Amicus Curiae Brief — District of Columbia v. Greater Washington Bd. of Trade

BEST AVAILABLE COPY

TABLE OF CONTENTS

Page

pp ys. i

ee ie da pas kbs decease 2

SUMMARY OF ARGUMENT .................. 3

EE re 5

I. THE ACT RELATES TO ERISA PLANS,

CONFLICTS WITH ERISA AND IS

eee aan kk 6 oes e646 Rae OO 5

A. The Act Refers Expressly To and

Obviously "Relates To" ERISA

EI a ae 5

1. The Act Seems To Have Been Designed

To Evade Erisa Preemption .............. 5

2. The Act Is Inextricably Tied to

BRIBA-Covered PIQMS 0... ees 7

B. Whether an Employer Amends an Existing

Health Benefits Plan or Sets Up a New

Separate Plan to Comply With the Act,

the Act Will "Relate To" an ERISA

EE er ee eee 9

Il. NO SEPARATE HEALTH INSURANCE PLAN

EXCLUSIVELY FOR WORKERS’ COMPENSATION

com eee eee eee

A. A Typical Example Shows the Problems

ee

B. No Workers’ Compensation Insurance Carrier

Could Write a Separate Health Insurance

Policy To Fulfill the Act’s Requirements .......

Page

Ill. THE ACT’S INTRUSION INTO THE HEALTH

INSURANCE AREA GOES WELL BEYOND THE

PURPOSE, REACH AND MECHANICS OF

WORKERS’ COMPENSATION .............. 15

A. Workers’ Compensation Is Mandatory,

Narrowly Limited and Entorced By

an Elaborate System of Administrative

LOW .. ccc nccee eens be a 15

B. Health Insurance Is Voluntary, Complex,

Has Many Variations and Is Governed By

Contract, Not Administrative Enforcement .... . 17

C. The Act Creates an Unworkable Scheme ...... 19

IV. THE PRINCIPLE OF SHAW V. DELTA

AIRLINES DOES NOT SAVE THE ACT

FROM PREEMGPUIIN «0 nce cceseese eee 22

A. In Shaw New York Tied ERISA-Exempt

Disability Benefits to a Disability

Benefits Statute. Here the District

of Columbia Hangs ERISA-Covered Health

Insurance Benefits Onto a Workers’

Compensation Gimme ... sins sede ee 22

B. Alessi Precludes Approval of the Act ........ 23

C. The Principle Behind the District's

Position Reaches Too Far ............4-. 25

COMCLUGIUM on ccc cece essen eee 27

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TABLE OF AUTHORITIES

Page

Cases

Alessi v. Raybestos-Manhattan, Inc., 451

ee weet eee ees ccece 4,23,24,26

FMC Corp. v. Holliday, 498 U.S. _, 111 S.Ct.

CMD occ ces scsesecese 9

Fort Halifax Packing Co. v. Coyne, 482

ee cece eee eece 8

Gade v. National Solid Wastes Management

Ass'n, No. 90-1676 (June 18, 1992) ............. 9

Greater Washington Board of Trade v. District of

Columbia, 948 F.2d 1317 (D.C. Cir.

ees es 65 6660s sec e 7,8,9-10

Ingersoll-Rand Co. v. McClendon, 498 U.S.

__, IND S.Ct.__, 112 L.Ed.2d 474 (1990) ......... 9

Mackey v. Lanier Collections Agency, 486 U.S.

Thee ce kee ecco cececesce. 8

Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724 (1985) ........... 9,18

Morales v. TWA, No. 90-1604, October Term 1990,

60 U.S.L.W. 4444 (June 1, 1992).............. 8-9

Pilot Life Ins. Co. v. Devereaux, 481

PPT TTTETTEL TTT 9

R.R. Donnelley & Sons, Inc. v. Prevost, 915 F.2d

787 (2nd Cir. 1990), cert. denied, _—US.

__, 111 $.Ce. 1415, L.Ed.2d (2991)..... 8,22

Schulist v. Blue Cross of lowa, 717 F.2d 1127

EEE 2!

il

Page

Cases (con't)

Shaw v. Delta Air Lines, Inc., 463 U.S. 85

EE ‘ek si-is sade date e eats eats ... 4,9,22,23

Standard Oil Co. of California v. Agsalud,

633 F.2d 760 (9th Cir. 1980), aff'd,

ee es ee ee Gueeadenmdeaverencase: 17

Statutes and Regulations

Federal

29 U.S.C.

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DR .¢6 0066 CSines Cae eee eens cee 8

hs is oe eS oes oa a ceane ee 21

DL cr66<ck ene cee eee ae eee e eae enn l

Dt ib eéeneteeneh ene ne uns sane 17

Employee Retirement Security Act (ERISA)

DT 6606800660665 06%0b606 650 00 45s 2,7,10

DE aenneene66000 600655600 6aSuEeeen 22

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P.L. 97-473, 96 Stat. 2611, 97th

es SP ED on nccctecesceesessecs 17

29 C.F.R. § 2520.101-l et seg... 2.22. 2 2. 18,21

42 C.F.R. Parts 405, 413, 415, 56 Fed.

SE 3c cebu neeééesn bu berunune 21

Page

Statutes and Regulations (con’t)

District of Columbia

D.C. Code

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Page

Statutes and Regulations (con't)

D.C. Code (con't)

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Other

Hawaii Prepaid Health Care Act................ 17

Miscellaneous

1982 U.S. Code Cong. & Admin. News 4595 ....... 17

No. 91-1326

In The

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1991

DISTRICT OF COLUMBIA

AND SHARON PRATT KELLY, MAYOR,

Petitioners,

Vv.

