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

? | Inte .

Supreme Coot of the United States

OcToOBER TERM, 1994

NEw YorkK STATE CONFERENCE OF BLUE Cross &

BLUE SHIELD PLANS, et al.,

v. Petitioners,

TRAVELERS INSURANCE CO., et al,

Respondents.

Mario M. Cuomo, ef al.,

v, Petitioners,

TRAVELERS INSURANCE Co., et al.,

Respondents.

HOSPITAL ASSOCIATION OF NEW YorK,

vy, Petitioners,

TRAVELERS INSURANCE Co., et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF AMICI CURIAE OF THE ASSOCIATION

OF PRIVATE PENSION AND WELFARE PLANS

AND THE ERISA INDUSTRY COMMITTEE

IN SUPPORT OF RESPONDENTS

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ii

INTEREST OF AMICI CURIAE 2

SUMMARY OF ARGUMENT 3

ARGUMENT ..... 4

I. THE SECOND CIRCUIT’S CONSTRUCTION

OF SECTION 514(a) OF ERISA IS CONSIST-

ENT WITH THE CONGRESSIONAL PUR-

POSE UNDERLYING ERISA PREEMPTION

AND THIS COURT’S PRECEDENTS IN THIS

AREA flttiincias 4

B. A State Law Relates to an ERISA Plan if It

Affects Plan Choices with Respect to Plan

Design 7

C. New York’s Hospital Surcharges Relate to

ERISA Plans Because They Affect Plan

Design as tin 8

Il. THE SECOND CIRCUIT’S DECISION DOES

NOT PREVENT STATES FROM REGULAT-

ING PUBLIC HEALTH AND SAFETY 12

CONCLUSION : 13

ii

TABLE OF AUTHORITIES

CASES Page

District of Columbia v. Greater Washington Bd.

of Trade, —— U.S. ——, 118 S. Ct. 580 (1992)... 7

FMC Corp. v. Holliday, 498 U.S. 52 (1990) ........... 5

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

CRSP cccinutienieisnis 5

Hillsborough County v. Automated Medical Labs.,

Inc., 471 U.S. 707 (1985) 12

Ingersoll-Rand Co. v. McClendon, 498 U.S. 188

(1990) , 5, 10, 11

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

PE a 10

Metropolitan Life Ins. Co. v. Massachusetts, 471

U.S. 724 (1985) a. %

Pilot Life Ins. Co. v. Dedeauz, 481 U.S. 41 (1987).. 5

Shaw v. Delta Air Lines, Inc., 468 U.S. 85 (1988).. 6,7

Travelers Ins. Co. v. Cuomo, 818 F. Supp. 996

(S.D.N.Y.), aff'd in part and rev'd in part, 14

se £. B. oe 6 —— eaihaewidon i ae 10

Travelers Ins. Co. v. Cuomo, 14 F.8d 708 (24 Cir.

a eee ere he ET ae 4,9,12

United Wire, Metal & Mach. Health & Welfare

Fund v. Morristown Memorial Hoep., 995 F.2d

1179 (83d Cir.), cert. denied, 114 S. Ct. 3838

CRITI wisonniccectnncdenssninsticiniiiiteealndmamainamsadadtiaaasmnmnatiiae 12

Federal

Employee Retirement Income Security Act of 1974,

Pub. L. No. 98-406, 88 Stat. 829 (1974) (codified

as amended at 29 U.S.C. §§ 1001-1461 (1988) ).. 3

SD USSR 8 BERGA GRS CE ccirctetcrcncscstisencsecsncsenseniécnred passim

29 U.S.C. § 1144(b) (2) (A) (1988) 2.0. 11

State

N.Y. Pub. Health Law § 2807-c(1)(a) (McKin-

ney’s Supp. 1995) ...... 8

N.Y. Pub. Health Law § 2807-c(1) (b) (McKin-

ney’s Supp. 1995) x

N.Y. Pub. Health Law § 2807-c(2-a) (a) (McKin-

gg SF RR eee 9

Pee eo era eee ee I Te eee eee ee ee

iii

TABLE OF AUTHORITIES—Continued

N.Y. Pub. Health Law § 2807-c(11) (i) (McKin-

ney’s Supp. 1995) ............-.---c----c-s-e00

Page

In THE

Supreme Court of the Wuited States

OcTOBER TERM, 1994

No. 93-1408

New YorkK STATE CONFERENCE OF BLUE Cross &

BLUE SHIELD PLANS, et al.,

2. Petitioners,

TRAVELERS INSURANCE Co., ef al.,

Respondents.

