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

OcTOBER TERM, 1994

New YorkK STATE CONFERENCE OF BLUE Cross &

BLUE SHIELD PLANS, et ai.,

be Petitioners

TRAVELERS INSURANCE Co.., ef ai.

Mario M. Cuomo, GoOvERNOR OF NEw York, ef al.,

‘ Petitioners

TRAVELERS INSURANCE COMPANY, et al.

HOSPITAL ASSOCIATION OF NEW YorK STATE,

2 Petitioner

TRAVELERS INSURANCE COMPANY, ef al.

On Writs of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF THE

NATIONAL CARRIERS’ CONFERENCE COMMITTEE

AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS

Of Counsel: BENJAMIN W. BOLEY

WruiaM H. DemPsry Counsel of Record

1800 Massachusetts Ave. N.W. ANNE R. BOWDEN

Washington, D.C. 20086 SHEA & GARDNER

(202) 828-2000 1800 Massachusetts Ave., N.W.

Washington, D.C. 20036

’ (202) 828-2000

Davw P. Lee

1901 L Street, N.W.

Washington, D.C, 20036

(202) 862-7218

Attorneys for National Carriers’

December 12, 1994 2 A AON

" Witeow - Rras Paurnine Oo., Inc. - 799-00 "D6. 80001

BEST AVAILA BLE COPY

ISSUE PRESENTED

We devote this brief to an issue upon which the Court

granted certiorari but that neither petitioners nor the

United States as amicus curiae have briefed. That issue

is whether New York’s 13% surcharge upon all hospital

bills paid by, inter alia, self-insured plans and plans in-

sured by commercial insurers, but not upon bills paid by

plans insured by the Blues, is preempted by § 514(a) of

the Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1144(a), as to self-insured

ERISA plans, as distinct from commercially insured

ERISA plans.

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ........................ v

STATEMENT OF INTEREST ...... 2

SUMMARY OF ARGUMENT. ....000.2....----cccne-cceeccovecconeesnees 8

Ce nemmimnmsnanenene 6

I. THE QUESTION OF WHETHER OR NOT

ERISA PREEMPTS APPLICATION OF NEW

YORK’S 18% SURCHARGE TO SELF-

INSURED ERISA PLANS IS PROPERLY

BEFORE THE COURT AND SHOULD BE

FE scctngteientenrcentenrigentiocanrmetapestennsreseece 8

Il. SECTION 514(a) OF ERISA PREEMPTS

APPLICATION OF NEW YORK’S 13% SUR-

CHARGE TO SELF-INSURED ' ERISA

REESE SR IE EE 13

A. The “Relates to” Clause ........... " 13

B. The “Saving” and “Deemer” Clauses ............ 23

EE 25

APPENDIX AND EXHIBITS THERETO

Citations to the Record in the Lower Courts ........ la

Travelers’ Notice of Motion for Summary nae

ment (filed Aug. 21, 1992) Exhibit 1 - 9a

HIAA Plaintiffs’ Notice of Motion (filed Aug. 21,

1992) Exhibit 2 .. lla

Letter from Craig P. Murphy, Counsel for Travel-

ers, to Hon. Louis J. Freeh (Mar. 24, 1998) Ex-

FS UE l4a

Letter from Robert A. Biche, Counsel for Blue

Cross/Blue Shield, to Hon. Louis J. Freeh (Mar.

29, 1998) Exhibit 4 17a

(iii)

iv

TABLE OF CONTENTS—Continued

Letter from Jeffrey J. Sherrin, Counsel for

HANYS, to Hon. Louis J. Freeh (Mar. 30, 1993)

Exhibit 5

Letter from Craig P. Murphy, Counsel for Travel-

ers, to Hon. Louis J. Freeh (Mar. 31, 1993) Ex-

| nel PS ae

Letter from Benjamin W. Boley, Counsel for

NCCC, to Hon. Louis J. Freeh (Apr. 6, 1993)

Exhibit 7

Order, Dkt. Nos. 92 Civ. 3999, 92 Civ. 5419

(S.D.N.Y. Apr. 27, 1993) Exhibit 8

Affidavit of Jeffrey J. Sherrin, Counsel for

HANYS, in Opposition to Motion of NCCC for

Leave to File Brief as Amicus Curiae, Dkt. Nos.

93-7132L, 93-7134CON, 93-7148CON, 93-7194XAP

(2d Cir.) (sworn to Apr. 21, 1998) Exhibit 9........

Page

v

TABLE OF AUTHORITIES

CASES Page

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

(1981) 16, 21, 22

Auto Club Ins. Ass'n Vv. Health and Welfare Plans,

Ine., 961 F.2d 588 (6th Cir. 1992) 16

Bazter v. Lynn, 886 F.2d 182 (8th Cir.), reh’g

denied, en banc, 1989 U.S. App. LEXIS 16899

(8th Cir. 1989) OE ODA EE le a 17

Brown Vv. Granatelli, 897 F.2d 1351 (5th Cir.),

cert. denied, 498 U.S. 848 (1990) 16

District of Cotumbia v. Greater Washington Bd.

of Trade, 113 S. Ct. 580 (1992) 14, 15, 16

Electro-Mechanical Corp. v. Ogan, 9 F.3d 445 (6th

Cir. 1998) .......... Ps 24

FMC Corp. V. Holliday, 498 U.S. 52 (1990) ....... 9, 16, 24

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

hited a ee at at 16

Hampton Indus., Inc. Vv. Sparrow, 981 F.2d 726

Sl EE 24

Ingersoll-Rand Co. Vv. McClendon, 498 U.S. 133

(1990) ..... 16, 21

Mackey Vv. Lanier Collection Agency & Serv., Inc.,

Se I Gili hetiecendnatutiventncnmnitiiahibeiisteciasenee 14, 16

Metropolitan Life Ins. Co. Vv. Massachusetts, 471

U.S. 724 (1985) . 16, 18, 19, 23, 24

Mulleniz v. Aetna Life and Casualty Ins. Co., 912

F.2d 1406 (llth Cir. 1990) 16

National Elevator Indus., Inc. v. Calhoon, 957 F.2d

1555 (10th Cir.), cert. denied, 118 S. Ct. 406

(1992) .... 22, 23

NYSA-ILA Medical and Clinical Servs. Fund v.