THE GREATER WASHINGTON BOARD OF TRADE,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

Brief of the District of Columbia Insurance

Federation, the National Association of

Independent Insurers, The Alliance of American

Insurers, Liberty Mutual Insurance Company,

PMA Group and Metropolitan Washington Association

of Independent Insurance Agents as Amici Curiae

Urging Affirmance of the Decision Below

The issue in this case is whether the federal Employee

Retirement Income Security Act ("ERISA") § 514(a), 29

U.S.C. § 1144(a), preempts an amendment to the District

of Columbia workers’ compensation legislation styled the

5

_

Equity Amendment Act ("the Act"). D.C. CODE §

36-307(a-1) (1990). The Act would impose a new health

insurance Obligation (a "welfare benefit" under ERISA §

3(1), 29 U.S.C. § 1002[1]), not on all District employers,

but only on District employers who already provide health

insurance to their employees, and only for employees who

have elected to enroll in the health insurance plans offered

by their employers.

INTEREST OF AMICI

The District of Columbia Insurance Federation is an

association of insurance companies that write insurance in

the District of Columbia. Its membership includes most of

the insurers who provide workers’ compensation insurance

to District of Columbia employers. The Alliance of

American Insurers and the National Association of Inde-

pendent Insurers are national associations of insurance

companies that write insurance, including workers’ com-

pensation insurance, in the District of Columbia. Liberty

Mutual Insurance Company is the largest writer of

workers’ compensation insurance in the District and

throughout the United States. PMA Group is a major

regional workers’ compensation insurer in the mid-Atlantic

region, including the District. The Metropolitan Washing-

ton Association of Independent Insurance Agents is an

association of agents who sell insurance policies, including

workers’ compensation insurance policies, in the District.

Collectively, amici represent the major portion of

insurers writing workers’ compensation insurance in the

District and the agents selling such insurance. Although

the Act directs employers to provide the new health

insurance benefits, the burden of carrying out the Act’s

commands falls almost entirely on the workers’ compensa-

3

tion insurance industry; by statute and regulation all

obligations of employers under the workers’ compensation

statute must be secured by insurance unless the employer

is seli-insured. As we show below, the Act is essentially

unworkable. It would place an intolerable burden on

workers’ compensation insurance carriers. They would

fird themselves obliged to provide health insurance benefits

that many workers’ compensation insurers have neither the

experience nor the expertise to write and which in many

circumstances cannot be written at all.

SUMMARY OF ARGUMENT

l.

The District of Columbia has attempted to impose a

health insurance obligation on employers by calling it a

workers’ compensation benefit. No matter how the

employer attempts to comply with the Act, the Act still

would "relate" to ERISA-covered welfare benefit, health

insurance plans. ERISA’s preemption clause covers and

voids this statute.

2.

Under District law most employers would have to

comply with the obligation through their workers’ compen-

sation insurance. Because of the vast differences between

health insurance and workers’ compensation insurance, it

would be impossible for any employer to obtain a separate

insurance policy to cover this obligation, leaving amend-

ment of ERISA-covered existing health insurance plans the

only way to comply.

3.

The Act improperly tacks health insurance benefits onto

a

4

a workers’. compensation statute. States universally

provide for workers’ compensation by law as a trade-off

for relieving employers of tort liability. Health insurance

is voluntary, governed by contract and often comes out of

the tug and pull of collective bargaining. The two insur-

ance systems and the insurance carriers that provide the

coverage are too different to be linked in this way.

4.

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

not save the Act from preemption.

a. Shaw held that a New York disability insurance

statute that imposed disability benefits requirements for

pregnancy on employers was not preempted by ERISA.

Disability benefits plans are exempt from ERISA preemp-

tion. A disability insurance plan set up specifically to

comply with the New York statute was within the excep-

tion for disability benefits. The Act is a workers’ compen-

sation statute that imposes health insurance plan obligations

on employers. Health insurance is not exempt from

ERISA preemption.

b. A health insurance plan set up to comply with the

Act is still a health insurance plan and not within the

exception for workers’ compensation benefits. The Act

thereby encroaches on an area of exclusively federal

concern by going beyond the usual purpose and reach of

workers’ compensation. As the Court held in Alessi v.

Raybestos-Manhattan, Inc. , 451 U.S. 504, 525-26 (1981),

ERISA preempts any state enactment that attempts to do

this.

c. If the Act is not held preempted, the door is open to

the states to impose all kinds of health and pension benefits

5

obligations on employers not only through workers’

compensation legislation but also through unemployment

compensation legislation, forcing changes in the terms of

ERISA-covered plans. ERISA’s preemption clause surely

was intended to prevent this.

ARGUMENT

I. THE ACT RELATES TO ERISA PLANS,

CONFLICTS WITH ERISA AND IS

PREEMPTED.

A. The Act Refers Expressly to and Obviously

"Relates to" ERISA Welfare Plans.

