lions of citizens—very likely the vast majority of those

who are covered by health insurance—do not obtain their

coverage by means of collective bargaining agreements.

Finally, appellants argue that in the absence of pre-

emption there will be a lack of uniformity among state

mandated benefit laws. Their argument is addressed to

the wrong forum. It should be addressed to Congress,

which contemplated non-uniformity when it inserted the

savings clause exempting state insurance laws from

preemption.

Il.

State mandated benefit laws are not preempted by the

NLRA. Congress did not intend the NLRA to supersede

state laws regulating insurance. And it is inconceivable

that Congress intended the NLRA to strip states of their

historic power to safeguard the public health—a result

which would ensue if there is preemption here.

Moreover, there also is no preemption under the tests

the Court often uses in labor matters. First, laws such

as Section 47B are deeply rooted in local feeling and re-

sponsibility because they protect the local public health.

Second, they do not affect any economic weapon (such as

strikes) used by labor or management.

10

ARGUMENT

I. STATE LAWS MANDATING MINIMUM HEALTH

INSURANCE BENEFITS ARE NOT PREEMPTED

BY ERISA

A. Introduction

This case presents a fundamental question of preemp-

tion which deeply concerns state and local governments.

The principal issue is whether ERISA prohibits states

from protecting the health of their citizens by requiring

that health insurance policies provide minimum benefits

for such serious problems as mental illness, catastrophic

illness, medical care for newborn babies, and dependency

on alcohol or drugs. Massachusetts and 48 other states

have enacted laws that mandate minimum benefits be-

cause these problems are a menace to public health, there

have been gaps in insurance coverage, and the laws re-

duce the costs of insurance because of a wider sharing

of risk.

Moreover, as this Court has recognized, Congress, when

it enacted ERISA, did not deal in any way with the sub-

stantive content of health insurance plans. Shaw v. Delta

Air Lines, Inc., 103 S.Ct. 2980, 2897 (1983). Instead, Con-

gress left the regulation of insurance to the states, which

have traditionally exercised such power of regulation.

There is thus no conflict between ERISA and Section

47B of the Massachusetts law. To the contrary, if Sec-

tion 47B were held preempted, tens of millions of citizens

would be left without any protective regulation, federal

or state. Thus, in enacting mandated benefit laws, states

are acting in pursuit of the legitimate and traditional

state purpose of protecting the health and welfare of

their citizens. In this regard, statutes such as Section

47B exemplify state innovation designed to solve signifi-

cant social problems without reliance on Washington for

help.

!

|

11

B. Congress Saved State Insurance Laws From Pre-

emption by ERISA

1. As this Court recently stated, “Preemption of state

law by federal statute or regulation is not favored ‘in

the absence of persuasive reasons—either that the nature

of the regulated subject matter permits no other conclu-

sion, or that the Congress has unmistakably so ordained.’ ”

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 522

(1981). “Persuasive reasons” for preemption exist when

there is an actual conflict between state and federal law,

i.e. when “compliance with both federal and state regula-

tions is a physical impossibility,” Florida Lime and Avo-

cado Growers Inc. v. Paul, 373 U.S. 182, 142-143 (1963),

or when state law “stands as an obstacle to the accom-

plishment and execution of the full purposes and objec-

tives of Congress.” Hines v. Davidowitz, 312 U.S. 52,

67 (1941).

There are no such “persuasive reasons” for preemp-

tion in this case. Though Section 514 of ERISA provides

that all state laws that “relate” to employee benefit plans

are preempted,” this clause is followed by a broad sav-

ings clause which exempts state insurance laws from

preemption: “Except as provided in subparagraph (B),

nothing in the subchapter should be construed to exempt

or relieve any person from any law of any state which

regulates insurance. ...” ~ Thus, instead of preempting

state laws regulating insurance, Congress has expressly

said that they are free of preemption.”

21 ERISA Section 514(a), 29 U.S.C. §1144(a). See Appendix,

infra.

2 ERISA Section 514(b)(2)(A), 29 U.S.C. § 1144(b) (2) (A).

See Appendix, infra.