Azelrod, 27 F.3d 823 (2d Cir.), petition for cert.

filed sub nom. Chassin Vv. NYSA-ILA Medical

and Clinical Servs. Fund, 68 U.S.L.W. 3429

(U.S. Oct. 21, 1994) (No. 94-745) 20000. 11

Pilot Life Ins. Co. v. Dedeauz, 481 U.S. 41 (1987)... 14

PPG Indus. Pension Plan A (CIO) Vv. Crews, 902

F.2d 1148 (4th Cir. 1990) 17, 21

Shaw V. Delta Air Lines, Inc., 463 U.S. 85 (1983).. 15, 21

vi

TABLE OF AUTHORITIES—Continued

Page

Travitz v. Northeast Dep’t ILGWU Health and

Welfare Fund, 13 F.3d 704 (3d Cir.), cert. de-

nied, 114 S. Ct. 2165 (1994) .. 16, 24

Tri-State Machine, Inc. Vv. Nationwide Life Ins.

Co., 33 F.3d 309 (4th Cir. 1994) 24

United Wire, Metal and Machine Health and Wel-

fare Fund v. Morristown Memorial Hospital,

pee to (3d Cir.), cert. denied, 114 S. Ct.

382 (1998) ...... ul 4,11, 12,17

STATUTES

Employee Retirement Income Security Act of 1974

(ERISA):

§ 3(1), 29 U.S.C. § 1002(1) 18

§ $3(21) (A), 29 U.S.C. § 1002(21) (A) ............. 2

§ 508 (2), 29 U.S.C. § 1133 (2) 2

§ 514(a), 29 U.S.C. § 1144(a) passim

§ 514(b) (2) (A), 29 U.S.C. § 1144(b) (2) (A)... 9, 18,

23

§ 514(b) (2) (B), 29 U.S.C. § 1144(b) (2) (B).. 18, 23

N.Y. Pub. Health Law

§ 2807-c(1) (a) (McKinney Supp. 1993) .......... 20

§ 2807-c(1) (b) (McKinney Supp. 1993) ........... 2,19

MISCELLANEOUS

120 Cong. Rec. 29933 (1974) ...... 21

120 Cong. Rec. 29942 (1974) . 2 21

ae a ee ee

IN THE

Supreme Court of the United States

OcTOBER TERM, 1994

No. 93-1408

New YorK STATE CONFERENCE OF BLUE Cross &

BLUE SHIELD PLANS, ef al.,

. Petitioners

TRAVELERS INSURANCE Co., et al.

No. 93-1414

Mario M. Cuomo, GOVERNOR OF NEW YorK, et al.,

- Petitioners

TRAVELERS INSURANCE COMPANY, ef all.

No. 93-1415

HosPITAL ASSOCIATION OF NEW YORK STATE,

7 Petitioner

TRAVELERS INSURANCE COMPANY, et al.

On Writs of Certiorari to the

United States Court of Appeals

for the Second Circuit

| BRIEF OF THE

NATIONAL CARRIERS’ CONFERENCE COMMITTEE

AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS

2

STATEMENT OF INTEREST

The National Carriers’ Conference Committee (“NCCC”)

submits this brief as amicus curiae urging affirmance of

the decision of the court of appeals. Pursuant to Rule

37.3 of the Rules of this Court, the NCCC has filed with

the Clerk the written consents of all of the parties in this

case to the submission of this amicus curiae brief.

The NCCC, consisting of labor relations officials of ten

of the nation’s major freight railroads and the Chairman

of the National Railway Labor Conference, is the sole

governing body of fiduciaries for The Railroad Employees

National Early Retirement Major Medical Benefit Plan.

In addition, along with the Health and Welfare Com-

mittee of Cooperating Railway Labor Organizations, the

NCCC serves as the governing body of fiduciaries for

The Railroad Employees National Health and Welfare

Plan. These Plans (the “Railroad Plans” or the “Plans” )

were established and are maintained pursuant to national

collective bargaining agreements under the Railway Labor

Act between most of the Class I line haul rail carriers in

the United States and the principal twelve railway labor

organizations. The Plans are self-insured employee wel-

fare benefit plans under the Employee Retirement Income

Security Act of 1974, as amended (“ERISA”). They pro-

vide health care benefits, including coverage for inpatient

hospital care, to more than a half million railroad em-

ployees, retirees, and their dependents throughout the

country. Respondent The Travelers Insurance Company

(“Travelers”) provides claims administrative services to

the Railroad Plans and acts as a fiduciary of the Plans

under §§ 3(21)(A) and 503(2) of ERISA, 29 U.S.C.

§§ 1002(21)(A) and 1133(2).

In this case, the court of appeals affirmed the summary

judgment of the district court that ERISA preempts the

imposition of, among other things, a 13% surcharge under

§ 2807-c(1)(b) of the N.Y. Pub. Health Law on gen-

eral hospital bills for inpatient care paid by ERISA-

3.

covered plans, whether such plans are self-insured by the

employers maintaining them or insured under a policy

issued by a commercial insurer. Reversal of the court of

appeals’ decision would require the Railroad Plans either

(a) to pay the 13% surcharge—approximately $1 million

per year—so as to remain self-insured on a national basis

as called for by the collective bargaining agreements pur-

suant to which the Plans are maintained and to continue

to have the Plans administered on a national or regional

basis by administrators of their choice, or (b) to avoid

the 13% surcharge by becoming insured with Blue Cross/

Blue Shield (the “Blues”) in New York, thus destroying

the interstate uniformity of the Plans’ structure (self-

insured) and administration (nationwide or regional) and

subjecting the Plans to New York’s host of insurance laws

and regulations.

The interest of the NCCC, as fiduciaries of the Plans,

is to escape this Hobson’s choice.

SUMMARY OF ARGUMENT

I. This case presents two closely related questions:

Does ERISA preemipt New York’s 13% surcharge on hos-

pital bills for inpatient care as the surcharge is applied

to ERISA-covered plans that are (a) insured by commer-

cial insurers or (b) self-insured. We contend, contrary

to the suggestion of the United States, that the question

of ERISA preemption of the surcharge as applied to self-

insured plans is properly before the Court and that sound

judicial policy calls for its resolution in this case.

The issue of whether ERISA preempts application of

the surcharge to self-insured plans has been raised, argued

before and decided by both the district court and the court

of appeals. Plaintiffs, acting as claims fiduciaries for self-

insured plans, raised the issue in their complaints and

motions for summary judgment. The district court

summary judgment in plaintiffs’ favor in all respects

to the 13% surcharge, and the court’s opinion shows. that

4

the judgment included a declaration that ERISA pre-

empted the surcharge as applied to self-insured plans. In-

deed, following the entry of a stay of its judgment on the

13% surcharge pending appeal, the district court ordered

the plaintiffs who are claims fiduciaries for self-insured

plans to pay the surcharge on their behalf.

Appellants brought the issue regarding self-insured plans

to the court of appeals both in their statements of ques-

tions presented and in their briefs. In fact, appellant Hos-

pital Association of New York (“HANYS”) unsuccess-

fully opposed the motion of this amicus for leave to

file a brief in the court of appeals on the ground that

the appellees who are claims fiduciaries for self-insured

ERISA plans had adequately represented the interests of

those plans. The court of appeals affirmed the district

court’s ruling as to the 13% surcharge in all respects.

