# Amicus Curiae Brief — New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1994
- **Citation:** 511 U.S. 1067

## Text

OO). An Ly

Nos. 93-1408, 93-1414 and 93-1415

a aT ae

me (Gti

In the Supreme Court of the United ‘tutes >

OcToBER TERM, 1994 | jy 16 1994

|

HE CLERK

New York STATE CONFERENCE OF BLUE\GKOSS & |

BLUE SHIELD PLANS, ET AL., PETITIONERS
V.
TRAVELERS INSURANCE CoO., ET AL.

Mario M. CuoMo, GOVERNOR OF NEw YORK, ET AL.,
PETITIONERS

V.
TRAVELERS INSURANCE CO., ET AL.

HosPITAL ASSOCIATION OF NEW YorRK STATE,
PETITIONER

V.
TRAVELERS INSURANCE CoO., ET AL.

ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE SUPPORTING PETITIONERS

Drew S. Days, III
Solicitor General

OLIVER B. QUINN EDWIN S. KNEEDLER
Deputy Solicitor of Labor Deputy Solicitor General
ALLEN H. FELDMAN JAMES A. FELDMAN
Associate Solicitor Assistant to the Solicitor
NATHANIEL I. SPILLER General
Counsel for Appellate Department of Justice
Litigation Washington, D.C. 20530
(202) 514-2217
JUDITH D. HEIMLICH
Attorney
Department of Labor

Washington, D.C. 20210

Employee
Act of 1974 (ERISA), are preempted by ERISA insofar
as the hospital charges are covered by an ERISA plan.

(1)

from preemption in this case as laws which regu-
late insurance

Conclusion .
Appendix . a

TABLE OF AUTHORITIES
Cases:

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

10

19
28
la

(1981) 11, 13, 15

Anderson V. Humana, Inc., 24 F.3d 889 (7th Cir.
1994)
Distriet of Columbia v. Greater Washington Bd.

of Trade, 113 8. Ct. 580 (1992) 10, 11, 18,14

Estate of Medcare HMO, In re, 998 F.2d 486 (7th
Cir. 1998)

FMC Corp. V. Holliday, 498 U.S. 52 (1990) ...6, 10, 18, 14,
19, 20, 21

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1
(1987)
Fugarino v. Hartford Life & Accident Ins. Co.,
969 F.2d 178 (6th Cir. 1992), cert. denied, 113
S. Ct. 1401 (1998)

(mit)

18

IV

Cases—Continued: Page

General Motors Corp. v. California State Bd. of c
Equalization, 815 F.2d 1805 (9th Cir. 1987),

cert. denied, 485 U.S. 941 (1988) 22
Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205 (1979) 21, 28, 25, 26, 27
Hartford Fire Ins. Co. v. California, 118 8. Ct.

2891 (1993) 21, 25
Ingersoll-Rand Co. v. McClendon, 498 U.S. 188

(1990) 11, 15

Klamath-Lake Pharmaceutical Ass’n v. Klamath
Medical Serv. Bureau, 701 F.2d 1276 (9th Cir.),
cert. denied, 464 U.S. 822 (1983) 26
Mackey v. Lanier Collection Agency & Serv., Inc.,
486 U.S. 825 (1988) 15,17
Metropolitan Life Ins. Co. v. Massachusetts, 471
U.S. 724 (1985) 5, 16, 19, 20, 21, 23, 24
NYSA-ILA Medical & Clinical Serve. Fund v.
Azelrod, 27 F.3d 828 (2d Cir. 1994), petition
for cert. pending, No. 94-745 (filed Oct. 21, ;
1994) . 17
New England Health Care Employees Union Dist.
1199 V. Mount Sinai Hosp., 846 F. Supp. 190
(D. Conn. 1994), appeal pending, Nos. 94-7264
& 94-7906 (2d Cir.) 17
Ocean State Physicians Health Plan, Inc. v. Blue
Cross & Blue Shield, 888 F.2d 1101 (ist Cir.
1989), cert. denied, 494 U.S. 1027 (1990) 26
Pilot Life Ins. Co. v. Dedeauz, 481 U.S. 41 (1987) .. 8, 15,
20