1. The Act Seems To Have Been Designed

To Evade ERISA Preemption

The Act and its applicable regulations purport to fold

ERISA-controlled health insurance benefits into ERISA-

exempt workers’ compensation plans. As written, the Act

would

-- require employers who provide health insurance for

their employees to provide "equivalent" health insurance

coverage for participating employees who are injured on

the job and become eligible for worker’s compensation,

including coverage for other family members where the

employee has elected family coverage. D.C. CODE §

36-307(a-1)(1).

-- provide that such health insurance benefits are

payable only when injured employees are "away from

work" due to the work-related injury. /d. § (a-1)(2)(A).

-- require employers to continue such coverage for the

duration of the injury and any recurrences, up to a maxi-

mum of 52 weeks. /d. § (a-1)(1), (3).

6

-- require employers to pay employees’ normal contri-

bution towards their coverage under the health insurance

policy even if, as nearly all employer health plans provide,

employees are obliged to pay a portion of the health insur-

ance premium themselves. /d. § (a-1)(4).

-- appear to require employers to pay the normal

deductible (ordinarily anywhere from $100 to $1,000) and

co-payment (often 20%) that employees usually pay before

the insurer’s obligation kicks in. /d.

-- fix the health insurance benefits to be provided to

injured workers’ compensation-eligible employees as of the

date of an injury, even if the employer or its health

insurance carrier makes a change in the plan or policy

provisions thereafter. /d. § (a-1)(1), 7 DCMR § 213.2

(pending).

-- do not impose any equivalent burden on employers

who provide self- funded health care reimbursement plans,

for example by direct payment to health maintenance

organizations.

-- impose the duties of paying injured employees’

premium shares and providing the health insurance benefits

(i.e. paying the provider or reimbursing employees for

payments to providers for treatment of employees and their

families) on employers’ workers’ compensation insurance

carriers; except for the very few self-insured employers, all

workers’ compensation benefits in the District of Columbia

must be paid for and provided by insurance, D.C. CODE

§ 36-334, and the workers’ compensation insurance

carriers are expressly made responsible for providing the

Act’s health insurance benefits, 7 DCMR § 214.5, 7

DCMR § 213.7 (pending).

7

-- provide no such health insurance benefits for

employees injured on the job whose employers do not offer

health insurance as a fringe benefit or who have declined

employer-offered health insurance.

In summary, the Act requires employers who have

ERISA § 3(1) health insurance plans either to change their

plans to conform with the Act or, theoretically, to maintain

separate health insurance plans for workers who are injured

on the job. By the Act the District seeks to evade ERISA

preemption and substitute state for federal ERISA regula-

tion of employers’ ERISA-covered health insurance plans.

2. The Act Is Inextricably Tied

To ERISA-Covered Plans

On its face the Act’s requirement that employers provide

health insurance coverage to injured workers is couched as

a workers’ compensation benefit. But the Act does not

require all employers to provide health insurance benefits

for all workers’ compensation eligible employees. Greater

Washington Board of Trade v. District of Columbia, 948

F.2d 1317, 1323, 1324 text at n. 21 (D.C. Cir. 1991)

("GWBT"). It reaches only those employers who have

health insurance plans already in place. Its benefits reach

only those employees who already participate in their

employers’ plans. Its mechanism is for the new workers’

compensation health benefit to duplicate whatever benefit

the plan happens to provide as of the date the worker is

injured. It does not cover employers who provide health

benefits to their employees by means other than insurance.

In the simplest terms announced by this Court, the Act

"refers to -- indeed solely applies to -- ERISA employee

benefit plans," is a "state law which singles out ERISA

plans, by express reference, for special treatment," and it

8

therefore "is preempted." Mackey v. Lanier Collections

Agency, 486 U.S. 825, 829, 838 n. 12 (1988).

Both the Second Circuit and the D.C. Circuit agree that

the virtually identical Connecticut and District of Columbia

statutes "relate" to employee benefit plans within the

meaning of ERISA § 514(a). R. R. Donnelley & Sons,

Inc. v. Prevost, 915 F.2d 787, 791-92 (2nd Cir. 1990),

cert. denied, _ U.S. ___, 111 S.Ct. 1415, 113 L.Ed.2d

468 (1991) ("Donnelley"); GWBT, 948 F.2d at 1322.

Donnelley held that the Connecticut statute survived

preemption because it permitted employers to provide the

required health insurance benefits by setting up a separate

health insurance plan for injured employees. The Second

Circuit considered that this would be a plan established

"solely for the purpose of complying with applicable

workmen’s compensation laws," excluded from ERISA

coverage altogether by § 4(b)(3), 29 U.S.C. § 1003(b)(3).

915 F.2d at 793. GWBT held that the Act was preempted

despite § 4(b)(3), because (1) even a separate plan would

tie "the new benefits to existing benefits," 948 F.2d at

1324, (2) the requirements of the Act burdened only

"employers already providing benefits through ERISA

plans," id., and (3) it would undermine "the broad purpos-

es of ERISA preemption," id. at 1325.

Those purposes include protecting ERISA plans from a

"patchwork scheme of regulation" by different states,

which might discourage employers from adopting or

maintaining ERISA plans. /d., quoting Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1, 11 (1987). To serve

those purposes the Court has construed ERISA preemption

broadly and has construed exceptions from preemption

narrowly. The Court reaffirmed § 514(a)’s "broad pre-

emptive purpose" just a month ago. Morales v. TWA, No.

