Amicus Curiae Brief — FMC Corp. v. Holliday

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QUESTION PRESENTED

Whether ERISA preemption exempts self-funded or

self-insured employee benefit plans from state insur-

ance statutes enforceable against insured employee

benefit plans and licensed insurance companies, where

such statutes are neither directed specifically to em-

ployee benefit plans nor core ERISA provisions.

TABLE OF CONTENTS

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INTEREST OF AMERICAN PODIATRIC MEDICAL

ASSOCIATION

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TABLE OF AUTHORITIES

Cases: Page

FMC Corp. v. Holliday, 885 F.2d 79 (3d Cir. 1989),

cert. granted, 110 S.Ct. 1109 (1990) ....... §,8,9,11,13

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1

i irntrincdnntieseunevesecoceoeseres 6,7,12,13

Group Life and Health Insurance v. Royal Drug

BE CUT cccccsccccsesseccsesecsoscesecees 11

Metropolitan Life Insurance Co. v. Massachusetts,

IED on vcncccossccsossesconscescsces 7,8,9,11,12

Northern Group Services, Inc. v. Auto Owners Ins.

Co., 833 F.2d 85 (6th Cir. 1987), certiorari de-

nied, 108 S.Ct. 1754 (1988) .............ceeeeeeeeeees 9,10,12

Pilot Life Insurance Company v. Dedaux, 481 U.S.

SST 12

Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983) . 5,7

Statutes:

Employee Retirement Income Security Act of 1974

(“ERISA’’), 29 U.S.C. Section 1144 et seq. .. passim

Mich. Comp. Laws Section 500.3109a .................... 11

40 Pa. Stat. Ann. Section 1511 ............................. 6

Virginia Code Section 54.1-2929, et seg. ................ 2

Other:

Blacks Law Dictionary, 5th Ed. (1979) .................. 10

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1989

No. 89-1048

FMC CoRPORATION,

Petitioner,

Vv.

CYNTHIA ANN HOLLIDAY,

Respondent.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Third Circuit

BRIEF AMICUS CURIAE OF

AMERICAN PODIATRIC MEDICAL ASSOCIATION

IN SUPPORT OF RESPONDENT

The American Podiatric Medical Association sub-

mits this brief amicus curiae in support of respondent.

Letters granting consent, received from counsel for

each of the parties, are being filed together with this

brief.

STATEMENT OF INTEREST OF AMICUS CURIAE

AMERICAN PODIATRIC MEDICAL ASSOCIATION

The American Podiatric Medical Association

(APMA) is a voluntary membership association rep-

resenting over 9,000 licensed doctors of podiatric

medicine practicing in each of the 50 states, Puerto

Rico and the District of Columbia. Podiatry, or po-

diatric medicine, is regulated in each of the fifty states

as a recognized healing art, along with medicine, os-

teopathy, dentistry, optometry, and other licensed

providers of heatlh care. In some jurisdictions, po-

diatric medicine is regulated by independent statute;

in others, licenses are granted pursuant to the medical

practice act which likewise regulates the practice of

medicine.! APMA is a District of Columbia non-profit

corporation with its principal office in Bethesda,

Maryland. APMA exists as a confederation of state

podiatric medical associations.

An estimated nine and one half million Americans

receive their health care benefits from self-funded

welfare benefit plans.2 Many such plans provide ben-

efits for foot care. However, some of these plans,

together with traditional insurance contracts contain

benefit provisions excluding or restricting the cov-

erage of podiatry; i.e., distinguishing between podia-

tric physicians and other licensees authorized to care

for the human foot. This discrimination against po-

diatrists led to the enactment of state ‘“‘freedom of

choice” or “‘non-discrimination laws’’ requiring that

third party payment of health care costs be deter-

mined without regard to the degree or license held,

provided that the service rendered was within the

scope of such practitioner’s license. It is the position

of APMA that this Court’s opinion in the instant case

1 See for example, Code of Virginia, Section 54.1 - 2929, et.

seq.

2 See Petitioner’s brief, p.4 n.2 citing U.S. Dept. of Labor,

Bureau of Labor Statistics, Bulletin 2336 (August 1988).

will likely decide questions which will have a signif-

icant effect on the applicability of ‘“‘freedom of choice’

and “non-discrimination laws” to employee welfare

plans. Thus, as the national organization representing

the interest of doctors of podiatric medicine, APMA

hereby respectfully submits this brief amicus curiae

in support of the brief of respondent, Cynthia Ann

Holliday and the Third Circuit’s holding in this case.