SEC v. National Sec., Inc., 398 U.S. 458 (1969)... 21, 23
Schweiker v. Gray Panthers, 458 U.S. 34 (1981)... 3
Shaw V. Delta Air Lines, Inc., 463 U.S. 85 (1983) .. 10, 11,
15, 18
Stuart Circle Hosp. Corp. v. Aetna Health Man-
agement, 995 F.2d 500 (4th Cir.), cert. denied,

114 S. Ct. 579 (1998) 26
Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119
(1982) .20, 21, 28, 24, 25, 27

United States Department of Treasury Vv. Fabe,
118 S. Ct. 2202 (1998) 28, 25, 27

United Wire, Metal & Machine Health & Welfare
Fund Vv. Morristown Memorial Hosp., 995 F.2d
1179 (3d Cir.), cert. denied, 114 S. Ct. 382
(19938) 13

Statutes:

Employee Retirement Income Sosurtiy Act of
1974, 29 U.S.C. 1001 et seq.:

Tit. I, 29 U.S.C. mtetenee (1988 & Supp. V

McCarran-Ferguson Act, 15 U.S.C. 1011-1015.__.

§ 2, 15 U.S.C. 1012
§ 2(a), 15 U.S.C. 1012(a)
§ 2(b), 15 U.S.C. 1012(b)

Social Security Act, Tit. XIX, 42 U.S.C. 1896 et

seq.

1998)
§ 3(1), 29 U.S.C. 1002(1)
§ 3(4)-(6), 29 U.S.C. 1002(4)-(6) _....
§ 3(13), 29 U.S.C. 1002(13)
§ 3(37), 29 U.S.C. 1002(87) (1988 &

Supp. V 1993)
§ 4(a), 29 U.S.C. 1008 (a)
§ 4(b), 29 U.S.C. 1008 (b)
§ 506(b), 29 U.S.C. 1136 (b)
§ 514, 29 U.S.C. 1144
§ 514(a), 29 U.S.C. 1144(a) _.... 45, 7,10, 11, 12,
19, la

§ 514(b) (2) (A), 29 U.S.C. 1144(b) (2)
(A) 5, 7, 19, 21, la

§ 514(b) (2) (B), 29 U.S.C. 1144 (b) (2)
(B) 6, 19, 21, 22, la
§ 514(b) (5), 29 U.S.C. 1144(b) (5) (1988
& Supp. V 1998)

noweoaka Wog

26 U.S.C. 414(f)
N.Y. Ins. Law (McKinney Supp. 1994) :
§ 8231 (a)
§ 4817 (a)
§ 4318

VI
Statutes—Continued:
N.Y. Pub. Health Law (McKinney 1993) :
§ 2807-c(1) (a)
§ 2807-c(1) (b)
§ 2807-c(1) (c)
§ 2807-c(2-a) (c) (i) .....
§ 2807-c(2-a) (a)-(e)
§ 2807-c(11) (i)

Miscellaneous:
Employee Benefit Research Institute Issue Brief
No. 145: Special Report: Sources of Health In-

surance and Characteristics of the Uninsured
PR Set eee 18

4

a
BS co co m 00 oo

2 x _—— -
ES Se ee: Tee oe Oe eee ae ee

Iu the Supreme Court of the United States
OcTOBER TERM, 1994

No. 93-1408

New York STATE CONFERENCE OF BLUE Cross &
BLUE SHIELD PLANS, ET AL., PETITIONERS

v.
INTEREST OF THE UNITED STATES

This case presents questions concerning the scope of
the preemption provision of the Employee Retirement
Income Security Act of 1974 (ERISA), 29 U.S.C. 1001-
1169 (1988 & Supp. V 1993). See 29 U.S.C. 1144. The
Secretary of Labor is primarily responsible for enforcing
and administering Title I of ERISA. See 29 U.S.C.
1002(13), 1136(b). The United States therefore has a
substantial interest in the resolution of the question pre-
sented. In response to the Court’s invitation, the United
States filed a brief at the petition stage of this case urg-
ing that certiorari be granted.