9

90-1604, 60 U.S.L.W. 4444, 4446 (U.S. S.Ct., June 1,

1992), quoting and citing this Court’s ERISA preemption

cases: Ingersoll-Rand Co. v. McClendon, 498 U.S.

(1990); FMC Corp. v. Holliday, 498 U.S. __ (1990);

Pilot Life Ins. Co. v. Devereaux, 481 U.S. 41 (1987);

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724

(1985), and Shaw v. Delta Air Lines, Inc., 463 U.S. 85

(1983). See also Gade v. Nativnai Solid Wastes Manage-

ment Ass'n, No. 90-1676, 60 U.S.L.W. 4587, 4591-97

(plurality opinion), 4593 (concurring opinion) (U.S. S.Ct.,

June 18, 1992).!

B. Whether an Employer Amends an Existing

Health Benefits Plan or Sets Up a New

Separate Plan to Comply With the Act,

the Act Will "Relate To" an ERISA

Welfare Plan.

If the employer complied with the Act by amending its

existing health insurance plan, the Act not only would

"relate to" but would force a change in an ERISA-covered

plan. The alternative is for employers to set up separate

health insurance plans with benefits "equivalent" to the

covered plan’s benefits (but with a 52 week limit and

100% employer-paid premiums, deductibles and co-

payments). GWBT, 948 F.2d at 1325. The D.C. Circuit

pointed out that even this would "have a serious impact on

"Gade indicates that if there were any doubt about express

preemption here ERISA would nonetheless impliedly preempt the Act.

It "sufficiently interferes with federal regulation" of welfare benefit

plans “to be deemed preempted, because it “directly, substantially,

and specifically regulates" health insurance plans. 60 U.S.L.W. at

4592 (plurality opinion).

10

the administration and context of the ERISA-covered plan."

Id. Any employer contemplating a change in the

ERISA-covered plan would have to consider the equivalent

change in the workers’ compensation health insurance plan

and. as we also noted (p. 8 supra) this could persuade

employers that health insurance plans were more bother-

some than beneficial. /d. Such a resuit is surely contrary

to Congress’ intentions, especially in a time when greater,

not lesser, access to health insurance is a national impera-

tive.

Of course any such new, separate health insurance plan

would itself be an ERISA-covered “welfare benefit plan”

under ERISA § 3(1), 29 U.S.C. § 1002(1), providing

medical, etc. benefits in the event of accident. So however

employers decided to meet the Act's demands, the Act

would "relate" to ERISA- covered plans by tying the

workers’ compensation mandated health insurance to the

benefits stated in the existing ERISA-covered plan and by

requiring employers either to amend their existing ERISA-

covered plans or set up new ERISA-covered plans.

No insurance company will sell and no employer will be

able to purchase such a separate workers’ compensation-

limited health insurance plan.

Il. NO SEPARATE HEALTH INSURANCE

PLAN EXCLUSIVELY FOR WORKERS’

COMPENSATION RECIPIENTS IS

FEASIBLE

Petitioner, its supporting amici and the Second Circuit

all ignore a stubborn fact. In the real world of workers’

compensation, which in the District of Columbia most

employers must provide by insurance, the notion of

separate health insurance plans exclusively for injured

1]

workers, "maintained solely" to comply with the Act,

purportedly a workers’ compensation law, is pure fiction.

A. A Typical Example Shows the Problems

the Act Would Create

Let us consider Mary Smith. Ms. Smith, employed in

the District of Columbia, develops “carpal tunnel syn-

drome," a painful inflammation of the wrists, from the

repetitive motions of her job. It is typical with this

common work-related condition that Ms. Smith is better on

some days than on others. She may be out of work for

several days or several weeks at a time, returning to work

whenever her condition permits. She applies for and

receives workers’ compensation for the wages lost during

the days she does not report for work and for her medical

expenses.

| Ms. Smith has health insurance as a member of a group

insured through her employer. Ms. Smith has family

coverage of her husband and two minor children. The plan

happens to include dental coverage. The cost of the plan

is $450 a month; Ms. Smith pays $100 for her own

coverage and $100 for her family’s coverage. Her em-

ployer pays the other $250, or 55.56% of the total.

Ms. Smith is initially out of work for seven days. For

those seven days, under the Act her employer would be

obligated to pay 100% of her health insurance premium.

So during that month of 21 working days, the employer

would pay the full premium, $150, for the seven days, plus

$144.44 for the rest of the month. Ms. Smith would pay

$166.67. Every time Ms. Smith loses a day of work the

employer would make a similar calculation and every time

the employer would submit a claim for the additional

premium to its workers’ compensation insurance carrier.

12

Then (as they always do) health insurance premiums go

up. To keep its costs from rising, the employer drops the

dental benefits. Ms. Smith’s children need dental work.

Since Ms. Smith had dental benefits on the day she first

"became eligible for workers’ compensation benefits," the

Act requires her employer somehow to provide a dental

benefits insurance plan for the Smith children -- but only

during those days when Ms. Smith is unable to come to

work because her wrist hurts too much. Where is the

employer to find a health insurance plan that provides

dental benefits for only one of its employees (and her

family) and then only on those days when she is away from

work?