That the court’s opinion did not distinguish between in-

sured and self-insured plans is without consequence, since

its ruling found preemption as to both.

All of the petitioners in this Court based their argument

for certiorari on an alleged conflict between the decision

below and the decision of the Third Circuit Court of

Appeals in United Wire, Metal and Machine Health and

Welfare Fund v. Morristown Memorial Hospital, 995

F.2d 1179 (3d Cir.), cert. denied, 114 S. Ct. 382 (1993),

where only self-insured plans and their participants chal-

lenged various New Jersey hospital rate laws on ERISA

preemption grounds. Indeed, the certiorari petition of

HANYS explicitly framed the issue in terms of whether

ERISA preempted New York’s different “set of [hospital]

rates for patients covered by[, among others,] self-insured

plans.” Brief for Petitioner HANYS on Writ of Certiorari

to the United States Court of Appeals for the Second

Circuit at (i); HANYS v. Travelers Ins. Co., Dkt. No.

93-1415, 63 U.S.L.W. 3282, 3291 (U.S. Oct. 7, 1994).

This Court should decide the issue of preemption as to

self-insured plans because it is inextricably linked to the

5

issue of preemption as to insured plans. In both con-

texts, the impact of the 13% surcharge on a plan’s choice

of insurers must be evaluated. The preemption issue as

to self-insured plans raises two additional, but related,

considerations: imposition of the surcharge directly upon

an ERISA plan and its effect on a plan’s choice of a

basic structure, i.e., insurance versus self-insurance. More-

over, the Court should decide the question of preemption

of the 13% surcharge as it applies to self-insured plans

because that question was the very issue creating the con-

flict petitioners cited in seeking certiore~i.

Il. The 13% surcharge as applied to self-insured

ERISA plans “relates to” them for purposes of ERISA’s

preemption provision because (a) self-insured plans them-

selves pay the surcharge to the hospitals—there is no in-

tervening insurance company that pays the hospital and

passes the surcharge through to the plans in the form

of higher premiums—and (b) the surcharge applies to

self-insured plans solely by virtue of the central function

that makes them ERISA-covered plans—the payment of

health care benefits. This particular characteristic of the

surcharge distinguishes it from state laws imposing directly

upon self-insured plans requirements affecting the plans

by reason of their property ownership, utility use, hiring

of employees and other similar activities.

In addition, the surcharge “relates to” the self-insured

plans because it is designed to induce them to alter dras-

tically their basic structure and administration by chang-

ing from self-insurance administered on a national or

multistate regional basis by entities of their choice to

insurance with the Blues in New York. Such a change

would create severe administrative burdens for such plans

and subject them to New York insurance laws and regula-

tions from which Congress, in the “deemer” clause of

ERISA’s preemption provision, expressly protected them.

Furthermore, becoming insured with the Blues in New

York would interfere with the uniform plan structure and

6

administration throughout the country or multistate region

that is the hallmark of interstate plan operations, espe-

cially those of national plans that are collectively bar-

gained, as are the Railroad Plans.

The insurance “saving” clause of ERISA’s preemption

provision does not preserve the 13% surcharge from pre-

emption. The surcharge is a law regulating hospital rates,

not insurance. Furthermore, the deemer clause of the pre-

emption provision precludes application of the saving clause

to any state law to the extent that it “relates to” self-

insured plans. Thus, since the 13% surcharge “relates to”

self-insured plans, the saving clause does not insulate the

surcharge from preemption as it applies to them.

ARGUMENT

New York’s effort to improve the competitive position

of the Blues by imposing a 13% surcharge on other

payors of inpatient hospital bills penalizes both commer-

cially insured and self-insured plans. In the case of in-

sured ERISA plans, the impact oi the surcharge comes

by way of premium increases by the insurers. In the case

of self-insured ERISA plans, the impact is direct and

immediate. The surcharge is paid to the hospitals by the

plans themselves. Though the aim of the statute is the

same in both situations—to induce plans to switch to the

Blues “by giving the Blues a competitive advantage over

commercially insured, self-insured funds” and others (Pet.

App. at 27, 56)’—and while in our view a statute so

designed runs afoul of ERISA’s preemption provision

whether applied to commercial insurers or to self-insured

plans, the situations are not identical. As the United

States acknowledges: “Application of the 13% surcharge

1 We adopt “Pet. App.” to refer to the Petitioners’ Appendix to

their petition for certiorari in Docket No. 93-1414 and “JA” to

refer to the Joint Appendix filed by Petitioners with their briefs

on the writ.. :

to ‘self-insured funds’ may raise some distinct issues, since

that surcharge applies to bills that some ERISA plans—

those that self-insure—must pay themselves.” Brief for the

United States as Amicus Curiae Supporting: Petitioners at

12 n.3 (hereinafter “Gov't Br.”); Brief for the United

States as Amicus Curiae on Petitions for a Writ of Cer-

tiorari to the United States Court of Appeals for the

Second Circuit at 14 n.5 (hereinafter “Gov't Br. on

Pet.”).

The United States thus appears to appreciate that the

argument that the 13% surcharge “relates to” ERISA

plans is stronger where the surcharge is levied upon the

plan itself than where the surcharge impacts the plan

through the intermediary of an insurer. Moreover, in

the case of self-insured plans, there is an additional dis-

tinguishing factor relating to the plan’s basic structure

and administration. Not only does the statute designedly

color the plan’s choice of insurance carrier, but it also

affects the choice of insurance as against self-insurance.

In view of the interrelationship of the issues respecting

insured and self-insured ERISA plans—both their similari-

ties and dissimilarities—it would on the face of it seem

desirable for the Court to examine them together. Never-

theless, petitioners do not discuss the discrete problems

raised by application of the surcharge to self-insured plans,

and the Government expressly declines to brief the ques-

tion, resting on its suggestion that the Court remand that

issue to the lower courts if it reverses the court of appeals

respecting exaction of the surcharge from commercially

insured ERISA plans. Gov't Br. at 12 n.3, 28 2.20.

In this brief, we show, first, that the Government's

recommendation is grounded in a demonstrably mistaken

understanding of the proceedings below and, to. the extent

it speaks to the Court’s discretion, is unwise. We. then

show that application of the surcharge to self-insured

ERISA plans is barred by ERISA’s preemption provision.

I. THE QUESTION OF WHETHER OR NOT ERISA

PREEMPTS APPLICATION OF NEW YORK’S 13%

SURCHARGE TO SELF-INSURED ERISA PLANS

IS PROPERLY BEFORE THE COURT AND

SHOULD BE DECIDED.