STATEMENT

1. New York State has a “comprehensive statutory
scheme for the regulation of in-patient hospital rates.”
Pet. App. A64-A65.’ For each of 794 diagnostic ~elated

groups (DRGs), a uniform rate is set that reflects the _

average cost of treating a patient with a particular condi-
tion, adjusted for each hospital to

3
He
7

* All references to “Pet. App.” are to the appendix to the peti-
tion for a writ of certiorari in No. 98-1414.

eel eee Pe ee el ee Fe a Pp eee eee

.

tained by it. Ps

Second, an additional surcharge of 11% was imposed
on hospital bills paid by commercial insurers, raising the
total surcharge for such payors to 24%. N.Y. Pub.
Health Law § 2807-c(11)(i) (McKinney 1993) (re-
at Pet. App. Al04). That surcharge was to be
by hospitals, which were then to pay it into the
11% surcharge was in effect

The
only for a one-year period ending on March 31, 1993.

prescribed target
enrollment of Medicaid recipients? N.Y. Pub. Health
Law § 2807-c(2-a)(a)-(e) (McKinney 1993) (repro-
at Pet. App. A106-A113). The 0% to 9% sur-
is paid by the HMO directly into a statewide pool,

4

ices rendered to all other patients, including those patients
who pay their own bills or who are reimbursed directly
by self-insured funds or commercial insurers, are subject to
the hospital’s charges (not the DRG rate), with a statu-
tory limit higher than that charged to commercial insur-
ers. N.Y. Pub. Health Law § 2807-c(1)(c) (McKinney
1993) (reproduced at Pet. App. A103).

The purpose of the 13% surcharge is “to contain hos-
pital costs and to increase the availability of hospital in-
surance coverage to needy New Yorkers” by making the
Blues—traditionally the “insurer of last resort” for high-
risk individuals, see Pet. App. A28—more competitive
with commercial insurers. Id. at A7-A8. The 11% sur-
charge has a similar purpose, and also was designed to
increase state revenues. Jd. at A8, A22, A72-A73 & n.8.
“(T]he primary purpose of the [0% to] 9% assessment
is to encourage HMOs to enroll Medicaid recipients,
thereby lowering the costs of the Medicaid program.” I/d.
at A7-A8.

ERISA welfare plans pay for a large percentage of

hospital bills in New York State. Pet. App. A6. “ERISA
plans provide health coverage to employees in various
ways, including: (1) the purchase of commercial health
insurance from an insurer; (2) self-insurance, whereby
the plan is directly responsible for health care bills * * *;
(3) subscription to a heaith maintenance organization
* * *: and (4) coverage through non-profit health service
corporations, such as Blue Cross/Blue Shield plans.” Jd.
at A6-A7. Thus, ERISA plans that provide hospitaliza-
tion benefits either are purchasers of hospitalization cov-
erage from commercial insurers or other payors, or are
themselves payors of hospital bills.

2. This case presents the question whether the 13%,
11%, and 0% to 9% surcharges are preempted by
ERISA. ERISA generally governs employee benefit plans,
see 29 U.S.C. 1003(a), A ato any employee welfare
benefit plan “established or maintained by an employer
* * * for the purpose of providing for its participants or
their beneficiaries, through the purchase of insurance or

eS a en a

5

otherwise, * * * medical, surgical, or hospital care or
benefits.” 29 U.S.C. 1002(1).

ERISA plans that provide benefits for participants by
purchasing medical coverage—such as from commercial
insurers, the Blues, or HMOs—are “insured plans.” Plans
that pay for participants’ benefits out of the general as-
sets of an employer’s business are “self-insured plans,”
see Metropolitan Life Ins. Co. v. Massachusetts, 471
U.S. 724, 732 (1985), as are many multiemployer health
plans. See 29 U.S.C. 1002(37) (1988 & Supp. V 1993);
26 U.S.C. 414(f). But not every arrangement by which
an individual or group obtains health coverage is an
ERISA covered plan. A plan subject to ERISA must be
established by an “employer” or “employee organization”
for the purpose of providing certain benefits to its “em-
ployee[s].” 29 U.S.C. 1002(1), (4)-(6). Health cover-
age obtained through arrangements that are unrelated to
employment or based on an employment relationship that
does not satisfy ERISA’s coverage provisions is not cov-
ered by ERISA. See 29 U.S.C. 1003(b) (exclusion for
governmental, church, and some other plans); cf. Fuga-
rino V. Hartford Life & Accident Ins. Co., 969 F.2d 178
(6th Cir. 1992) (sole proprietor), cert. denied, 113 S.
Ct. 1401 (1993).