APMA further submits that this Court’s disposition

of the instant case should not adversely affect, and

should in fact reaffirm, the efficacy of ‘freedom of

choice’”’ laws as unimpaired by the preemption pro-

vision of ERISA.

SUMMARY OF ARGUMENT

This case deals with the applicability of state in-

surance laws to self-funded employee benefit plans.

Specifically, the Court is being asked to consider

whether the Pennsylvania Motor Vehicle Financial

Responsibility Law is enforceable against such plans.

The answer lies in the meaning of Section 514 of

ERISA, 29 U.S.C. Sec. 1144: 1) is the state law

preempted by ERISA? 2) is the state law ‘‘saved”’

from preemption? and 3) does the ‘‘deemer’’ clause

excuse self-funded plans from compliance with the

state law?

The initial focus in ERISA preemption cases has

been whether the state law ‘relates’ to employee

benefit plans. A law may have so indirect an effect

on such plans as to fall outside the scope of the ‘‘re-

lates to’’ test. The Pennsylvania anti-subrogation and

‘‘freedom of choice’’ statutes are laws directed to all

applicable third party payers and not specifically di-

rected to employee benefit plans. The anti-subrogation

law poses no true burdens on the administration of

employee benefit plans and conflicts with no ERISA

provisions. Nevertheless, the Court of Appeals has

noted that the anti-subrogation law is a law relating

to the plan and is a law regulating insurance. The

outcome of this case rests on the scope of the ‘‘dee-

mer’”’ clause. The Third Circuit has, after considera-

tion of precedent, legislative history and common

sense, concluded that the deemer clause provides a

narrow exception to the application of insurance laws

to self-funded employee benefit plans. The savings

clause permits the states to enforce the insurance

laws notwithstanding general ERISA preemption.

That a self-funded plan should not be ‘‘deemed”’ an

insurance company for purposes of any insurance law

regulating insurance companies or insurance contracts

should, in no way, interfere with a state’s right to

enforce its insurance laws. The deemer clause refers

to a narrower set of laws than all insurance laws

saved from preemption and applies only to such state

statutes which directly or deliberately conflict with

central provisions of ERISA. Anti-subrogation laws

as well as “‘freedom of choice’ laws are saved from

preemption and do not relate to core ERISA provi-

sions so as to be inapplicable to self-funded plans.

ARGUMENT

State insurance laws must bear a relation to employee

benefit plans so as to be preempted by ERISA.

I. State “‘freedom of choice’’ laws do not “‘relate’’

to employee benefit plans and thus, are not

preempted by ERISA.

This case deals primarily with the scope of insur-

ance laws saved from federal preemption pursuant to

ERISA section 514 (bX2XA) and the limitations on

enforcement of such insurance laws by the “‘deemer’”’

clause of ERISA section 514 (bX2\B). Earlier cases

have dealt with the three-pronged ERISA preemption

concept; namely, whether a state law sufficiently ‘‘re-

lates’”’ to benefit plans as to be superseded by ERISA

(29 U.S.C. section 1144 (a)), whether the state law is

a law which “regulates insurance’’ and is thereby

saved from preemption (29 U.S.C. Section 1144

(bX2\A)), and whether the plan to which the state

law is being applied is being ‘“‘deemed”’ to be an in-

surance company or other insurer or to be engaged

in the business of insurance for purposes of any law

purporting to regulate insurance companies or insur-

ance contracts, (29 U.S.C. Section 1144 (b\2\B)).

Typically, ERISA preemption analysis commences

with a determination of the state law’s relationship

to employee benefit plans. The Third Circuit in the

instant case, citing this Court, determined that a “law

relates to an employee benefit plan, in the normal

sense of the phrase, if it has a connection with or

reference to such plan.”” FMC Corporation v. Holiday,

885 F.2d 79, 84, (8rd Cir. 1989), citing Shaw v. Delta

Airlines, 463 U.S. 85, at 96, 97, 103 S.Ct. 2890 at

2900, 77 L.Ed. 2d 490, (1983). In Shaw, this Court

ruled that New York’s Disability Benefit and Human

Rights laws “related’’ to employee benefit plans.