No. 93-1414

Mario M. Cuomo, et al.,

. Petitioners,

TRAVELERS INSURANCE CoO., et al.,

Respondents.

No. 93-1415

HOSPITAL ASSOCIATION OF NEW YORK,

Petitioners,

Vv.

TRAVELERS INSURANCE CoO.., ef al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF AMICI CURIAE OF THE ASSOCIATION

OF PRIVATE PENSION AND WELFARE PLANS

AND THE ERISA INDUSTRY COMMITTEE

IN SUPPORT OF RESPONDENTS

2

INTEREST OF AMICI CURIAE

The Association of Private Pension and Welfare Plans

(“APPWP”) and The ERISA Industry Committee

(“ERIC”) submit this brief amici curiae, pursuant to

Rule 37 of the Rules of this Court, with the consent of

Petitioners and Respondents. Their letters of consent have

been filed with the Clerk of the Court.

The APPWP is a broad-based, non-profit trade asso-

ciation founded in 1967 to protect and foster the growth

of this Nation’s private employer-sponsored employee

benefit plan system. The members of the APPWP in-

clude both small and large employer sponsors (includ-

ing many Fortune 500 companies) of employee bene-

fit plans, as well as numerous plan support organiza-

tions, such as consulting and actuarial firms, investment

firms, banks, insurers and other professional benefit or-

ganizations. Collectively, its more than 240 members

sponsor or administer plans covering more than 100 mil-

lion plan participants. This broad-based membership pro-

vides the APPWP with substantial expertise and experi-

ence in the entire spectrum of issues relating to all types

of benefit plans.

ERIC is a non-profit association committed to the ad-

vancement of employee retirement, health, and welfare

benefit plans of the Nation’s largest employers. All of

ERIC’s members do business in more than one state,

and many have employees in all fifty states. The associa-

tion has a strong interest in matters affecting its mem-

bers’ ability to deliver benefits, their cost and effective-

ness, as well as the role of those benefits in the Nation’s

economy. The APPWP and ERIC have filed amicus

The outcome of this case will have a direct effect on

the viability of the private “sponsored employee

benefit plan system. The ability of employers to maintain

pends in large part on the absence of conflicting and bur-

a

|

— —— —_—-. —_ I ee oe ee Ee ae ea ‘

3

densome state laws. Members of the APPWP and ERIC,

as well as the entire private employer-based system of

voluntarily providing health care coverage, will be affected

adversely if the Court reverses the decision below, there-

by narrowing the scope of the preemption provision in the

Employee Retirement Income Security Act of 1974

(“ERISA”).*

SUMMARY OF ARGUMENT

1. Surcharges on hospital rates imposed by the State

of New York on some but not all third-party payors

“relate to” ERISA plans because they are intended to,

and they do, affect fundamental plan decisions with re-

spect to health care coverage. The 13% surcharge im-

posed on all payors other than Blue Cross/Blue Shield

(the “Blues”), Health Maintenance Organizations

(“HMOs”) and government plans such as Medicare, and

the 11% surcharge on commercial irsurers, are aimed at

inducing ERISA plans to provide health care coverage to

plan participants through a favored provider (i.e., the

Blues) rather than the panoply of other available options

(i.e., a wide range of commercial insurers or self-funding).

Similarly, the surcharge of up to 9% imposed on HMOs

based on the HMO’s enrollment of Medicaid recipients

discourages coverage through an HMO in favor of the

Blues and encourages ERISA plans to select particular

HMOs that are not subject to the surcharge. Each of the

surcharges raises the cost of providing health care through

ERISA plans unless such plans either tailor their admin-

istrative and funding structure to avoid the surcharges or

reduce benefits to offset their increased costs. As laws

that “relate to” ERISA plans, and that do not regulate

insurance, the surcharges are preempted.

2. The Second Circuit’s conclusion that ERISA pre-

empts the hospital surcharges at issue does not prevent

states from regulating public health and safety. Preemp-

1 Pub. L. No. 93-406, 88 Stat. 829 (1974) (codified as amended at

29 U.S.C. §§ 1001-1461 (1988) ).

4

tion of state-imposed marketplace incentives—such as the

surcharges at issue here—that affect the structure of

ERISA plans does not impinge upon legitimate exer-

cises of states’ traditional police powers.