Ms. Smith’s carpal tunnel injury does not get better.

She cuts her work back to half time. Now Ms. Smith is

“away from work" half of every day. The employer’s

workers’ compensation insurance policy pays two thirds’

of her lost wages for the half day she does not work. Does

the Act require payment of half of her share of the premi-

um for health insurance? It is common for employer group

health plans to cover only employees who work more than

half time. The Act would seem to require Ms. Smith's

employer to find a separate plan to cover her and her

family for half of each day.

Ms. Smith goes to a new job where no health insurance

is provided at all, or where the health insurance plan

excludes pre-existing conditions. Whenever Ms. Smith's

carpal tunnel syndrome recurs and she is unable to go to

work, her former employer’s workers’ compensation

2See the discussion of the workings of workers’ compensation

at IIIA, pp. 15-17 infra.

13

insurance policy pays her two thirds of her wages lost for

those days. The Act requires the former employer,

through its workers’ compensation insurance carrier, to

provide her and her family with her old health insurance

coverage for those days until 52 weeks are exhausted.’

Ms. Smith’s former employer goes out of business and

its group insurance health plan lapses -- except for Ms.

Smith, since workers’ compensation insurance coverage

(that under the Act now includes health insurance) contin-

ues as long as the worker remains disabled by the work-

related injury. The employer’s workers’ compensation

insurance carrier becomes a health insurance carrier by

force.

The workers’ compensation insurer must calculate the

prospective, combined long-term risks of loss under the

Act taking all of these imponderables into account. It must

charge a premium to the employer that reflects that risk.

For the workers’ compensation insurance industry the Act

would create a nightmare.

B. No Workers’ Compensation Insurance

Carrier Could Write a Separate Health

Insurance Policy To Fulfill the Act’s

Requirements

Mary Smith’s case, repeated many times but with

virtually infinite variations, demonstrates why in the real

world there is no possible separate plan alternative avail-

able even arguably to save the Act from interfering with

ERISA-covered welfare benefit plans or save it from

5Or for the rest of Ms. Smith’s working life if she happened

to work in Connecticut instead of the District of Columbia. The

Connecticut statute does not limit coverage to 52 weeks.

14

preemption. The only kind of separate plan that would

satisfy it is a separate health insurance policy covering an

unknown and unknowable number of Mary Smiths, with

unknown and unknowable health conditions, and for

unknown periods of time up to a potential total of 52 weeks

that could be interpreted to stretch intermittently over

entire working lives. Under the Act that policy would

have to be procured or written by workers’ compensation

insurance carriers that are casualty, not life or health

companies, that ordinarily are not licensed to write or sell

health insurance, that may have no experience in calcu-

lating the risks involved in health insurance to set premium

rates and whose premium rates would have to be approved

by regulators.

No workers’ compensation insurance carrier presently

writes such a policy or is likely to be able to do so.

Employers would be able to satisfy the Act only in one

way. They would have to amend their existing health

insurance plans and claim reimbursement from their

workers’ compensation insurance carriers for the additional

costs. In turn, the workers’ compensation carriers would

then satisfy their statutory duties by reimbursing employers

for the premium share of injured employees who are

participants in the plan, the additional premium for family

coverage of such injured employees with family coverage

and the deductible and co-payment obligations of injured

employees in the event of non-work-related illness or injury

a the period of work-injury-related disability (up to 52

weeks).

There can be no doubt that Congress’ ERISA preemption

provision was designed to prevent such results of state

meddling with ERISA-covered plans.

15

Ill. THE ACT’S INTRUSION INTO THE HEALTH

INSURANCE AREA GOES WELL BEYOND

THE PURPOSE, REACH AND MECHANICS

OF WORKERS’ COMPENSATION

A. Workers’ Compensation Is Mandatory,

Narrowly Limited and Enforced By

an Elaborate System of Administrative

Law

The District’s workers’ compensation statute is a typical,

comprehensive procedural and substantive scheme for

accomplishing a specific, narrow purpose -- payments for

all work-related injuries -- in a speedy, efficient way. It

covers work-related injury to or death of all employees

working in the District of Columbia for all employers

except the United States and District of Columbia govern-

ment and the United States Congress. D.C. CODE §§ 36-

301(9), (10), (12), 36-303(a). Compliance is mandatory.

Employers’ liability attaches regardless of fault, § 36-

303(b). Employers are absolved from any other liability to

anyone and employees’ right to workers’ compensation is

exclusive of other remedies, § 36-304(a), (b). That is, the

workers’ compensation remedy replaces any tort remedy.

Compensation payable for permanent total disability as

income replacement is limited to two thirds of an

employee’s average weekly wage, §§ 36-308, 36-311. It

is further limited to the overall average weekly wage in the

District of Columbia or $396.78, whichever is greater, §

36-305. The base for the two thirds figure is the

employee’s “wage loss," i.e. it is reduced by the amount

he is able to earn despite the disability, § 36-308. The

average weekly wage includes the value of board and

lodging, but no other fringe benefits like health insurance.

16

(A few states do include the value of health insurance

premiums in the wage base.)