Notwithstanding the Solicitor General’s expressed doubts,

the issue of preemption of the surcharge as applied to

self-insured ERISA plans was unquestionably raised,

argued, and decided both in the district court and the

court of appeals and was one of the issues as to which

this Court granted certiorari. Because of the importance

of this question and the irreconvilability between our view

of the lower court proceedings and the Solicitor General’s,

we include in the Appendix (“App.”) detailed citations

to the record in the lower courts. In summary, that record

shows the following:

The issue of preemption respecting self-insured plans

was raised in the district court by the plaintiffs as fidu-

caries for such plans. While the Government, in its

Brief as Amicus Curiae in support of the petition for

certiorari, maintained the contrary (Gov't Br. on Pet. at

14 n.5), it now acknowledges, though rather elliptically,

its error.2 Gov't Br. at 11-12 n.3. As to the proceedings

before the district court, the affidavits from the plaintiffs

in support of their motions for summary judgment were

replete with references to self-insured plans, App. at 2a,

and the district court granted those motions in all respects

pertaining to the 13% surcharge. Pet. App. at 89-90.

Moreover, the court in its opinion made quite clear that

2 It now says, “In fact, the complaints filed in this case may be

read to allege that one or more of the plaintiffs is a self-insured

plan, see J.A. 93, at 18, and the complaints allege that several

of the insured-[sic] plaintiffs in this case are fiduciaries for self-

insured funds that are ERISA plans, see J.A. 69, 91-93.” Gov't

Br. at 12 n.3. To say that parties alleged standing to raise an issue

is not quite the same thing as to concede that they did in fact raise

the issue. But since in fact they did, this seems close enough to be

taken as a concession.

9

its judgment applied to self-insured plans. Thus, the court

specifically held, citing FMC Corporation v. Holliday,

498 U.S. 52 (1990), that the insurance saving clause of

ERISA § 514(b)(2)(A) cannot save the surcharge as

applied to self-insured plans because “self-insured plans

do not engage in the ‘business of insurance’ as a matter

of law.” Pet. App. at 79.

The Solicitor General believes it is “not clear” that the

district court’s injunction—which was directed “ ‘against

any commercial insurers or HMOs in connection with

their coverage of any ERISA plans’ ”—extended to in-

surers in their capacity as administrators of self-insured

plans. Gov't Br. at 12 n.3 (citation omitted). But it is

the court’s judgment that is controlling, and that judg-

ment plainly extended to self-insured plans. In any event,

the Solicitor General’s doubt is unfounded. He evidently

believes that the term “coverage” in the injunction might

refer only to insured coverage. But the court held that

HMOs are not engaged in the business of insurance (Pet.

App. at 79 & n.14), and, accordingly, the court’s use of

the term “coverage” respecting both HMOs and commer-

cial insurers must be taken to include coverage under

self-insured plans that they administer.

Moreover, the court removed any possible question by

squarely ruling, in a post-judgment order of which the

Solicitor General may be unaware, that the court’s judg-

ment encompassed self-insured plans. After the court had

Stayed that judgment as to the 13% surcharge pending

appeal, a dispute arose as to whether a plaintiff, Travelers,

in its capacity as fiduciary for two self-insured ERISA

plans that were not parties, the Railroad Plans, was ob-

liged to pay the surcharge on their behalf. Noting that

“two self-insured ERISA plans for which Travelers pro-

vides administrative services . . . had instructed Travelers

not to pay the 13% differential,” the court ordered

Travelers to pay. App. at 4a-Sa and Ex. 8 thereto.

10

As to the appeal, the Solicitor General says:

“Since no cross-appeal was taken from the district

court’s order, the application of the 13% surcharge

to ‘self-insured fund[s]’ was not raised by any party

before the court of appeals. Nor did the court ad-

dress it sua sponte.” Gov't Br. at 12 n.3.

The Solicitor General is mistaken. (Not, to be sure,

with respect to the absence of a cross-appeal regarding

any surcharge. But this is a fact without any significance

that we can discern, since the judgment on the surcharges

was wholly in plaintiffs’ favor.) The appeal carried to

the court of appeals that judgment, which covered the

13% surcharge as applied to self-insured funds. The ap-

pellants’ statements of questions presented embraced that

issue. And it was briefed by the parties. (See App. at

5a-6a, especially the citations to passages in the appellants’

briefs.) Of particular significance is the opposition of

appellant—here petitioner—Hospital Association of New

York State (“HANYS”) to this amicus’ motion, subse-

quently granted, for leave to file a brief with the court of

appeals:

“First, the Court already has been favored with briefs

from five sets of parties and from four amicus curiae,

covering all of the issues. Jn particular, the interests

of all self-insured plans, and the Railroad Plans spe-

cifically, are alrready represented. Plaintiff the Trav-

elers Insurance Company (‘Travelers’) acts as fi-

duciary or otherwise provides administrative services

to self-insured plans, including the Railroad Plans.

Travelers has specifically lodged its complaint in such

capacity. (Citation omitted.) The additional brief

which the Railroad Plans seek to submit is merely

cumulative . . . .” (Emphasis added.) App. at 7a

and Ex. 9 thereto.

Thus the issue as to self-insured plans was clearly in

play in the court of appeals; and while the court did not

in its opinion distinguish between self-insured plans and

insured plans, there was no reason for it to do so. App.

{t

at 8a. The court simply referred to the 13% surcharge

in general terms without distinction as to payor—whether

commercial insurer or self-insured plan—and if its ration-

ale be thought to be framed primarily with reference to

insured plans, that rationale surely applied a fortiori to

self-insured plans. If anything can be said to be missing,

it is simply the equivalent of an addendum stating that

“the same is true of self-insured plans”.*

In this Court, the petitioners sought review of the judg-

ment below insofar as it struck down the 13% surcharge

and did not, naturally, excise from their request that

element of the judgment applying to self-insured plans.

To the contrary, the first issue identified in the petition

filed by HANYS expressly raised the question of pre-

emption of New York’s different “set of [hospital] rates

for patients covered by[{, among others,] self-insured

plans,” and the Court granted that petition as to that

issue. Brief for Petitioner HANYS on Writ of Certiorari

to the United States Court of Appeals for the Second

Circuit at (i); HANYS v. Travelers Ins. Co., Dkt. No.

93-1415, 63 U.S.L.W. 3282, 3291 (U.S. Oct. 7, 1994).

Moreover, the principal reason advanced by all petition-

ers for review was the asserted conflict between the deci-

sion below and that of the Third Circuit Court of Appeals

in United Wire, Metal and Machine Health and Welfare

Fund v. Morristown Memorial Hospital, 995 F.2d 1179

(3d Cir. 1993)—a case where only self-insured plans

and their participants challenged various New Jersey hos-

pital rate laws as preempted by ERISA.