ARGUMENT

I. THE SECOND CIRCUITS CONSTRUCTION OF

SECTION 514(a) OF ERISA IS CONSISTENT WITH

THE CONGRESSIONAL PURPOSE UNDERLYING

ERISA PREEMPTION AND THIS COURT'S PRECE-

DENTS IN THIS AREA.

Applying preemption analysis to New York’s hospital

surcharges, the Second Circuit concluded:

The 13% and 11% surcharges are designed to

increase hospital costs for patients covered by health

plans other than the Blues, and thus make these com-

peting plans less attractive than the Blues. Obviously,

the surcharges will affect ERISA plans’ health care

benefits. Likewise, the 9% assessment imposed on

HMOs will interfere with a plan’s selection of the

most effective method to provide benefits. Thus, the

surcharges purposely interfere with the choices that

ERISA plans make for health care coverage. Such

interference is sufficient to constitute “connection

with” ERISA plans.

Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 719 (2d Cir.

1993) (emphasis added). This holding is consistent with

both the congressional purpose underlying ERISA pre-

emption and the precedents set by this Court.

A. The Purpose of ERISA Preemption Is to Eliminate

ERISA’s framers sought a balance between encourag-

ing a voluntary employer-based system and creating a

regulatory framework for employee benefit plans. To

avoid upsetting the careful balance that it sought, Con-

»

gress enacted a preemption provision that would encour-

age employers to maintain plans and expand coverage.

Thus, ERISA’s preemption provision was neither inad-

vertent nor casual. Rather, Congress intended ERISA’s

preemption provision, a a provision that this Court has

called “conspicuous for its breadth” (FMC Corp. v. Hol-

liday, 498 U.S. 52, 58 (1990)), to provide national uni-

formity in the regulation of voluntary employer-sponsored

plans.

Specifically, Congress provided in section 514(a) of

ERISA that except as specified in certain narrow excep-

tions, ERISA preempts any state laws that “relate to”

any ERISA plan. 29 U.S.C. § 1144(a) (1988). In lan-

guage that is “deliberately expansive” (Pilot Life Ins. Co.

v. Dedeaux, 481 U.S. 41, 46 (1987)), Congress rec-

ognized that a voluntary private employer-based system

of providing benefits depends on federal preemption of

state laws relating to ERISA plans.

The clear purpose behind ERISA’s broad preemption

provision was to eliminate conflicting and burdensome

state regulation of ERISA plans:

ERISA’s pre-emption provision was prompted by rec-

ognition that establishing and maintaining

employee benefit are faced with the task of

coordinating complex administrative activities. A

patchwork scheme of regulation would introduce con-

siderable inefficiencies in benefit program operation,

which might lead those employers with existing plans

to reduce benefits, and those without such plans to

refrain from adopting them. Pre-emption ensures

that the administrative practices of a benefit plan will

be governed by only a single set of regulations.

Fort Halifax Packing Co. v. Coyne, 482 US. 1, 11

(1987) (emphasis added). The Court’s precedents con-

sistently recognize the pivotal role of preemption in achiev-

ing the goal of uniformity in ERISA plan regulation. /n-

gersoll-Rand Co. v. McClendon, 498 U.S.. 133, 142

6

(1990) (stating that “[s]ection 514(a) was intended to

ensure that plans and plan sponsors woud be subject to a

uniform body of benefits law” and that “[o]therwise, the

inefficiencies created could work to the detriment of plan

beneficiaries”); Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 105 (1983) (stating that “[b]y establishing benefit

plan regulation ‘as exclusively a federal concern,’ Con-

gress minimized the need for interstate employers to ad-

minister their plans differently in each State in which they

have employees”) (citation omitted).

The importance of preemption and national uniformity

in ERISA plan regulation has never been more acute than

it is now. Over 150 million Americans receive their

health care coverage through voluntary employer-spon-

sored plans that are subject to ERISA. The ERISA

plans of large multistate employers are not designed

with the parochial requirements of a particular state

in mind; they are designed to provide a uniform sys-

tem of benefits for the employer’s workforce. Indeed,

even many small employers with facilities in a single state

sponsor plans that cover employees who reside in different

states. ERISA, through its broad preemption provision,

makes it possible for employers of all sizes to maintain

health benefit plans under a single administrative and

design structure regardless of where they do business or

the number of states in which their employees reside. This

uniformity in the benefits provided to plan participants

and beneficiaries yields significant savings in administra-

tive expenses, reduces the contributions that employees

and employers must make to their benefit plans, and

enables employers to devote a higher percentage of their

benefit budget to providing benefits rather than paying

plan expenses.