Weekly payments for total disability continue as long as

the disability continues. Partial permanent disability is

compensated according to a schedule specifying a certain

number of weeks of compensation for the loss, e.g., of an

arm (312 weeks), eye (160 weeks), hearing in both ears

(200 weeks), etc. § 36-308.

Compensation also includes 100% of employees’ medical

expenses resulting from the injury, including rehabilitation

services. § 36-307(a). There are no deductibles or co-

payments. In the case of death the employee's relicts

receive up to $5,000 for funeral expenses; his widow or

her widower receive 50% of the deceased’s average wages;

surviving children divide another 16 2/3%, raised to 50%

upon the death or remarriage of the widow or widower.

§ 36-309. Employers must report all worker injuries to

District authorities and keep a record of them, §§ 36-332,

36-331. They must post notices regarding workers’

compensation rights and coverage.

An employer may challenge an employee’s claim for

workers’ compensation on the ground, inter alia, that the

injury was not work related. §§ 36-303(d), 36-320, 36-

322. If one does, a full evidentiary hearing is held and the

decision is appealable to the District of Columbia Court of

Appeals, §§ 36-322, 36-329. If the employee then pre-

vails he is entitled to payment of his attorney’ fees by the

employer. § 36-330.

Employers are required to "secure" payment of workers’

compensation benefits by insurance issued by an approved

insurance carrier. §§ 36-334, 36-336, 36-338. Premium

rates are regulated. §§ 35-1514(2)(A), 35-1702(3). Policy

17

provisions are clear and simple; they cover whatever the

applicable workers’ compensation law requires. Employers

may apply for and obtain permission to self-insure. § 36-

334. Only a few very large employers do so.

All carriers and self-insured employers contribute to a

special "second injury" fund that is used primarily to pay

compensation for recurrence of an injury. § 36-340. The

Act uses the special fund as the means for payment of the

new health insurance benefits. Carriers and self-insured

employers would pay into the fund and be reimbursed from

the fund for the costs of the new benefits. D.C. CODE §

36-307(a-1)(5); 7 DCMR § 213.4 (pending).

B. Health Insurance Is Voluntary, Complex,

Has Many Variations and Is Governed By

Contract, Not Administrative Enforcement

None of these administrative, procedural and substantive

requirements apply to employer-provided health insurance.

No state does, nor consistently with ERISA may, require

employers to provide health insurance. By Congress’

design in.ERISA, non-unionized employers are free to

design plans that make economic sense for them, while

unionized employers are free to negotiate such plans with

the employees’ unions as their relative bargaining strength

“Except Hawaii, by Congress’ express but limited exemption

of the Hawaii Prepaid Health Care Act from § 514(a) of ERISA.

P.L. 97-473, § 301(a), 96 Stat. 2611, 97th Cong., 2nd Sess. (1983),

codified as 29 U.S.C. § 1144(6)(5). The exemption was enacted to

reverse Standard Oil Co. of California v. Agsalud, 633 F.2d 760 (9th

Cir. 1980), aff'd, 454 U.S. 801 (1981), in which the Hawaii Act was

held preempted by ERISA and void. See 1982 U.S. Code Cong. &

Admin. News 4595.

18

permits and the economic mix of wages and benefits

commend to them. Some plans offer a choice (a "cafete-

ria") of benefits for employees to choose from. Many

plans provide optional coverage for the employee’s family.

By Congress’ design in ERISA’s preemption clause,

States may neither interfere with, mandate changes in nor

regulate such employer welfare plans, save as they may

regulate the business of insurance, see, e.g., Metropolitan

Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985).°

Employer welfare benefit plans need not file reports about

employee claims with state authorities. Instead they must

file elaborate reports with the Secretary of Labor, see 29

C.F.R. §§ 2520.101-1 et seg. No administrative agency

adjudicates disputes over the validity of a health insurance

claim or over the amount to be paid to a provider.

Employers and their plans are under no legal obligation

to provide 100% or any percentage of medical expenses for

a covered illness or non-work-related injury. Employers

and their plans may require employees to pay any percent-

age of the premium cost for themselves and for their

families. Plans normally require employees to pay a flat

‘The District has enacted several provisions regulating the health

insurance industry. Statutes prescribe coverage for Medicare

supplement policies, D.C. CODE §§ 35-2201 ef seqg., require

coverage for newborn infants, drug abuse, alcohol abuse and mental

illness in all health insurance policies, §§ 35-1101 et seg., 35-2601

et seq., restrict health insurers’ ability to exclude coverage of HIV

infections or AIDS, §§ 35-221 ef seg., require approval of the

coverage and premium rates of and prescribe that certain provisions

be included in all individual (i.e. non-ERISA-covered) health

insurance and accidental injury policies, §§ 35-517, 35-1532, require

coverage for treatment by psychologists and optometrists, § 35-530,

and regulate credit health insurance, §§ 35-1001 et seq.

19

deductible amount and co-pay a percentage (typically 20%)

of medical expenses incurred up to some maximum.

Employees are free to decline coverage for themselves (if,

for example, a spouse’s plan is cheaper or has better

coverage) or for their families, keeping the premium

contribution they otherwise would have to pay.

Health insurance policies contain elaborate provisions

regarding, for example, coverage of pre-existing conditions

and "experimental" treatment, and respecting "participat-

ing" vs. non-participating providers, upper limits of

liability, restrictions on reimbursable hospital accommoda-

tions, and so forth. Benefits and premiums vary widely.