*If a full expression of the court of appeals’ views respecting

preemption as it applies to self-insured plans be thought helpful,

the court supplied it in its subsequent opinion in NYSA-ILA Medi-

cal and Clinical Services Fund v. Azelrod, 27 F.3d 823 (2d Cir.),

petition for cert. filed sub nom. Chassin v. NYSA-ILA Medical and

Clinical Services Fund, 68 U.S.L.W. 3429 (U.S. Oct. 21, 1994)

(No. 94-745).

12

In these circumstances, the Solicitor General’s sugges-

tion that the Court not decide the preemption issue as it

relates to self-insured plans is without procedural warrant.

It is also without merit as a matter of judicial policy.

That issue is inextricably linked to the issue of preemp-

tion respecting insured plans. A central element of the

preemption analysis respecting the surcharge’s application

to ERISA plans generally is the New York statute’s pur-

pose of influencing the plans’ choice of insurers. That

element must be evaluated as it relates to insured plans.

It is even more pertinent in the context of self-insured

plans, because that context includes two additional, but

related, factors—the effect on the choice of a plan’s basic

structure, i.e., self-insurance versus insurance, and the

direct imposition of the surcharge on the plans. There is

no sound reason for excluding self-insured plans from this

assessment and leaving undecided the very question an-

swered in United Wire that petitioners asserted created the

conflict requiring resolution by this Court. This is espe-

cially so because, as we have noted supra at 11 n.3, that

question was ruled upon by the Court of Appeals for the

Second Circuit in a decision subsequent to the one here

under review, a decision as to which a petition for certi-

orari is currently pending.

We add that it might be useful to the Court to be

advised of the position of the United States respecting

self-insured plans. In the court below, as the Solicitor

General notes, the Secretary of Labor, appearing as amicus

curiae, took the position “that the impact on choices made

by plans provides a sufficient connection to trigger pre-

emption” of the surcharges on the ground that they “relate

to” ERISA plans, “but that—except for self-insured ERISA

plans, which are protected by the ‘deemer’ clause—they

are saved from preemption by the insurance savings

clause.” Gov't Br. at 14 n.4. The Secretary has now

joined in the contrary position expressed in the brief for

the United States with respect to insured plans, id. at

14 & n.4; but there is no indication that the United States

‘13

would extend that reversal of position to self-insured

plans, which, the Solicitor General acknowledges, “may

raise some distinct issues.” /d. at 12 n.3.

Il. SECTION 514(a) OF ERISA PREEMPTS APPLICA-

TION OF NEW YORK’S 13% SURCHARGE TO

SELF-INSURED ERISA PLANS.

New York’s 13% surcharge as applied to self-insured

ERISA plans “relates to” those plans for purposes of

§514(a) of ERISA, 29 U.S.C. § 1144(a), and, as ap-

plied to those plans, is not a law “which regulates insur-

ance” under the saving clause of § 514(b)(2)(A), 29

U.S.C. § 1144(b)(2)(A).

A. The “Relates to” Clause.

The 13% surcharge imposed upon self-insured ERISA

plans “relates to” them for purposes of § 514(a) because

the surcharge is a direct levy upon such plans and attaches

to the very activity that makes them ERISA-covered

plans, the provision of health care benefits to plan par-

ticipants. The plans pay the surcharge to the billing

hospital; there is no intervening insurance company that

pays the hospital and passes the surcharge on to the plans

in the form of higher premiums.‘ And the provision of

hospital care benefits to participants, the activity upon

which the surcharge is fixed, is the very function that

brings the plans, pursuant to § 3(1) of ERISA, 29 U.S.C.

§ 1002(1), under its coverage.

eae ee SRE ene ee Se, eee

plans in response to the hospital’s bill, the amount is fixed by law.

When passed through by a commercial insurer, the amount is

determined by the realities of the competitive marketplace. Insurers

must cover their costs or go out of business. Accordingly, sub-

stantial cost increases suffered by the insurer are almost certain

to increase the costs of the insured plan. Still, the difference be-

tween a cost increase that the law requires a self-insured plan to

pay and a cost increase that an insured plan is asked by its insurer

to agree to pay is a real difference.

14

We submit that these facts, viewed against this Court’s

rulings that ERISA’s preemption clause is to be accorded

“‘its broad common-sense meaning,” Pilot Life Insur-

ance Co. Vv. Dedeaux, 481 U.S. 41, 47 (1987) (citations

omitted), so as to give “effect to the ‘deliberately expan-

sive’ language chosen by Congress,” District of Columbia

v. Greater Washington Board of Trade, 113 S. Ct. 580,

583 (1992) (citation omitted), make inescapable the

conclusion that New York’s 13% surcharge “relates to”

self-insured ERISA plans. As in Mackey v. Lanier Col-

lection Agency & Service, Inc., 486 U.S. 825 (1988),

the result is driven by the statutory language. To borrow

and adapt the words of amicus curiae quoted by this Court

in Mackey in applying the “relates to” phrase, “ ‘there is

simply no logical way to construe the English language’ ”

so as to conclude that a law imposing a 13% levy on

bills paid by self-insured ERISA plans for inpatient hos-

pital care of plan participants does not “relate to” such

plans. Mackey, 486 U.S. at 836.

This is not to say that any tax or other requirement

directly imposed upon an ERISA plan “relates to” that

plan for purposes of § 514(a). Congress did not intend

to wipe out a state’s entire body of laws insofar as they

apply to ERISA plans. As the Court observed in consider-

ing state judicial remedies in Mackey, no one would con-

tend that “lawsuits against ERISA plans for run-of-the-

mill state-law claims such as unpaid rent, failure to pay

creditors, or even torts committed by an ERISA plan”

are preempted. Jd. at 833. But here, the 13% surcharge

is not only imposed directly upon self-insured plans, it is

imposed solely by virtue of the core plan function that

causes the plan to fall within ERISA’s ambit, the provi-

sion of health care benefits to plan participants.

On this analysis, the term “relates to” would retain the

exceedingly broad meaning that Congress intended and

that this Court has articulated. It would not be artificially

constricted so as to avoid unreasonable results. Such

results would be avoided, instead, through interpretation

15

of the phrase “any employee benefit plan”—to which the

challenged state law must “relate”—so that that phrase

does not simply describe one type of enterprise among

others, but defines an entity that is affected by the state

law because it is a benefit plan rather than

else. Laws that apply to ERISA plans, then, solely be-

cause they own property, or use utilities, or hire em-

ployees, or engage in other activities just as do myriad

other enterprises, would not “relate to” those plans even

though the laws impose requirements directly upon the

plans.