Sky-rocketing health care costs already subject ERISA

plans to severe economic strain, challenging the most

innovative employers to explore and develop cost-effective

programs to serve the needs of plan participants while

7

minimizing plan administrative burdens. In the face of

existing cost escalation, it would be no small task to also

attempt to comply with inconsistent and burdensome state

regulations that interfere with fundamental plan design

issues—such as the selection of a service provider. ERISA

already imposes significant administrative responsibilities

on a plan sponsor through its reporting and disclosure

requirements. The multiple tasks that would be created

if each of the fifty states mandates a “different plan”

would impose staggering obligations that Congress foresaw

and rejected.

B. A State Law Relates to an ERISA Plan if It Affects

Plan Choices with Respect to Plan Design.

In order for preemption to apply, a state law must

“relate to” ERISA plans. 29 U.S.C. § 1144(a). A state

law “relate[s] to” ERISA plans if it “‘has a connection

with or reference to such a plan.’” District of Columbia

v. Greater Washington Bd. of Trade, 113 S. Ct. 580, 583

(1992) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 97 (1983)). The Second Circuit correctly concluded

that state laws which affect plan design decisions fall

within the scope of section 514(a) of ERISA.

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

724 (1985), establishes that state laws which affect plan

design decisions “relate to” ERISA plans. In Metropoli-

tan Life, the Court considered whether ERISA preempted

a Massachusetts mandated benefit law that required group

health insurance policies to include specified mental health

benefits. The Court had little difficulty concluding that

the Massachusetts law related to ERISA plans:

Though § 47B [the relevant statutory provision]

is not denominated a benefit-plan law, it bears in-

directly but substantially on all insured benefit plans,

for it requires them to purchase the mental-health

benefits specified in the statute when they purchase

a certain kind of common insurance policy. . . . we

agree . . . that the mandated-benefit law as applied

relates to ERISA plans and thus is covered by

ERISA’s broad pre-emption provision set forth in

§ 514(a).

Id. at 739. Thus, the Court recognized that state laws

affecting a plan sponsor’s fundamental decisions about

which benefits will be provided and how they will be pro-

vided under the plan “relate to” ERISA plans.

C. New York’s Hospital Surcharges Relate to ERISA

Plans Because They Affect Plan Design.

New York’s regulatory scheme with respect to hospital

rates has several components, two of which are relevant

here. First, New York Public Health Law § 2807-c(1) (a)

directs hospitals to charge for in-patient services on the

basis of classifications of hospital discharges known as

diagnosis-related groups (DRGs) as opposed to actual

charges. This aspect of New York’s regulation of hospital

rates applies uniformly to all third-party payors, including

all ERISA plans and is not challenged here. A second

component of New York’s regulatory scheme, the sur-

charges that are at issue, apply selectively to certain third-

party payors. Specifically, the 13% surcharge above the

DRG rate set forth in New York Public Health Law

§ 2807-c(1)(b) applies when a patient is covered by an

employer’s ERISA plan whether insured through commer-

cial insurance or self-insured, or by any other form of

health plan, except for patients covered by the Blues, an

HMO or government plans like Medicare. The surcharge

set forth in New York Public Health Law § 2807-c(11) (i)

imposed an additional 11% surcharge above the DRG

rate on payments made by commercial insurers.* Finally,

a third surcharge of up to 9% above the DRG

rate applies only to HMOs based on the HMO’s enroll-

2 The 11% surcharge applied for the period April 1, 1992 through

March 81, 1993. N.Y. Pub. Health Law § 2807-c(11) (i) (McKin-

ney’s Supp. 1995).

3 2

- 7 - % 7 : - :

| a. ‘Lt | . en ty TO i i a i ee ee i al

9

ment of Medicaid recipients. N.Y. Pub. Health Law

§ 2807-c(2-a)(a) (McKinney’s Supp. 1995).