Nevertheless, this Court observed that certain “‘state

actions may affect employee benefit plans in too ten-

uous, remote, or peripheral a manner to warrant a

finding that the law ‘relates to’ the plan.”’ Shaw, 463

U.S. at 100 n.21, 103 S.Ct. at 2901 n.21.

In Holliday, the Third Circuit held that the Penn-

sylvania anti-subrogation law “‘related’’ to employee

benefit plans and would have been preempted, absent

the applicable ‘‘savings clause’ concerning state in-

surance laws. Petitioner’s broad interpretation results

in a lack of uniform application of state laws provid-

ing the public with equal access to and reimbursement

for health care services rendered by any licensed prac-

titioner.* APMA believes, these “freedom of choice”’

laws relate to employee benefits, but not to employee

benefit plans. This distinction was recently discussed

and set forth by this Court in Fort Halifax Packing

v. Coyne, 482 U.S. 1, 107 S.Ct. 221, 96 L.Ed. 2d 1,

(1987), wherein it was held that a Maine law pre-

scribing severance payments in the event of plant

closings was not a law relating to employee benefit

plans, but a law relating only to employee benefits.

Similarly, “freedom of choice” laws do not relate to

employee benefit plans; rather they merely provide

that, if a particular health condition is subject to reim-

bursement by whatever agreement the individual has

established, any licensed provider shall be entitled to

reimbursement for any service performed within the

scope of the provider’s license. APMA agrees with

amicus American Optometric Association (AOA) that

*’ Numerous states have enacted laws to protect the right of

equal reimbursement for medica] services rendered by a po-

diatrist or medical doctor; for example, in Pennsylvania,

“‘(njotwithstanding any provision or-any policy of insurance, self-

insured sickness health and/or welfare plan providing benefits

issued or renewed after the effective date of this act, whenever

such policy or plan provides for reimbursement for any service

which may be legally performed by a person licensed under the

laws of the Commonwealth for the practice of medicine, osteo-

pathy ... [or] podiatry ... reimbursement under such policy or

plan shall not be denied when such service is rendered by a

person so licensed.”’ 40 Pa. Stats. at 1511.

such laws “‘are outside the scope of ERISA’s preemp-

tion clause.”” AOA brief, p. 9. These laws, contrary

to the Massachusetts law considered in Metropolitan

Life Insurance Co. v. Massachusetts, 471 U.S. 724

(1985) do not mandate that a particular service be

covered, do not force the employer to haphazardly

provide for a particular service and do not require

any modification to the administrative procedures of

any employee benefit plan. ‘‘Freedom of choice” laws

do not “establish a plan... .generate. .. .no pro

activity that normally would be subject to ERISA

regulation. .. {pose] no risk either that an employee

will evade or that a state will dislodge otherwise ap-

plicable federal regulatory requirements. Nor is there

any prospect that an employer will face difficulty in

operating a unified administrative scheme for paying

benefits.” Fort Halifax Packing Company v. Coyne,

482 U.S. at 15.

APMA firmly believes that, like ‘freedom of choice’’

laws, the Pennsylvania anti-subrogation law is too

“tenuous, remote or peripheral’’ [Shaw 463, U.S. at

100 n.21] to fall within ERISA’s scope of preemption,

meant to minimize interference with the administra-

tion of employee benefit plans.

Nevertheless, assuming the Supreme Court deter-

mines now, or at some future time that “freedom of

choice”’ laws “‘relate to’”’ ERISA plans, APMA agrees

with respondent and the Third and Sixth Circuits that,

notwithstanding the ‘‘deemer’’ clause, certain insur-

ance laws “‘saved’’ from preemption apply to self-

insured employee benefit plans.

Il. The ‘“‘deemer’’ clause does not preclude state reg-

ulation of self-insured employee benefit plans as

to all state insurance laws otherwise saved from

preemption.

Assuming, the Third Circuit was correct in holding

the preemption provisions of ERISA applicable to

state subrogation laws, there remains the analysis of

the “savings” and ‘‘deemer”’ clauses (29 U.S.C. Sec-

tion 1144 (bX2XA) and 29 U.S.C. Section 1144

(bX2\B)). This case essentially arises from conflicting

interpretations of these ERISA provisions. The

petitioner asserts that ERISA preempts self-funded

benefit plans, such as that operated by FMC, from

state insurance laws because the ERISA ‘“‘savings’’

clause does not apply to self-insured plans pursuant

to the ‘‘deemer’’ clause.