Section 514(a) of ERISA is an express preemption
provision, which states that ERISA “shall supersede any
and all State laws insofar as they may now or hereafter
relate to any employee benefit plan” covered by
ERISA. 29 U.S.C. 1144(a). The insurance savings
clause of ERISA, Section 514(b)(2)(A), 29 U.S.C.
1144(b)(2)(A), however, limits the reach of the pre-
emption clause. The savings clause states that, except
as provided in the “deemer clause,” described below,
ERISA does not “exempt or relieve any person from
any law of any State which regulates insurance, banking,
or securities.” See App., infra, 1a. Thus, a law that
“relates to” an ERISA-covered plan is not preempted if
it is a law “which regulates insurance.”

6

Finally, the savings clause is, in turn, limited by the
“deemer clause” of ERISA, Section 514(b)(2)(B), 29
U.S.C. 1144(b)(2)(B). That clause distinguishes be-
tween “an insurance company or other insurer * * * en-
gaged in the business of insurance,” to which the savings
clause applies, and “an employee benefit plan,” which
shall not be “deemed” to be an insurance company or
engaged in the business of insurance for preemption pur-
poses. See App. infra, la. Thus, a state law that “relates
to” an employee benefit plan that self-insures is pre-
empted, even if such a law would otherwise be saved from
preemption as a law “which regulates insurance.” See
FMC Corp. v. Holliday, 498 U.S. 52, 61-63 (1990).

3. In two actions later consolidated, respondent in-
surance companies and their trade associations sought
to invalidate and enjoin enforcement of the three New
York surcharges on grounds that the surcharges are pre-
empted by ERISA. The other respondents (including the
New York State Health Maintenance Organization Con-
ference and several HMOs) intervened in support of the
insurers, and the New York State Conference of Blue
Cross and Blue Shield Plans, Empire Blue Cross and
Blue Shield, and the Hospital Association of New York
State intervened in support of the state defendants.

On cross-motions for summary judgment, the district
court held that ERISA preempts all three surcharges,
Pet. App. A63-A90, and it enjoined their enforcement
“against any commercial insurers or HMOs in connection
with their coverage of any ERISA plans.” Id. at A89-
A90. The court reasoned that the surcharges “relate
to” ERISA plans because they impose “a substantial eco-
nomic burden on the commercial insurers and HMOs,”
which affects the behavior of ERISA plans when it is
passed on to them in the form of increased costs for
health coverage. Id. at A71, A73. The court also con-
cluded that none of the surcharges is saved as a law that
regulates insurance under ERISA’s insurance savings
clause. Id. at A79-A80.

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7

4. The court of appeals affirmed the district court’s
ruling that ERISA preempts all three surcharges. Pet.
App. Al7-A29, A34. The court held that, although the
surcharge statutes “do not refer to ERISA plans,” they
“relate to” ERISA plans within the meaning of Section
514{a) because they “satisfy the less stringent ‘connection
with’ standard embraced in Ingersoll-Rand [Co. v. Mc-
Clendon, 498 U.S. 133 (1990)].” Pet. App. A22. The
court found the requisite connection in the fact that,
because the surcharges were designed to increase hos-
pital costs for patients not covered by the Blues, “the
surcharges purposely interfere with the choices that ERISA
plans make for health care coverage.” Ibid. Additionally,
the court observed that “[t]he surcharges substantially
increase the cost to ERISA plans of providing benefici-
aries with a given level of health care benefits,” forcing
them “to increase either plan costs or reduce plan bene-
fits.” Id. at A23. The court rejected the argument that
indirect economic impact alone does not suffice to justify
a finding of preemption. Jd. at A23-A24.