The hospital surcharges are state-imposed marketplace

incentives that are directed at affecting plan design. See

Brief for the United States as Amicus Curiae Supporting

Petitioners at 18 (filed Nov. 16, 1994) (Nos. 93-1408,

93-1414, 93-1415). The 13% and 11% surcharges aim at

inducing health plans, including ERISA plans, to subscribe

to the Blues. Travelers Ins. Co. v. Cuomo, 14 F.3d at 712.

Conversely, these surcharges discourage ERISA plans

from providing health care coverage to participants

through self-insurance or through policies with commercial

insurers. While the HMO surcharge on its face encourages

HMOs to enroll individuals who are eligible for Medicaid

in order to avoid the 9% surcharge, it also makes HMOs

a more expensive coverage alternative relative to the

Blues. In addition, it induces health plans, including

ERISA plans, that decide nonetheless to offer an HMO

coverage option to select HMOs that are exempt from

the surcharge. In each case, the surcharges affect funda-

mental decisions made by an ERISA plan about the

method of providing coverage to plan participants and

beneficiaries, i.e., whether to self-insure, to obtain insur-

ance from a commercial carrier, or to provide coverage

through the method favored in the New York hospital

surcharge laws.*

*The Secretary of Labor recognized this result in its brief as

amicus curiae in the Second Circuit: “The surcharges are designed

to induce self-insured plans to become insured, in order to avoid

the 18% surcharge, and to encourage already-insured plans to

purchase coverage from the Blues, in order to avoid the 18% and

11% charges. Finally, plans that contract with HMOs are given

a strong incentive to rewrite their plan documents so as to cover

more Medicaid recipients and reduce or eliminate the 9% sur-

charge.” Brief for the Secretary of Labor as Amicus Curiae in

the Second Circuit at 20 (filed Mar. 17, 1998) (Nos. 98-7134, 7148).

10

The hospital surcharges expose ERISA plans to ad-

ditional costs‘ that can be avoided only by altering

plan design and structure in New York. Indeed, if each

state is permitted to enact laws of this type, ERISA plans

will be forced to tailor their fundamental structure for pro-

viding benefits to comport with incentives imposed by

each of the different states in which plan participants

receive hospital services. For example, New York’s mar-

ket incentives favor coverage through the Blues, but an-

other state may use its hospital rates to reflect different

incentives (for example, self-insurance or insurance

through commercial carriers that cover certain experi-

mental treatments). Because states are likely to design

incentives that are flatly inconsistent with each other, a

plan sponsor would have to establish separate plans for

each jurisdiction in which plan participants are likely to

receive hospital services. The clear purpose of ERISA

preemption is to shield ERISA plans from precisely this

type of state interference in plan design.

The assertion that the hospital surcharges do not “impose

obligations upon plan conduct” (Brief for Petitioners

Mario M. Cuomo, et al. at 27 (filed Nov. 16, 1994)

(Nos. 93-1408, 93-1414, 93-1415)) is not dispositive of

whether the surcharges “relate to” ERISA plans. On the

contrary, the Court’s precedents recognize that the policy

of uniformity requires an interpretation of section 514(a)

of ERISA that is not limited to state laws that purport

to regulate plan terms and conditions. Ingersoll-Rand, 498

U.S. at 141-42 (expressly rejecting an argument that sec- -

tion 514(a) preempts only state laws that affect plan terms

or conditions); Mackey v. Lanier Collection. Agency &

Serv., Inc., 486 U.S. 825, 830 (1988) (holding that

4 The record below establishes that commercial insurance carriers

will pass the surcharges along to their ERISA plan customers.

Travelers Ins. Co. v. Cuomo, 813 F. Supp. 996, 1008 (S.D.N.Y.),

aff'd in part and rev'd in part, 14 F.3d 708 (1993). Of course, the

13% surcharge applies directly to third-party payors that are self-

funded ERISA plans.

11

ERISA preempts a state garnishment law that excluded

ERISA plan benefits from garnishment and that did not

affect any plan terms or conditions). For example,

Ingersoll-Rand considered whether ERISA preempted a

state law cause of action for wrongful discharge based on

an employer’s desire to avoid paying benefits due under an

ERISA plan. In holding that the state law cause of action

was preempted, the Court wrote:

Allowing state based actions like the one at issue

here would subject plans and plan sponsors to bur-

dens not unlike those that Congress sought to fore-

close through § 514(a). . .. It is foreseeable that

state courts, exercising their common law powers,

might develop different substantive standards appli-

cable to the same employer conduct, requiring the

tailoring of plans and employer conduct to the pecu-

liarities of the law of each jurisdiction. Such an out-

come is fundamentally at odds with the goal of uni-

formity that Congress sought to implement.