23 Section 514(b) (2) (B), 29 U.S.C. § 1144(b) (2) (B) provides

that no state can deem an employee benefit plan to be an insurance

company, or to be engaged in the business of insurance, for purposes

of “regulating” insurance. This “deemer” clause simply prohibits

12

The federal government, whose law is involved here,

has agreed that state laws which require insurance poli-

cies to provide mental health benefits are not preempted

by ERISA. It has said these laws are excluded from pre-

emption by the savings clause even though they indirectly

affect employee benefit plans which purchase the insur-

ance policies.* As the Solicitor General said:

“This savings provision would be meaningless unless

it saved from preemption state laws regulating in-

surance which also indirectly regulate employee bene-

fit plans, since no other state law regulating insur-

ance would be subject to preemption under the Act

even in the absence of the savings provision. Chap-

ter 57 obviously “regulates insurance,” and thus the

court correctly found that Congress intended that

law and others like it to remain effective regardless

of ERISA’s otherwise broad preemption of state

laws relating to plans... .*

The fact that the purchaser of insurance is an em-

ployee benefit plan is immaterial; Congress did not

intend to confer any special exemption or privilege

on them as insurance buyers. Insurance sales to

them must conform to the same rules as those to any

the state from regulating employee welfare benefit plans by calling

them insurers. It does not prohibit the state from regulating bona

fide insurers when they are doing business with employee benefit

plans. Note, ERISA Preemption and Indirect Regulation of Em-

ployee Welfare Plans Through State Insurance Laws, 78 Col. L.

Rev. 1586, 1541 (1978).

2 Memorandum for the United States as amicus curiae, filed

March 27, 1978, at the request of the Court, Wadsworth v. Whaland

and Dawson v. Whaland, Nos. 77-765 and 77-772, October Term

1977. Wadsworth v. Whaland, 561 F.2d 70 (1st Cir. 1977), cert.

denied, 435 U.S. 98 (1978).

2% The issue in Wadsworth v. Whaland was whether a New Hamp-

shire statute, Chapter 57 of N.H. Rev. Stat. Ann. of Laws of 1976,

which mandates mental health benefits in group health insurance

policies, was preempted by ERISA.

13

other insurance buyer, and if a state determines, as

New Hampshire has done here, that all group health

insurance sold in the state must provide coverage

for mental and emotional disturbance, the plans may

purchase no other... .

“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.” *

The position of amici, and that expressed by the Solici-

tor General, is supported by the legislative history sur-

rounding the passage of ERISA. In 1974, the year

ERISA was enacted, at least 16 states had insurance laws

that mandated particular health benefits in insurance pol-

icies.” Congress was aware of the functions and scope of

such laws, yet specifically exempted state laws regulating

insurance from the preemption clause of ERISA.2* More-

over, Congress did not seek to deal in any way with the

substantive content of insurance—which is what laws

like Section 47B do deal with.” Rather, as this Court has

recognized, Congress intended only to establish reporting,

disclosure and fiduciary requirements for pension and

welfare benefit plans.”

26 Memorandum for the United States, supra at 7-9. (Footnote

added.)

27 Blue Cross Association: G. Scandler, Total Number of States

With Mandated Coverage (1984) (unpublished report). The earliest

mandated benefit plans were adopted in the late 1960s. By 1974,

16 states had enacted newborn coverage, 4 states had enacted

mental health coverage and 5 states had alcohol abuse coverage.

28 Wadsworth v. Whaland, 562 F.2d 70 (1st Cir. 1977), cert.

denied, 435 U.S. 98 (1978). Inswrance Commissioner v. Metropolitan

Life Ins. Co., 296 Md. 334, 463 A.2d 793 (1983).

2 Shaw v. Delta Air Lines, Inc., 108 S.Ct. 2890, 2896 (1983).

© Appellants argue that laws such as 47B are preempted because

this Court has said ERISA’s preemption provision is very broad and

even covers subjects not dealt with in ERISA. Brief for Appellant

14

2. Congressional intent to leave states free to regulate

the content of insurance policies is further indicated by

the fact Congress has traditionally supported—and when

necessary re-established—state regulation of insurance.