The court also ruled that the 11% and 13% sur-
charges are not saved from preemption under Section
514(b)(2)(A) of ERISA, 29 U.S.C. 1144(b)(2)(A),
as laws “which regulate[] insurance.” Reasoning as did
the district court, the court held that the surcharges are
not insurance laws as a matter of “common-sense” be-
cause they regulate hospital rates and are not directed at
the insurance industry. Pet. App. A26-A27. The court
rejected the argument that laws “designed to affect the
insurance marketplace by giving the Blues a competitive
advantage over * * * other players in the marketplace”
amount to regulation of the “business of insurance,”
which the court believed to be the exclusive focus of
ERISA’s insurance savinys clause. Jd. at A27.

The court reached the same result applying the three
factors considered under the McCarran-Ferguson Act, 15
U.S.C. 1011-1015, which this Court has held relevant to
the determination whether a state law is saved under

ERISA’s insurance savings clause. See, e.g., Pilot Life
Ins. Co. v. Dedeaux, 481 U.S. 41, 48-49 (1987). The
court found that the 11% and 13% surcharges spread
risk, and thus satisfy the first factor, by encouraging cus-
tomers to shift to the Blues. Pet. App. A28. In the
court’s view, however, the second factor is not satisfied,
because the surcharges “do not regulate any practice that
is integral to the insurer-insured relationship.” Jbid. The
court reasoned that the surcharges “relate only to the
contractual obligations between hospitals and insurers or
insureds,” rather than the relationship between the insur-
ers and insureds. Id. at A29. Fina'ly, the court held that
the third factor is not satisfied, reasoning that the sur-
charges are not “limited to entities within the insurance
industry” because the 11% and 13% surcharges affect
non-insurance entities such as “the State, hospitals, pa-
tients, HMOs, and self-insured funds.” Jbid. In two foot-
notes, the court approved the district court’s holding that
the 0% to 9% surcharge affecting only HMOs is not
saved because HMOs do not engage in the business of
insurance “as a matter of law.” Jd. at A26 n.5, A29 n.6.

SUMMARY OF ARGUMENT
New York State’s surcharges do not “relate to” ERISA

operation of such plans. Each of the surcharges is a law
of general applicability, because it applies to broad cate-
gories of payors, each of which was intended to and does
include both ERISA plans and participants and non-
ERISA plans and participants. The impact of the sur-

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27

dustry. An important rationale for that limitation is that
the McCarran-Ferguson Act provides an exemption from
the federal antitrust laws.” Such exemptions are narrowly
construed, Royal Drug, 440 U.S. at 231, and in the in-
surance setting a broad construction could create “the
potential to restrain competition in noninsurance markets.”
Pireno, 458 U.S. at 133; see also Royal Drug, 440 U.S.
at 231 (“an exempt entity forfeits antitrust exemption
by acting in concert with nonexempt parties”); United
States Department of Treasury v. Fabe, 113 S. Ct. 2202,
2209-2210 (1993). By contrast, ERISA’s insurance sav-
ings clause preempts any state law that “regulates irsur-
ance,” not merely the “business of insurance,” and the
policy of narrowly construing exemptions from the anti-
trust laws is inapplicable here.

4. For the foregoing reasons, even if this Court con-
cludes (contrary to our submission in Point A) that
application of the 11% and 13% surcharges to commer-
cial insurers and HMOs “relates to” the ERISA plans to
which they sell coverage, those surcharges are preserved
from preemption by the insurance savings clause.

%® Section 2(b) of the McCarran-Ferguson Act, 15 U.S.C. 1012(b),
provides:

No Act of Congress shal! be construed to invalidate, 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 relates
to the business of insurance: Provided, That * * * [the federal
antitrust statutes) shal! be applicable to the business of in-
surance to the extent that such business is not regulated by

The second clause is the portion following the word “Provided.”

28
CONCLUSION

The judgment of the Second Circuit should be re-

versed.”

Respectfully submitted.

General

Solicitor
EDWIN 8S. KNEEDLER

Deputy Solicitor of Labor Deputy Solicitor General

Drew S. Days, IIT

OLIVER B. QUINN

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0498%3A19. Public record. Not legal advice.