In support of this broad interpretation of the ‘‘dee-

mer” clause, petitioner relies on Metropolitan Life

Insurance Co. v. Massachusetts, as the basis for the

distinction between self-insured plans and insured

plans. Specifically, the petitioner cites this Court’s

observation that its decision in Metropolitan Life re-

sults in a distinction between insured and uninsured

plans leaving the former open to indirect regulation

while the latter are not. Metropolitan Life, 471 U.S.

at 747. The Third Circuit, on the other hand, deter-

- mined that this inconsistent treatment of insured and

self-insured employee benefit plans merely meant that

while

under Metropolitan Life [,) insured plans_

would per se survive the deemer

clause. . .self-insured plans would merely be

considered on a case by case basis as to

whether the state regulation involves a cen-

tral concern of ERISA.

FMC Corp. v. Holliday, 885 F.2d 79, 89 citing North-

ern Group Services Inc. v. Auto Owners Insurance

Co., 833 F.2d 85 (6th Cir. 1987), cert. denied, 108

S.Ct. 1754 (1988).

In essence, petitioner argues that, as a consequence

of the deemer clause, a state ‘“‘may not directly or

indirectly regulate a self-funded employee benefit plan

that does not purchase any insurance products.”’

(Petitioner’s brief, p. 16). Petitioner has misinter-

preted the deemer clause and, consequently, the true

intent of this Court’s observation in Metropolitan Life.

Rather than exclude self-insured plans from all in-

surance laws, ‘“[t]he deemer clause protects ERISA

plans from being deemed insurers, or otherwise in

the business of insurance by any state law ‘purport-

ing’ to regulate i insurance companies or insurance con-

tracts... FMC v. Holliday, 855 F.2d 86, 87.

Summarizing the three-pronged ERISA preemption

test, the Third Circuit concluded that

the preemption clause preempts nearly any

state law relating to employee benefit plans,

second, the savings clause carries out the

narrow but sizable exception of state laws

regulating insurance; and finally, the deemer

clause guards against any insurance regula-

tion that infringes on such ERISA areas as

reporting, disclosure, and nonforfeitability.

FMC v. Holliday, 885 F.2d 88, The appellate court

properly distinguishes between what is “‘saved’’ by 29

U.S.C. Section 1144 (bX2\A) and what is to be pro-

tected by the ‘“‘deemer’’ clause (29 U.S.C. Section

10

1144 (bX2XB)). A close look at the two provisions

reveals that the savings clause protects from preemp-

tion “any law of any state which regulates insurance”

(emphasis added).’’ The deemer clause, on the other

hand, narrowly protects self-insured plans from those

laws purporting to regulate insurance companies or

insurance contracts. Health insurance has been de-

fined as

A contract or agreement whereby an insurer

is obligated to pay or allow a benefit of pe-

cuniary value with respect to the bodily in-

jury, disablement, sickness, death by accident

or accidental means of a human being, or

because of any expense relating thereto, or

because of any expense incurred in preven-

tion of sickness, and includes every risk per-

taining to any of the enumerated risks.

Blacks Law Dictionary, 5th Ed (1979), pp. 722-723.

This is precisely what the FMC plan provides (see

petitioner’s brief, p.4 n.1). An insurance contract is

the policy of insurance entered into between two par-

ties. “A policy of insurance is the written instrument

in which a contract of insurance is set forth.” Jd, p.

1042. Thus, the ‘‘savings’’ clause saves from preemp-

tion state laws regulating the insurance concept while

the “‘deemer”’ clause protects self-insured plans from

state laws regulating the policy itself. This distinction

was recognized by the Sixth Circuit’s holding in

Northern Group Services, that a state no-fault coor-

dination of benefits law, requiring insurers to offer

certain benefit provisions, was saved from preemption

and not subject to the deemer clause as applied to

self-funded plans. (Jd., 833 F.2d 85). The plans con-

tained coordination of benefit provisions seeking to

1]

make the liability of the employee benefit plans sec-

ondary to state mandated no-fault automobile insur-

ance. The plan provisions were in conflict with the

state law which ‘‘mandates that no-fault carriers offer

coordination of benefits at reduced premiums when

the insured has other health and accident coverage.”

Mich Comp. Laws Section 500.3109a.