By loading a health insurance benefit onto a workers’

compensation law, the Act strays too far from the generally

understood definition, scope, purpose and mechanics of

workers’ compensation to be considered a "“workers’

compensation law" under ERISA § 4(b)(3). Most impor-

tant, by limiting its reach to employees who already

participate in employer-paid health insurance, the Act does

violence to a cardinal principle that has informed workers’

compensation statutes since the first one enacted in 1910:

that they protect all employees of all covered employers.

C. The Act Creates An Unworkable Scheme”

By definition, the Act applies only to employers who

already provide medical benefits to their employees

through health insurance policies. Those insurance policy

plans would continue to be covered by ERISA and federal

regulation. They would continue to be administered by

experienced health insurance carriers. They would contin-

ue to provide specified benefits that may change by

contract between employers and carriers. Such plans

feature employee-paid premium contributions, deductions

20

and co-payments and cover illnesses and injuries of all

participating employees and their families (if family

coverage has been elected) at all times.

Any plan amended or created to comply with the Act

would create, in the guise of a workers’ compensation

benefit, a special, constantly changing class of health

insurance beneficiaries with benefits and premium obliga-

tions governed by District of Columbia law and regulation

and not by contract, ERISA and federal regulation. The

members of this class would be absolved from premium

contributions (and perhaps from deductibles or co-pay-

ments). They would receive benefits that do not change as

they do for all other covered employees if the contract

changes. Their benefits would be fixed as of the date of

injury, but only for the time that they were away from

work and only up to a maximum of 52 weeks. As soon as

they return to work their benefits revert to the provisions

of the employer's general health insurance plan, which may

have changed since the injury. The Act’s lack of a

contrary provision indicates that the 52 week period may

be a "bankable," as opposed to a calendar, 52 weeks; i.e.

the benefits may be available during recurrences of the

injury however separated in time until the 52 weeks are

used up, even if that is many years. -

The separate class of employees would number between

none and many at any particular time. It would change

constantly, including only those employees who were

injured on the job and are away from work, but not even

all of them; the Act’s benefits cover only injured employ-

ees whose employers provide medical benefits through

insurance, and who already participate in the employer’s

insurance plan.

21

Workers’ compensation insurance carriers would have to

provide these benefits. Workers’ compensation insurance

carriers are Classified as "casualty" insurers, regulated

under Chapter 15 of D.C. CODE Title 35. Health insurers

are classified as "life and health" insurers and are regulated

under Chapter 5 of D.C. CODE Title 35. Workers’

compensation insurers often have no experience in health

care claims evaluation, health care costs, health benefits

administration or the increasingly complex federal- private

cost limitation and reimbursement system.® They never-

theless may well become subject to a whole range of

ERISA reporting obligations respecting their performance

of the Act’s health insurance requirements. See ERISA §

103, 29 U.S.C. § 1023; 29 C.F.R. § 2520.101-1 et seq.;

Schulist v. Blue Cross of lowa, 717 F.2d 1127, 1132-33

(7th Cir. 1983).

To sum up: the problem the Act creates for the work-

ers’ compensation insurance industry arises directly from

the difficulty of attempting to force one kind of insurance

-- health insurance -- into a totally different kind of insur-

ance scheme, namely workers’ compensation.

*See, e.g., the new federal Health Care Financing Administration

("HCFA") regulations which mandate specific allowable physician,

hospital, therapist and other health care provider fees for over 10,000

different medical services. 42 C.F.R. Parts 405, 413, 415, 56 Fed.

Reg. 59501 et seg. (1991), “Medicare Program; Fee Schedule for

Physicians’ Services, Fee Schedule Update for Calendar Year 1992

and Physician Performance Standard Rates of Increase for Federal FY

1992; Final Rules and Notice."

22

IV. THE PRINCIPLE OF SHAW V. DELTA

AIRLINES DOES NOT SAVE THE ACT

FROM PREEMPTION

A. In Shaw New York Tied ERISA-

Exempt Disability Benefits to a

Disability Benefits Statute. Here the

District of Columbia Hangs ERISA-

Covered Health Insurance Benefits

Onto a Workers’ Compensation Statute.

Petitioner, its allied amici and the Second Circuit all

have ignored a crucial and dispositive difference between

the disability insurance law that Shaw approved and a

health insurance law that is labeled "workers’ compensa-

tion" like the Connecticut statute approved in Donnelley

and the Act at issue here.

The Shaw statute required employers to extend disability

insurance to pregnant women. State-mandated disability

insurance is a plan expressly exempted from ERISA § 4(a)

coverage by § 4(b). The statute’s impingement on ERISA-

covered plans was accidental. It arose only from the

circumstance that many employers included disability

benefits in multibenefit welfare plans that included other

benefits such as health insurance. Shaw, 463 U.S. at 92,

106-07. What saved the New York statute was the

hypothesis that employers could satisfy it by setting up a

separate pregnancy-disability plan. That would be a plan

set up "solely" to comply with a state disability insurance

law, exempt from ERISA under § 4(b)(3). It would be an

employer disability income plan set up to comply with a

disability insurance statute: apples and apples.

