Amicus Curiae Brief — De Buono v. NYSA-ILA Medical and Clinical Services Fund

In the Supreme Court of the United States

OCTOBER TERM, 1995

BARBARA A. DE BUONO, NEW YORK STATE

COMMISSIONER OF HEALTH, ET AL., PETITIONERS

V.

NysA-ILA MEDICAL AND CLINICAL SERVICES FUND,

ETC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

WALTER DELLINGER

Acting Solicitor General

J. DAVITT MC ATEER EDWIN S. KNEEDLER

Acting Solicitor of Labor Deputy Solicitor General

ALLEN H. FELDMAN JAMES A. FELDMAN

Associate Solicitor Assistant to the Solicitor

NATHANIEL I. SPILLER General

Associate Department of Justice

Solicitor Washington, D.C. 20630-0001

JupiTH D. HEIMLICH (202) 514-2217

Attorney

Department of Labor

Washington, D.C. 20210

QUESTION PRESENTED

Whether a state tax on the “gross receipts received

from all patient care services and other operating

income” of hospitals licensed to operate in the State

“relate[s] to” employee welfare benefit plans within

the meaning of Section 514(a) of the Employee Retire-

ment Income Security Act of 1974 (ERISA), 29 U.S.C.

1144(a), and is thus preempted, insofar as the tax

applies to the income of medical centers owned and

operated by an ERISA plan.

(I)

TABLE OF CONTENTS

TABLE OF AUTHORITIES

Cases:

Aetna Life Ins. Co. v. Borges, 869 F.2d 142 (2d

Cir.), cert. denied, 493 U.S. 811 (1989)

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

. —y-—-—-—

Boyle v. Anderson, 68 F 3d 1093 (8th Cir. 1993),

cert. denied, 116 8. Ct. 1266 (1996) .. . 14,

District of Columbia v. Greater Washington Bd. of

Trade, 506 U.S. 125 (1992) . .

Firestone Tire & Rubber Co. v. Neusser, 810 F.2d

.- .

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

—A — wü

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

r 11,

Morgan Guar. Trust Co. v. Tax Appeals Tribunal,

587 N.Y.S.2d 262 (N.Y. 1992)

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 115 8. Ct. 1671

© a NESSIE RE Seb Me oy Meee 7, 8, 9, 11, 12, 13,

Retirement Fund Trust of Plumbing, Heating &

Piping Industry v. Franchise Tax Bd., 909 F 2d

11 K

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ...

Thiokol Corp. v. Roberts, 76 F.3d 751 (6th Cir.

1996), petition for cert. pending, No. 95-1913 ..........

Travelers Ins. Co. v. Pataki, 63 F.3d 89 (2d Cir.

— ͤ w

(II

13

15, 17

14

13, 14

17

14, 18

Constitution and statutes Page

Cy GRRE, FRIIS, FE coensescccenndnenersnnstrecctnnnsinecnsin 5

Employee Retirement Income Security Act of 1974,

29 U.S.C. 1001 et seq.:

LI... 3. 18

§ 3(37), 29 U.S.C. 10 . 3

§ 514(a), 29 U.S.C. 110) 5, 7, 10, 19

Labor Mangement Relations Act of 1947, 29 U.S.C.

181 et seq.:

I. . 3

L A eee 18

Tax Injunction Act, 28 U.S.C. 1344 . 5

LX 0 ere 3

Minn. Stat. (Supp. 1993):

„ ˙²m » ee 16

3 —, . ˙ 14

N.Y. Pub. Health Law (McKinney 1993):

6 2

I.... 2 . — 2

1... — 2

— 3

1... —— taiatetnbiepianagiticeiais 17

3— 17

1.5. ü 2 2

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IL. 2 2

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IV

In the Supreme Court of the United States

OCTOBER TERM, 1995

No. 95-1594

BARBARA A. De Buono, NEW YorK STATE

COMMISSIONER OF HEALTH, ET AL., PETITIONERS

v.

NyYSA-ILA MEDICAL AND CLINICAL SERVICES FUND,

ETC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the Court’s

invitation to the Solicitor General to express the

views of the United States.