In short, because it is imposed directly on self-insured

ERISA plans and targets their provision of health care

benefits, the 13% surcharge for those reasons alone “re-

lates to” those plans for purposes of § 514(a).° This, we

submit, is the teaching of the two decisions of this Court

holding state laws preempted as applied directly to self-

insured ERISA plans by virtue of their performance of

their core functions. In Shaw v. Delta Air Lines, Inc.,

463 US. 85 (1983), The Court ruled preempted a state

statute prohibiting discrimination in employee benefit plans

on the basis of pregnancy.* While the law did not apply

only to ERISA plans, the Court had “no difficulty in con-

cluding” that it “relate[d] to” such plans because it “pro-

5 Accordingly, the surcharge cannot be listed as among those laws

of “general applicability” that this Court has noted may be more

likely than other laws to have a “tenuous, remote or peripheral”

effect on ERISA plans. District of Columbia v. Greater Washington

Board of Trade, 113 8. Ct. 580, 583 n.1 (1992). Rather, the sur-

charge is primarily addressed to and primarily affects ERISA

plans. It is assessed upon a limited category of payors of hospital

doubt that the vast majority of pay-

this category are made either by

insured or self-insured plans subject to ERISA. Hence, the 13%

surcharge js hardly “generally applicable” even to all payors for

hospital services, no less the population at large.

* For an explication of the Court’s ruling as to a second statute

involved in Shaw, see District of Columbia v. Greater Washington

Board of Trade, 113 8. Ct. 580, 585 (1992).

16

hibit{[ed] employers from structuring their employee benefit

plans” in a certain manner. Id. at 96-97. And in FMC

Corporation v. Holliday, 498 U.S. 52 (1990), the Court

ruled that § 514(a) applied to a state law barring both

ERISA and non-ERISA plans from asserting subrogation

with respect to a beneficiary's tort recovery.’ Any number

of decisions in the courts of appeals are of similar import.

See, ¢.g., Travitz v. Northeast Dep't ILGWU Health and

Welfare Fund, 13 F.3d 704, 709-10 (3d Cir. 1994) (state

bar against recovery from tortfeasor of amounts otherwise

payable by self-insured plan “relates to” that plan); Auto

Club Ins. Ass'n Vv. Health and Welfare Plans, Inc., 961

F.2d 588, 592-93 (6th Cir. 1992) (state coordination of

benefits rule, as applied to self insured plans, “relates to”

them); Mullenix v. Aetna Life and Casualty Ins. Co., 912

F.2d 1406, 1408-09 (11th Cir. 1990) (application to self-

insured plans of state mandate that chiropractic services be

covered “relates to” such plans); Brown v. Granatelli, 897

F.2d 1351, 1353-55 (5th Cir. 1990) (application to self-

insured plans of state requirement that health insurance

policies cover newborns with congenital defects “relates to”

7 Other § 514(a) decisions by the Court accord with this analysis.

In three cases, the challenged state laws did not apply directly to

ERISA plans, but the Court held them preempted nonetheless be-

cause there was a substantial indirect impact that bore specifically

on the plans’ activities in providing benefits. Metropolitan Life Ins.

Co. v. Massachusetts, 471 U.S. 724 (1985); Ingersoll-Rand Co. Vv.

McClendon, 498 U.S. 183 (1990); and Greater Washington Board

of Trade, 113 S. Ct. 580 (1992). In a fourth case, on the other

hand, the Court upheld state laws that impacted ERISA plans only

indirectly and that did not impinge upon interests, such as uni-

formity, that ERISA was designed to secure. Fort Halifax Packing

Co. v. Coyne, 482 U.S. 1 (1987). Finally, in Mackey, 486 U.S. 825

(1988), while the state law—a general garnishment statute—did

apply directly to ERISA plans, it was not aimed specifically at the

activities they conducted because they were benefit plans. In any

event, the Court viewed other ERISA provisions as evidencing a

legislative intent under which such statutes were permissible. For

a similar ruling, see Alessi v. Raybestos-Manhattan, Ine., 451 U.S.

504 (1981).

17

such plans even if they have purchased stop-loss insur-

ance); PPG Indus. Pension Plan A (CIO) v. Crews, 902

F.2d 1148, 1150-51 (4th Cir. 1990) (state law prohibit-

ing particuls, method of integrating pension and workers’

compensation benefits as applied to self-insured plans “re-

lates to” such plans); Baxter v. Lynn, 886 F.2d 182, 185

(8th Cir. 1989) (state law that “prohibit[s] employers

from structuring their [self-insured plans] in a manner that

requires reimbursement” by plan participant who recovers

from third-party “relates to” such plans) .*

There is in addition a further reason why New York’s

13% surcharge “relates to” self-insured plans: It is de-

signed to induce them, although they may be nationwide

and collectively bargained, as are the Railroad Plans, to

change their basic structure and administration—from

self-insurance administered on a national or multistate

regional basis by the entity of their choice to insurance

with the Blues in New York.

A primary goal of the 13% surcharge when enacted

was to encourage providers of health care benefits, be

they commercial insurers or self-insured plans, to insure

those benefits with the Blues. The court of appeals found

that the surcharge “was meant to ‘ “level [the] playing

field” ’ for the Blues . . . (citations omitted). The hope

was that this would encourage more employers and

ERISA plans to subscribe to the Blues.” JA 37. See also

Gov't Br. at 9 (the surcharges “are designed to give the

Blues a rate advantage in the marketplace, thereby en-

couraging more customers to purchase coverage from the

® The decision of the Third Circuit Court of Appeals in United

Wire, 995 F.2d 1179 (3d Cir. 1993), appears to depart from this

approach. We think it incorrect, but in any event, as we hereafter

note in the ‘text, the 18% surcharge is materially different from,

and more pernicious than, the laws involved in United Wire in that

New York’s surcharge designedly interferes with a plan’s determi-

nation of what its basic structure and administration should be.

18

Blues and helping maintain the solvency of the Blues.”

(Emphasis added.) ).

By penalizing self-insured plans that choose not to

switch to insurance with the Blues in New York, New

York seeks to compel those plans to reverse their decisions

to be self-insured. Those decisions are made by large and

mature plans, like the Railroad Plans, for very good rea-

sons. Such plans can predict with substantial accuracy

what their benefits and related expenses will be in any

given year, thus minimizing the need to insure against the

risk that benefits and expenses will exceed available funds.

On the other hand, becoming insured triggers the applica-

tion to the plans of a long list of burdensome and costly

state insurance laws and regulations, such as mandated

benefit laws, mandated provider laws and premium taxes,

from which Congress plainly intended, through the

deemer clause in § 514(b)(2)(B) of ERISA, 29 U.S.C.