From the 1869 decision in Paul v. Virginia, 8 Wall. 168

(1869), to the 1944 decision in United States v. South-

Eastern Underwriters Ass’n., 322 U.S. 533 (1944), in-

surance was considered not to be interstate commerce and

was therefore regulated by the states. When the Court

ruled in South-Eastern Underwriters™ that insurance is

interstate commerce, a ruling which made insurance sus-

ceptible to federal regulation instead of state regulation,

Congress quickly passed the McCarran-Ferguson Act * to

give support to existing and future state systems for reg-

ulating and taxing insurance. Prudential Insurance Co.

v. Benjamin, 328 U.S. 408, 429 (1946).

The Act specifically allows states to regulate th» “busi-

ness of insurance.” The business of insurance is pre-

cisely what is regulated by state laws requiring health

insurers to provide specified benefits to their insureds.

This is only common sense. It is also supported by prece-

dent. For the Court has said “[T]he core of the ‘business

of insurance’” encompasses “[t]he relationship between

insurer and insured, the type of policy which could be

issued. . .”, Securities and Exchange Comm’n v. Na-

tional Securities, Inc., 393 U.S. 453, 459-460, and that

the business of insurance includes “the contract between

the insurer and the insured.” Group Life & Health Insur-

Metropolitan Life Insurance Company at p. 18. But the savings

clause broadly excepts insurance from the preemption provision, and

the Court’s statements which indicate the breadth of the preemption

provision were not intended to indicate a narrow scope for the

savings clause. To the contrary, the Court specifically said that

ERISA’s concerns are limited by the savings clause. Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 523, f.n. 19 (1981).

%1 United States v. South-Eastern Underwriters Ass'n, supra, 322

U.S. 583 (1944).

%215 U.S.C. Section 1011 et seg. See Appendix, infra.

15

ance Co. v. Royal Drug Co., 440 U.S. 205, 215 (1979).

These matters were summarized in Securities and Ex-

change Comm’n v. National Securities, Inc., 393 U.S.

453:

“Congress was concerned with the type of state

regulation that centers around the contract of in-

surance. ... The relationship between insurer and

insured, the type of policy which could be issued, its

reliability, its interpretation, and enforcement—

these were the core of the ‘business of insurance’.

Undoubtedly, other activities of insurance compa-

nies relate so closely to their status as reliable in-

surers that they must be placed in the same class.

But whatever the exact scope of the statutory term,

it is clear where the focus was—it was on the rela-

tionship between the insurance company and the

policy holder. Statutes aimed at protecting or regu-

lating this relationship, directly or indirectly are

laws regulating the business of insurance.” Securi-

ties & Exchange Comm’n. v. National Securities,

supra at 460.*

3. If the Court were to find preemption here, millions

of citizens would be left without necessary protections. As

pointed out above, in the absence of state laws requiring

particular benefits, there are gaps in health insurance

coverage and certain forms of health insurance are pro-

hibitively expensive. Crucial coverage such as neo-natal

care, care of mental health problems, and catastrophic ill-

ness insurance are either unobtainable or unobtainable at

affordable prices. Furthermore, Congress did not deal

with this problem in ERISA, as ERISA does not touch

the substantive content of health insurance policies. Thus

citizens will be deeply and adversely affected if laws such

as Section 47B are struck down.

88 Appellants claim that, because it is intended to protect public

health, Section 47B does not regulate insurance. The claim is plain

error. Section 47B protects the public health by regulating insurance.

16

Moreover, vast numbers of citizens—probably even the

overwhelming majority of those who possess some form of

health insurance—will not secure whatever protections can

be obtained through collective bargaining. Although de-

fendants lay much stress on their claim that laws such

as Section 47B allegedly interfere with the results of

collective bargaining, the available data indicates that

huge numbers of citizens obtain health insurance by

means other than such bargaining. They obtain it either

by unilateral action of an employer or by self-purchase.