The Connecticut and D.C. statutes are not apple-apple

Statutes like the Shaw statute. Accepting (as the Second

23

Circuit and D.C. Circuit did) the applicability of the Shaw

hypothesis of a separate health insurance plan for injured,

workers’ compensation eligible employees, the Connecticut

and D.C. statutes are apple-orange statutes. That is, they

would have employers -- but only employers who already

have ERISA-covered health insurance plans in place -- set

up a health insurance plan to comply with workers’ com-

pensation laws.

The impingement of these statutes on ERISA-covered

plans is not accidental as it is with the Shaw statute.

Rather it is the essence of the Connecticut and D.C.

statutes. Their reach is both defined by and confined to

ERISA-covered welfare plans and the employers who have

them. Their purpose and effect is to impose new, non-

contractual burdens on employers who offer ERISA-

covered welfare benefits, which by definition are volun-

tary.

B. Alessi Precludes Approval of the Act

This Court already has rejected a similar state effort to

encroach on an ERISA-protected preserve via a purported

workers’ compensation law. In Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. at 521-26, the Court struck

down New Jersey legislation that forbade employers to

offset workers’ compensation payments against retirement

pension benefits. ERISA preempted and voided the statute,

because it "related" to ERISA-covered pension plans and

was an impermissible intrusion into an ERISA governed

area.

The Court held that ERISA preempted "even indirect

state action bearing on private pensions" because it "may

encroach upon the area of exclusive federal concern....

ERISA’s authors clearly meant to exclude the States from

24

avoiding through form the substance of the preemption

provision." 451 U.S. at 525. The holding applies equally

to ERISA welfare benefit plans, equally protected from

state encroachment by ERISA preemption.

Alessi also resolves the confusion about preemption and

exemption from preemption that infects petitioner’s and its

allies’ briefs. "The only relevant state laws, or portions

thereof, that survive ... preemption ... are those relating to

plans that are themselves exempted from ERISA’s scope."

451 U.S. at 523 n. 20. On the other hand, the ERISA

exemption "for plans maintained solely for compliance

with state workers’ compensation laws -- has no bearing

on ... plans ... which more broadly serve employee

needs...." /d. (emphasis is the Court’s).

Here the Act is a "portion" of a workers’ compensation

law that undeniably affects "plans which more broadly

serve employee needs," to wit, by requiring either amend-

ment of employers’ existing medical benefit health insur-

ance plans or by requiring establishment of new ones.

Health insurance "more broadly serves employee needs”

than the kind of benefits workers’ compensation laws

provide. The "need" it serves, comprehensive health

protection for the whole family, is not a need traditionally

served by the workers’ compensation legislation that

Congress had in mind when it exempted workers’ compen-

sation from ERISA coverage. See pp. 15-17 supra.

The Act impermissibly encroaches on an “area of exclu-

sive federal concern." Moreover, its approval would open

the door to far greater encroachments.

25

C. The Principle Behind the District’s

Position Reaches Too Far

The potential reach of the principle behind petitioner's

position is vast. If this amendment to a workers’ compen-

sation law may lawfully expand ERISA health insurance

benefits, another amendment to a workers’ compensation

law could expand pension benefits. It could, for example,

require employers to begin paying pension benefits to

injured employees for the duration of their injuries (as in

Connecticut) or for 52 weeks (as in D.C.). It could

require these payments whether employees are vested or

not and whether they have reached retirement age or not.

Alternatively such an amendment could require employers

to continue contributing to injured employees’ pensions

even if the plan provided otherwise.

The principle would allow imaginative state legislators

to load similar provisions onto unemployment compensa-

tion laws, also exempt from ERISA under § 4(b)(3). If

petitioner’s argument is accepted, state legislatures could

require employers indefinitely to continue health insurance,

to contribute to pensions or to pay pension benefits for

fired or laid-off employees, no matter what their ERISA

plans provided.

The principle also could work the other way.

Petitioner’s and its allies’ position would permit state

legislatures to enact workers’ compensation amendments

that absolved employers from paying any health insurance

benefits to injured employees beyond paying for treatment

for the injury even though the bargained-for ERISA

welfare plan required their continuation. It would permit

workers’ compensation amendments that allowed employers

to stop contributing towards the injured employee’s pension

a

26

even though the bargained-for plan required such contribu-

tions to continue.

In sum, the kinds of welfare and pension benefits that

employers provide to employees would not depend on

collective bargaining agreements protected since the

Wagner Act’ by federal regulation nor would they be

subject only to the commands of ERISA and its regula-

tions. Instead they would be subject to the political winds

blowing from whichever side, labor or management, had

more political influence from state to state. Congress

surely never intended such chaos.

"The Court noted in Alessi:

Where, as here, the pension plans emerge from

collective bargaining, the additional federal interest in

precluding state interference with labor-management

negotiations calls for preemption of state efforts to

regulate pension terms.

451 U.S. at 525.

27

CONCLUSION

The decision of the U.S. Court of Appeals for the

District of Columbia Circuit should be affirmed.

Respectfully submitted,

LAWRENCE H. MIREL*

1614 Twentieth Street NW

Washington, DC 20009

(202) 265-8017

WILLIAM A. DOBROVIR

1614 Twentieth Street NW

Washington, DC 20009

(202) 483-7985

Attorneys for Amici Curiae

*Counsel of Record