Ingersoll-Rand, 498 U.S. at 142. The same problem that

the Court recognized in Ingersoll-Rand in the context of

state law causes of action arises if state legislatures are

allowed to impose different market-based incentives and

penalties to a plan sponsor’s decisions with respect to the

method of providing health insurance coverage. The re-

sulting patchwork system would require employer plan

sponsors to tailor their plans and their conduct to the mar-

ket preferences of the legislatures of each jurisdiction. This

result is inconsistent with the Congressional purpose un-

derlying ERISA preemption and is precisely the outcome

that Congress sought to avoid.’ There is no doubt that this

5 The Second Circuit correctly concluded that the hospital sur-

charges are not saved from preemption under section 514(b) (2) (A)

of ERISA, 29 U.S.C. § 1144(b) (2) (A) (1988), as laws that regu-

late insurance. Amici believe that the savings clause issue of sec-

tion 514(b) (2) (A) is adequately addressed in the briefs of Re-

spondents. Accordingly, this brief amici curiae does not repeat

analysis of why the hcspital surcharges do not constitute laws

regulating insurance.

12

Court would strike down a state law that imposed a higher

tax on a plan that failed to cover mental illness than on

a plan that provided such coverage. See Metropolitan Life

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

New York laws imposing hospital surcharges are no less

intrusive and, if allowed to stand, will lead to no different

result.

II. THE SECOND CIRCUIT'S DECISION DOES NOT

PREVENT STATES FROM REGULATING PUBLIC

HEALTH AND SAFETY.

Amici National Governors’ Association, et al., attempt

to characterize New York’s hospital rate regulations as

legitimate exercise of a state’s power to regulate public

health and safety. See Brief of the National Governors’

Association et al., as Amici Curiae in Support of Peti-

tioners at 11 (filed Nov. 13, 1994) (Nos. 93-1408, 93-

1414, 93-1415). In support of this proposition, amici cite

Hillsborough County v. Automated Medical Labs., Inc.,

471 U.S. 707 (1985). Hillsborough analyzed whether

local regulations affecting plasma donors and collected

plasma were preempted by regulations of the Food and

Drug Administration. The regulations at issue here, un-

like those at issue in Hillsborough, are not the kind of

public health regulations that fall within a state’s exercise

of its police powers. The surcharges are regulations that

affect the health care marketplace, not health care gen-

erally. They aim at making certain kinds of coverage less

competitive than others. Travelers Ins. Co. v. Cuomo, 14

14 F.3d at 712. Certain quality control regulations, like

those at issue in Hillsborough or regulations with respect

to sanitary standards for hospitals and disposal of medical

wastes (see Brief of Petitioners Mario M. Cuomo, ef al.,

at 24 (filed Nov. 16, 1994) (Nos. 93-1408, 93-1414,

93-1415) and United Wire, Metal & Mach. Health &

Welfare Fund v. Morristown Memorial Hosp., 995 F.2d

1179, 1196 (3d Cir.), cert. denied, 114 S. Ct. 383

(1993)), can be characterized legitimately as exercises

13

of a state’s traditional police powers. State regulations

impose market incentives with respect to different

coverage are not susceptible to such

LE

g

:

characterization.

It is important to note that this case does not present

the issue of whether it is permissible for states to require

hospitals to load DRG rates to reflect uncompensated

care costs thereby shifting such costs to ERISA plans

directly (in the case of self-funded plans) or indirectly

(in the case of ERISA plans that provide insurance cov-

erage through commercial insurance or other third-party

payors). The New York surcharges represent market in-

centives that are designed to affect the decisions ERISA

plans make with respect to the source of health insurance

coverage. As such, the surcharges affect plan design and

consequently relate to ERISA plans.

CONCLUSION

For the reasons stated above, this Court should affirm

the Second Circuit’s decision below.

Respectfully submitted,

THEODORE E. RHODES

LAUREN TALNER SPILIOTES

EDWARD R. MACKIEWICz *

STEPTOE & JOHNSON

1830 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-3000

* Counsel of Record Counsel for Amici Curiae

December 13, 1994