That collective bargaining is irrelevant to most people in

connection with health insurance is shown by the statis-

tics. In 1979, 14 million full-time union members with a

right of collective bargaining were covered by health

insurance policies, but shortly thereafter the total num-

ber of individuals with health insurance was almost 14

times greater than this: it was 188 million. As well,

43 million full-time private sector employees were cov-

ered by group health plans in 1979, but only 14 million

of them were union members with a right of collective

bargaining. And 11 million full-time government work-

ers were covered by group health plans by 1979, though

in 1980 only 5 million full-time government employees

were union members with a right of collective bargaining.™

The fact that a finding of preemption will leave huge

numbers of people without crucial types of medical ben-

efits counsels strongly against such a ruling, for it would

be very odd if a law enacted to protect workers—ERISA

—were to result in their being deprived of crucial pro-

tections. It would be equally odd if ERISA were held to

knock out the protective laws of 49 states dealing with a

subject that Congress did not even touch when it en-

acted ERISA.

*% The foregoing statistics are contained in or derived from the

authorities cited in notes 3, 5, 9 & 10, supra.

We also note that, as mentioned earlier, by 1981 there were

855,000 employee welfare benefit plans. The persons insured under

vast number of those plans would be left without protection. <

17

4. Appellants claim there must be preemption because

otherwise there will be lack of unformity in state laws

that mandate particular forms of health insurance cover-

age. Their argument is addressed to the wrong forum.

Congress specifically allowed nonuniformity when it ex-

pressly provided that laws regulating the business of in-

surance are saved from preemption. Congress knew in-

surance laws vary from state to state, but it saved them

from preemption in deference to the long tradition of

state regulation of insurance, a tradition which recog-

nizes that in a federal system not all laws will be the

same and not all laws should be made in Washington.

If defendants object to the nonuniformity expressly con-

templated by Congress, they should address their argu-

ments to Congress instead of seeking judicial amendment

of the statute.™

II. SECTION 47B IS NOT PREEMPTED BY THE NA-

TIONAL LABOR RELATIONS ACT

Appellants assert that Section 47B is preempted by the

National Labor Relations Act (NLRA).™ The assertion

is incorrect. There are no “persuasive reasons” for such

85 The only matter at issue here is whether ERISA preempts a

state law requiring insurance companies to provide particular bene-

fits in health insurance policies which they sell to others. A question

not at issue is whether a state could require an employer to provide

particular forms of health benefits to his own employees. Massachu-

setts appears to have conceded that, because of ERISA, a state

could not require this. Amici, whose members include the political

bodies and governing officials of many other states, do not agree

with such a concession. In Shaw v. Delta Air Lines, Inc., 103 S.Ct.

2890, 2905-6 (1983), the Court ruled that a state can require an

employer to provide certain benefits separately from an ERISA

plan, even if it cannot force him to include them in the ERISA

plan itself. That logic is applicable to health benefits. Thus, if a

state sought to require an employer to provide specific health bene-

fits, it can do so even if it cannot require the benefits to be provided

as part of an ERISA plan.

86 29 U.S.C. § 151 et seq.

18

preemption. To the contrary, there are persuasive reasons

against it. Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

504 (1981).

Congress enacted the NLRA to remedy “the inequality

of bargaining power between employees who do not pos-

sess full freedom of association or actual liberty of con-

tract, and employers who are organized in the corporate

or other forms of ownership association. . .” 29 U.S.C.

§ 151. Section 47B, however, does not create any in-

equality of bargaining power. Moreover, at the time Con-

gress enacted the NLRA, state regulation of insurance

was long established, and Congress did not intend the

NLRA to overturn this regulation. Indeed, Congress sub-

sequently acted to assure the continuation of state regula-

tion of insurance by passing the McCarran-Ferguson Act

in 1945." Finally, it is inconceivable that, in enacting the

NLRA, Congress meant to deprive states of their historic

power to protect the public health, a deprivation which

would ensue if NLRA preempts state laws requiring in-

surers to provide important health benefits.

Nor is there preemption under the two tests this Court

has often used in the labor field. Under the test laid

down in Garmon,* there is no preemption if a state regu-

lation deals with matters deeply rooted in local feeling

and responsibility. Id. at 244. That is precisely the type of

matter at issue here. As made clear earlier in this brief,

Massachusetts, like other states, is deeply concerned that

87 The report of the House Committee on the Judiciary says

that Congress was considering the Act “so that the several States

may know that the Congress desires to protect the continued regula-

tion and taxation of the business of insurance by the several States,

and thus enables insurance companies to comply with State laws.