§ 1144(b) (2) (B), to protect self-insured plans.°

In Metropolitan Life Insurance Co. v. Massachusetts,

471 U.S. 724 (1985), this Court reccegnized, and gave

effect to, this legislative intent in a fashion directly rele-

vant here. The Court held that a state law requiring that

certain minimum mental health-care benefits be provided

in insurance policies “relate[d] to” insured ERISA plans

under § 514(a) but was “saved” under the insurance sav-

ing clause. The Court ruled, however, that the law could

not be “saved” as to self-insured plans because of the

deemer clause. In language closely in point here, the

Court took note of Congress’ intent to afford a special

measure of protection to self-insured plans, an intent con-

firmed by post-ERISA legislative consideration:

*The deemer clause provides, in effect, that state laws that

“relate to” self-insured plans under §514(a) of ERISA cannot

be applied to those plans even if the laws are not preempted, as

applied to insured plans, because they are laws “which regulate

insurance” for purposes of the saving clause. § 514(b)(2)(B) of

ERISA, 29 U.S.C. § 1144(b) (2) (B).

19

“We are aware that our decision results in a dis-

tinction between insured and uninsured plans, leav-

ing the former open to indirect regulation while the

latter are not. By so doing we merely give life to

a distinction created by Congress in the ‘deemer

clause,’ a distinction Congress is aware of and one

it has chosen not to alter.”

253A 1977 Activity Report of the House Committee on

Education and Labor recognized the difference in treatment

between insured and non-insured plans: “To the extent that

[certain programs selling insurance policies] fail to meet the

definition of an “employee benefit plan” [subject to the deemer

clause], state regulation of them is not preempted by section

514, even though such state action is barred with respect to

the plans which purchase these “products”.’ H.R. Rep. No.

94-1785, p. 48. A bill to amend the saving clause to specify

that mandated-benefit laws are preempted by ERISA was

reported to the Senate in 1981 but was not acted upon.”

(Citation omitted.) Jd. at 747 & n.25.

Congress’ differentiation in ERISA between insured and

self-insured plans and its determination to afford self-

insured plans greater insulation from state regulation, all

as recognized by this Court in Metropolitan Life, strongly

support the view that the 13% surcharge as applied to

self-ins»red plans “relates to” them for purposes of

§ 514(a) even if a contrary conclusion were reached

regarding application of the surcharge to insured plans.

We should note here, as we did in the court of appeals

without contradiction by petitioners, that, under New York

law, self-insured plans apparently cannot avoid the 13%

surcharge by hiring the Blues to administer their self-

insured programs. The surcharge is imposed on all pay-

ments for services provided to patients “enrolled in a

self-insured fund whick provides for reimbursement di-

rectly to general hospitals.” N.Y. Pub. Health Law

§ 2807-c(1)(b) (McKinney Supp. 1993). The exclusion

from the surcharge that favors the Blues is for payments

for services “provided in accordance with policies writ-

36

ten” by the Blues. Jd. at § 2807-c(1)(a) (emphasis

added). Self-insured plans do not buy “policies written”

by the Blues, or by any other insurer, and so make no

payments to hospitals in accordance with any such “pol-

icy.” Thus, even if administered by the Blues, self-insured

plans are apparently required to pay the surcharge. They

must become insured by the Blues to avoid it.

Even if the surcharge were not applicable to self-insured

plans administered by the Blues, its impact upon national,

collectively bargained, self-insured plans—like the Rail-

road Plans—would still be intolerable. To be sure, the

plans would not have to buy insurance from the Blues to

avoid the penalty, but their choice would remain unac-

ceptable: pay the surcharge or appoint a different ad-

ministrator in New York than elsewhere, even though

uniform administration on a nationwide or multistate re-

gional basis has long been a hallmark of interstate plan

operations, as is the case with the Railroad Plans, and a

practice collectively bargained, as is also the case with

the Railroad Plans. Indeed, such uniform administration

is likely to be the modus operandi for most nationwide

health care benefit plans collectively bargained by man-

agement and labor, since it diminishes disparate treatment

of plan participants and beneficiaries depending upon

where they happen to live.

A plan with otherwise uniform administration that is

forced upon pain of the surcharge to use a separate ad-

ministrator—-the Blues—in New York will be saddled

with administrative burdens and inefficiencies that it does

not now have. Among other things, such a plan would

need to negotiate separate administrative service contracts.

meld claims and other reports of separate administrators

with separate information systems into a unified format,

and make sure that the administrators interpret plan pro-

visions—such as what services are medically necessary and

what charges are reasonable and customary—in the same

fashion.

‘21

And what if other states, following New York’s lead,

elected to penalize self-insured, collectively bargained,

nationwide, ERISA-covered plans for failure to become

insured with companies or to appoint administrators that

for policy reasons these other states favored, companies

and administrators that would not be the New York Blues

and in all probability would be different from state to

state? Surely, ERISA does not contemplate that a plan be

faced with appreciable penalties in any number of states

if it refuses to balkanize its structure and administration,

since such a choice would threaten the uniformity that

Congress in ERISA sought to promote. See 120 Cong.

Rec. 29942 (1974) (remarks of Sen. Javits); 120 Cong.

Rec. 29933 (1974) (remarks of Sen. Williams). The

preemption clause was expressly designed to protect

ERISA plans from efforts by states to require “the tailor-

ing of plans and employer conduct to the peculiarities of

the law of each jurisdiction.” Ingersoll-Rand Co. Vv.

McClendon, 498 U.S. 133, 142 (1990). See also Shaw,

463 U.S. at 105 (“By establishing benefit plan regulation

‘as exclusively a federal concern,’ (citation omitted), Con-

gress minimized the need for interstate employers to ad-

minister ir plans differently in each State in which they

have employees.” ).

That plans like the Railroad Plans are the product of

nationwide collective bargaining adds special force to

their concern over the threat posed by the 13% surcharge

to a comprehensive, uniform scheme of benefit administra-

tion. This Court has recognized that where ERISA-

covered 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” their terms. Alessi v. Ray-

bestos-Manhattan, Inc., 451 U.S. 504, 525 (1981). See

also PPG Indus. Pension Plan A (CIO) v. Crews, 902

F.2d 1148, 1151 (4th Cir. 1990) (same). “As a subject

of collective bargaining, [plan] terms themselves become

expressions of federal law, requiring preemption of intru-

22

sive state law.” Alessi, 451 U.S. at 526. The New York

surcharge attaches to self-insured, collectively bargained,

‘ERISA-covered plans because the collective bargainers

chose not to negotiate the kind of arrangement that New

York favors, i.e., insurance with the Blues. Such a law

certainly interferes with and intrudes upon the federally

‘protected bargaining process.