Petitioner does not contest the district and appel-

late court determinations that the Pennsylvania Stat-

ute ‘‘regulates insurance within the meaning of the

insurance savings clause’’ (Petitioner’s brief, p. 13,

citing FMC, 885 F.2d 86). The scope of what is en-

compassed by the “savings clause’’ is illustrated by

this Court’s statement that a court ‘“‘must presume

that Congress did not intend to preempt areas of

traditional state regulation.’’ Metropolitan Life; 471

U.S. at 740, 105 S.Ct. at 2389. It has been well-

established that state regulation of insurance goes

beyond the so-called ‘‘business of insurance”’ governed

by the McCarran-Ferguson Act, 15, U.S.C. Section

1011 et. seq. (1976). This Court has held that

many aspects of insurance companies are

regulated by state law, but are not the “‘busi-

ness of insurance”... state regulation of a

practice of an insurance company does not

mean that the practice is the “business of

insurance” within the meaning of the Mc-

Carran-Ferguson Act.

Group Life and Health Insurance v. Royal Drug Co.,

440 U.S. 205 (1979).

As noted by the Sixth Circuit, this Court ‘‘con-

strued the sweep of the savings clause as a whole

and in light of the object and policy underlying

12

ERISA, thus going beyond the meaning imposed

merely by application of the McCarran-Ferguson Act

factors.’’ Northern Group Services, 833 F.2d 94, n.6

citing Pilot Life Insurance Co. v. Dedaux, 481 U.S.

41 (1987).

Thus, “‘begin{ning] with the language employed by

Congress and the assumption that the ordinary mean-

ing of that language accurately expresses legislative

purpose” Metropolitan Life, 471 U.S. 740, (citation

omitted), ERISA “saves” more for state regulation

than it takes back with the ‘‘deemer”’ clause.

The Sixth Circuit in Northern Group Services, re-

cognizing that the “‘legislative history behind the dee-

mer clause is ambiguous,”’ concluded that “for the

deemer clause to override the savings clause in a

given case, there must be some ERISA interest in

uniformity to outweigh the McCarran-Ferguson in-

terest in state regulation of insurance.” Clearly,

ERISA is devoid of any language identifying an in-

terest in no-fault insurance, subrogation, or “freedom

of choice’ laws. Petitioner’s contention that Congress

intended to save insured plans from preemption while

excluding self-insured plans from non-ERISA related

state insurance laws suggests that Congress envi-

sioned the ‘‘patchwork scheme of regulation” feared

by this Court in Fort Halifax Packing Co. v. Coyne,

482 U.S. 1, where the Court stated that

Congress intended preemption to afford em-

ployers the advantages of a uniform set of

administrative proceedings governed by a

single set of regulations. This concern only

arises, however, with respect to benefits

whose provisions by nature require an on-

13

going administrative program to meet the

employer’s obligation.

Fort Halifax Packing Co. v. Coyne, 482 U.S. 11.

Petitioner’s argument further suggests that em-

ployee benefit plans may be treated differently with

respect to state insurance laws solely on the basis of

whether such a plan is self-insured or commercially

insured. APMA agrees with the Third Circuit that

the proper inquiry under the deemer clause

is whether the state insurance regulation in-

tentionally or unintentionally addresses a core

type of ERISA matter which Congress sought

to protect.... The Court reviewing a state

insurance law, should inquire whether that

law conflicts with any substantive mandate

in ERISA.

FMC v. Holliday, 885 F.2d 89, 90.

Said another way, the deemer clause does no more

than prevent the states from applying certain insur-

ance laws, i.e., those pertaining to the “‘business of

insurance” and “insurance contracts’’ to self-funded

employee benefit plans. Nevertheless, other forms of

insurance regulation remain ‘‘saved’’ from the

preemption provisions of ERISA.

CONCLUSION

APMA submits that certain state insurance laws

remain ‘‘saved’’ from ERISA preemption, either be-

cause such laws do not “‘relate’’ to ERISA so as to

be preempted, or, alternatively, such laws are insur-

ance laws, applicable to all employee benefit plans.

The deemer clause applies only in such cases where

14

the state seeks to override a true ERISA interest.

State statutes which have declared a broad public

policy of prohibiting reimbursement discrimination

against particular classes of health care practitioners

persuasively illustrate the importance of preserving

this distinction.

Respectfully submitted,

WERNER STRUPP*

ROBERT J. STRUPP

2201 Wisconsin Avenue, N.W.

Suite 250

Washington, D.C. 20007

(202) 965-7956

Attorneys for the American

Podiatric Medical Association

*(Counsel of Record)