What is more, the Congress proposes by this bill to secure adequate

regulation and control of the insurance business.” H. Rep. No. 143,

79th Cong., Ist Sess. (1945), reprinted in U.S. Code Cong. & Ad.

News 670, 671.

88 San Diego Building Trades Council v. Garmon, 359 U.S. 286

(1959).

19

millions of its citizens receive appropriate health insur-

ance coverage and medical care and not be victimized by

lack of coverage. It has, therefore, acted out of concern

for the local public health. There is nothing more deeply

rooted in local interest.

The second test, laid down in the Machinists case,™ is

that a state cannot regulate conduct which Congress left

to the free play of economic forces. Id. at 140. The test

is inapplicable here for two reasons. First, the test is

correctly applied where a state seeks to affect an economic

weapon (such as strikes) utilized by labor or manage-

ment. Machinists v. Wisconsin Employment Relations

Commission, 427 U.S. 182 (1976); New York Telephone

Co. v. New York State Dept. of Labor, 440 U.S. 519

(1979). But laws like Section 47B are not intended to

and do not affect any economic weapon employed by work-

ers or management.

Second, in enacting NLRA, Congress did not intend to

cause insurance or public health to be left to the “free

play of economic forces” between labor and management.

Rather, Congress preserved long-standing state regulation

of insurance and also preserved the states’ historic power

to protect the public health.”

39 Machinists v. Wisconsin Employment Relations Comm’n, 427

U.S. 182 (1976).

# Like laws concerning t rts or contracts, Section 47B is a

neutral state law of general application. Numerous Justices have

concluded that such laws are not preempted by the NLRA. Belknap

Ine. v. Hale, 103 S. Ct. 3172, 3183 (1983) (White, J.); Farmer v.

Carpenters, 430 U.S. 290, 296 (1977) (Powell, J.); International

Ass’n of Machinists v. Gonzales, 356 U.S. 617, 619, 622 (1958)

(Frankfurter, J.) ; Linn v. United Plant Guard Workers, 383 U.S.

53, 62 (1966) (Clark, J.); New York Telephone Co. v. New York

State Dept. of Labor, 440 U.S. 519, 583 (1979) (Stevens, J.); Tag-

gart v. Weinacker’s, Inc., 397 U.S. 228, 228 (1970) (Burger, C.J.,

concurring) ; United Constr. Workers v. Laburnum Constr. Corp.,

347 U.S. 656 (1954) (Burton, J.) ; See Cox, Labor Law Preemption

Revisited, 85 Harv. L. Rev. 1337, 1355-1356, 1859-1360 (1972).

20

CONCLUSION

For the foregoing reasons, this Court should affirm the

decision below that the Massachusetts law mandating

mental health benefits in group insurance policies is not

preempted.

LAWRENCE R. VELVEL

444 North Capitol Street, N.W.

Suite 349

Washington, D.C. 20001

(202) 638-1445

Of Counsel

January, 1985

Respectfully submitted,

JOYCE HOLMES BENJAMIN

The State and Local Legal Center

444 North Capitol Street, N.W.

Suite 349

Washington, D.C. 20001

(202) 688-1445

Counsel of Record for the

Amici Curiae

la

APPENDIX

McCarran-Ferguson Act

15 U.S.C. § 1012:

(a) The business of insurance and every person

engaged therein, shall be subject to the laws of the

several States which relate to the regulation or taxa-

tion of such business.

(b) No Act of Congress shall be construed to in-

validate, impair, or supersede any law enacted by

any State for the purpose of regulating the business

of insurance, or which imposes a fee or tax upon

such business, unless such Act specifically relates to

the business of insurance: Provided, That after June

80, 1948, the Act of July 2, 1890, as amended,

known as the Sherman Act, and the Act of October

15, 1914, as amended, known as the Clayton Act, and

the Act of September 26, 1914, known as the Fed-

eral Trade Commission Act, as amended, shall he

applicable to the business of insurance to the extent

that such business is not regulated by State law.

Employee Retirement Income Security Act of 1974

29 U.S.C. § 1144:

“(a) Except as provided in subsection (b) of this

section, the provisions of this subchapter and sub-

chapter III of this chapter shall supersede any and

all State laws insofar as they may now or hereafter

relate to any employee benefit plan described in sec-

tion 1003(a) of this title and not exempt under sec-

tion 1003(b) of this title. This section shall take

effect on January 1, 1975.