Respondents have cited a number of decisions holding

preempted state laws affecting ERISA plans in ways anal-

ogous to the impact of the 13% surcharge. We draw the

Court’s attention in particular to National Elevator Indus-

try, Inc. v. Calhoon, 957 F.2d 1555 (10th Cir.), cert.

denied, 113 S. Ct. 406 (1992), a case remarkably similar

to the one at bar insofar as the applicability of ERISA’s

“relates to” clause is concerned. There, an industry asso-

ciation claimed that ERISA preempted a ruling by the

Oklahoma Commissioner of Labor requiring employers

to pay helpers on state projects at the higher wage level

applicable to mechanics, unless the helpers had enrolled

in a training program approved by the federal Bureau of

Apprenticeship Training (“BAT”). The employers, how-

ever, funded an ERISA-covered, national, helpers train-

ing plan that had apparently not been approved by BAT.

In a conclusion equally applicable in this case—one need

only substitute “hospital rates” for “wages”—the court

wrote:

“We accept, as a general proposition, the state’s right

to regulate wages. But a wage law that provides an

option favoring certain ERISA plans and benefits

(BAT approved plans) over other ERISA plans

and benefits [the employers’ plan] is not a law of

‘general. application’ and may be used to effect

change in the administration, structure and benefits

. of an ERISA plan. If a state is permitted to use a

party Foy chen is thie sf yp we herd

tain. ERISA -plans: over other ERISA plans, the

potential for abuse is great—a‘ state could avoid

ERISA’s preemption provision and covertly disturb

23

or alter ERISA plans. We believe that [the Com-

missioner’s] ruling would discourage non-BAT ap-

proved ERISA training programs and encourage

changes to [the employers’ plan], a national em-

ployee benefit program. We hold that [the Commis-

sioner’s] ruling applying the state’s prevailing wage

law does ‘relate to’ an employee benefit plan because

the ruling’s effects on [the employers’ plan] are not

‘tenuous, remote or peripheral.” 957 F.2d at

1561.

B. The “Saving” and “Deemer” Clauses.

A state law “which regulates insurance” is saved from

preemption by § 514(b)‘2)(A) of ERISA. This insur-

ance “saving” clause is limited, however, by the so-called

“deemer” clause § 514(b)(2)(B). The deemer clause

forbids states from deeming an employee benefit plan “to

be an insurance company or other insurer . . . or to be

engaged in the business of insurance . . . for purposes of

any law of any State purporting to ) regulate imsurance

companies [or] insurance contracts .

We agree with respondents, who have fully briefed the

question of the applicability of the saving clause to the

13% surcharge as applied to insured plans, that under

any “common sense” reading of the surcharge provision,

see Metropolitan Life, supra, the saving clause does not

come into play. The surcharge regulates hospital rates,

not insurance.

That the saving clause does not save the surcharge from

preemption as applied to self-insured plans is even clearer.

The deemer clause is the beginning and end of the inquiry.

It precludes application of the saving clause to a law

10 The court also noted that the Commissioner’s fuling “has the

effect, and possibly the aim, of encouraging participation in a

specific type of ERISA plan (BAT approved apprentice plans)

while discouraging participation in a different type of ERISA

plan,” i.e., the employers’ plan. 957 F.2d at 1559.

24

preempted by § 514(a) because it “relates to” a self-

insured ERISA plan.

In FMC Corporation v. Holliday, 498 U.S. 52 (1990),

this Court concisely and clearly stated the governing prin-

ciples in terms that control in this case:

“[S]elf-funded ERISA plans are exempt from state

regulation insofar as that regulation ‘relate[s] to’ the

plans. State laws directed toward the plans are pre-

empted because they relate to an employee benefit

plan but are not ‘saved’ because they do not reg-

ulate insurance. State laws that directly regulate

insurance are ‘saved’ but do not reach self-funded

employee benefit plans because the plans may not

be deemed to be insurance companies, other insurers,

or engaged in the business of insurance for purposes

of such state laws.” 498 U.S. at 61 (emphasis

added).

Courts of appeal have applied these principles consist-

ently to preempt, as applied to self-insured plans, any

state laws that otherwise regulate insurance. E.g., Tri-

State Machine, Inc. v. Nationwide Life Ins. Co., 33 F.3d

309, 315 (4th Cir. 1994); Electro-Mechanical Corp. v.

Ogan, 9 F.3d 445, 450 (6th Cir. 1993); Travitz v. North-

east Dep't ILGWU Health and Welfare Fund, 13 F.3d

704, 710 (3d Cir. 1994); Hampton Indus., Inc. v. Spar-

row, 981 F.2d 726, 729-30 (4th Cir. 1992). The result

should be no different here.”

11 This Court observed in Metropolitan Life that Massachusetts

had “never tried to enforce” in connection with self-insured ERISA

plans a state law that otherwise regulated insurance, thus “effec-

tively conceding” that ERISA would preempt such application. 471

U.S. at 735 n.14. Moreover, as we noted earlier, supra at 12-13, in

the court of appeals the Secretary of Labor expressly acknowledged

that the deemer clause protected self-insured plans from applica-

tion of the insurance saving clause in this case.

See, eee errr cm rrr rrr eee ——_————"- - —-_» = —

| q

25

CONCLUSION

In closing, we briefly take note of the efforts of peti-

tioners to depict the court of appeals’ decision as inimical

to sound public policy. They contend that its decision

would radically undermine the authority of the states to

determine how best to distribute the costs of health care.

But certainly preemption affecting only state laws, like

New York’s 13% surcharge, that are imposed directly on

self-insured plans by virtue of their core function—the

provision of health care benefits—would have no such

effect. Nor would the further extension of preemption to

laws designed to force insured ERISA plans to turn to

state-favored insurance carriers. Moreover, the wisdom

of requiring those who need and can afford health care

to bear a large share of those costs, as does New York,

rather than subsidizing hospitals with funds from taxes

that are not levied on health care general revenues, is at

least questionable. In any case, this general subject has

been at the heart of Congressional debate over the last

year, a debate that most expect will soon be renewed.

Congress, in the preemption provision of ERISA, has

marked that debate as the appropriate forum for petition-

ers to make their case.

The judgment of the Second Circuit should be affirmed.

Respectfully submitted,

Of Counsel: BENJAMIN W. BoLey

Counsel of Record

WILLIAM H. DEMPSEY

1800 Massachusetts Ave, N.W. ANNE R. BowDEN

Washington, D.C. 20036 Sea & GARDNER

(202) 828-2000 1800 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 828-2000

Davi P. Lee

1901 L Street, N.W.

Washington, D.C. 20036

(202) 862-7218

Attorneys for National Carriers’

December 12, 1994 Conference Committee

i)

I

i