“(b) (1) This section shall not apply with respect to

any cause of action which arose, or any act or omis-

sion which occurred, before January 1, 1975.

2a

“(2)(A) Except as provided in subparagraph (B),

nothing in this subchapter shall be construed to ex-

empt or relieve any person from any law of any

State which regulates insurance, banking, or securi-

ties.

“(B) Neither an employee benefit plan described in

section 1003(a) of this title, which is not exempt

under section 1003(b) of this title (other than a

plan established primarily for the purpose of provid-

ing death benefits), nor any trust established under

such plan, shall be deemed to be an insurance com-

pany or other insurer, bank, trust company, or in-

vestment company or to be engaged in the business

of insurance or banking for purposes of any law of

any State purporting to regulate insurance com-

panies, insurance contracts, banks, trust companies,

or investment companies.

“(3) Nothing in this section shall be construed to

prohibit use by the Secretary of services or facili-

ties of a State agency as permitted under section

1136 of this title.

“(4) Subsection (a) of this section shall not apply

to any generally applicable criminal law of a State.

“(c¢) For purposes of this section:

“(1) The term ‘State law’ includes all laws, deci-

sions, rules, regulations, or other State action hav-

ing the effect of law, of any State. A law of the

United States applicable only to the District of Co-

lumbia shall be treated as a State law rather than

a law of the United States.

“(2) The term ‘State’ includes a State, any political

subdivisions thereof, or any agency or instrumen-

tality of either, which purports to regulate, directly

or indirectly, the terms and conditions of employee

benefit plans covered by this subchapter.

8a

“(d) Nothing in this subchapter shall be construed

to alter, amend, modify, invalidate, impair, or su-

persede any law of the United States (except as

provided in sections 1031 and 1137(b) of this title)

or any rule or regulation issued under any such

law.”

Section 47B (Massachusetts Gen. Laws ch. 175 47B):

“Any blanket or general policy of insurance de-

scribed in subdivision (A), (C), or (D) of section

one hundred and ten which provides hospital expense

and surgical expense insurance and which is issued

or subsequently renewed by agreemerit between the

insurer and the policyholder, within or without the

commonwealth, during the period this provision is

effective, or any policy of accident and sickness in-

surance as described in section one hundred and

eight which provides hospital expense and surgical

expense insurance and which is delivered or issued

for delivery or subsequently renewed by agreement

between the insurer and the policyholder in this com-

monwealth during the period that this provision is

effective, or any employees’ health and welfare fund

which provides hospital expense and surgical expense

benefits and which is promulgated or renewed to any

person or group of persons in this commonwealth

covered under any such policy or plan, arising from

mental or nervous conditions as described in the

standard nomenclature of the American Psychiatric

Association which are at least equal to the following

minimum requiremen ~:

“(a) In the case of benefits based upon confinement

as an inpatient in a mental hospital under the direc-

tion and supervision of the department of mental

health, or in a private mental hospital licensed by

the department of mental health, the period of con-

finement for which benefits shall be payable shall

be at least sixty days in any calendar year.

4a

“(b) In the case of benefits based upon confinement

as an inpatient in a licensed or accredited general

hospital, such benefits shall be no different than for

any other illness.

“(ce) In the case of outpatient benefits, these shall

cover, to the extent of five hundred dollars over a

twelve-month period, services furnished (1) by a

comprehensive health service organization, (2) by a

licensed or accredited hospital (3) or subject to the

approval of the department of mental health services

furnished by a community mental health center or

other mental health clinic or day care center which

furnishes mental health services or (4) consultations

or diagnostic or treatment sessions, provided that

such services under this clause are rendered by a

psychotherapist or by a psychologist licensed under

the provisions of chapter one hundred and twelve.

For purposes of this clause ‘psychotherapist’ shall

mean a person fully licensed to practice medicine

under the provisions of chapter one hundred and

twelve, who devotes a substantial portion of his time

to the practice of psychiatry.” Mass. Gen. Laws ch.

175, 47B.