STATEMENT

1. In 1990, New York State enacted a tax, known as

the Health Facility Assessment (HFA), in order to

raise revenue and avoid reductions in the State’s

Medicaid program. Pet. App. 7a; C.A. App. 46, 51, 56,

59. With certain exceptions not relevant here, the

assessment is imposed on all Thlospitals“ operating

in the State. The statute defines the term “hospital”

to include a broad range of facilities that provide

(1)

2

health care services under the supervision of a

physician or dentist, and expressly encompasses a

“diagnostic center” and a “treatment center.” N.Y.

Pub. Health Law §§ 2801(1), 2807-d(1)(a) (McKinney

1993). The assessment is calculated as a percentage

of the hospital’s “gross receipts received from all

patient care services and other operating income.” /d.

§ 2807-d(1)(a).’ The percentage differs for three types

of hospitals, see id. § 2807-d(2)(a) to (e), but is

assessed at 0.6% for diagnostic and treatment cen-

ters.

The law requires hospitals to make monthly pay-

ments of the assessment to the health commissioner

or her designee, who remits the accumulated monies

to the State’s general fund. N. Y. Pub. Health Law

§ 2807-d(1)(a), (5), Cd) and (9) (McKinney 1993); see

C.A. App. 60. Hospitals must also submit quarterly

reports, and a certified annual report, of their gross

receipts that are subject to the tax. N.Y. Pub. Health

Law § 2807-d(7)(a) and (b) (McKinney 1993); see C. A.

App. 60.

2. Respondents are the trustees of the NYSA-ILA

Medical and Clinical Services Fund (Fund). The

' Receipts from “patient care services” refers to “all

monies received for or on account of hospital or health-related

services,” including preadmission, out-patient, in-patient, and

post discharge care, and items such as nursing service,

ambulance service, laboratory service, medical social service,

drugs, supplies, and room and board. N.Y. Pub. Health Law 88

2801(4)(a) and (b), 2807-d(3)(c) (McKinney 1993). “Operating

income” includes “monies received for or on account of such

revenue sources as investment income, parking lots, cafeterias,

gift shops and rental income,” with certain exclusions. N.Y.

Pub. Health Law § 2807-d(3)(d) (McKinney 1993); see C.A.

App. 65.

3

Fund is a labor-management trust governed by Sec-

tion 302 of the Labor Management Relations Act of

1947, 29 U.S.C. 186. The Fund was established pursu-

ant to an Agreement and Declaration of Trust and

Plan and collective bargaining agreements between

the New York Shipping Association, Inc., and the

International Longshoremen’s Association covering

longshore employment in the Port of New York and

New Jersey. Pet. App. 7a; C.A. App. 19. The Fund

administers a self-insured, ERISA-covered multi-

employer welfare benefit plan, see 29 U.S.C. 1002(1)

and (37); 26 U.S.C. 414(f), that provides medical,

dental and other health services on an outpatient

basis through three medical centers that it owns and

operates. Pet. App. 7a. The two centers at issue here

are located in New York and are licensed by the State

to operate as diagnostic and treatment centers. Pet.

4; see N.Y. Pub. Health Law § 2805 (McKinney 1993);

C.A. App. 43, 57, 83.

The centers principally serve longshore workers

and retirees (and their dependents) whose labor

contracts entitle them to receive health care at the

centers. C.A. App. 78. The centers also provide serv-

ices to members of other ILA locals who are employed

by non-longshore employers (“outside employers”)

and whose contracts also entitle them to health care

at the centers, ibid.; to members of the Port Police

and Guards Union (PPGU) which, through its own

ERISA-covered welfare plan (the NYSA-PPGU

Welfare Fund), contracts with the NYSA-ILA Fund

for the treatment of its members on a fee-for-service

basis at the centers, C.A. App. 79, 81; and to local

union officers and employees, ibid.

The centers receive income from a variety of

sources. First, they receive payments directly from

1

Fund participants for annual registration fees and

prescription co-payments. C.A. App. 76, 82, 143-144.

Second, they receive payments from workers’ com-

pensation insurance carriers for services rendered to

Fund participants injured on the job. C.A. App. 76, 82.

Third, each of the centers receives contributions

from nearby employers calculated on the basis of

hours worked by Fund participants, as provided by

labor contracts.“ C. A. App. 76, 81. Fourth, the cen-

ters receive payments from the NYSA-PPGU Wel-

fare Fund for services rendered to its participants on

a fee-for-service basis. Ibid. Under the New York

law, all of those categories of income constitute

receipts from patient care services, and the HFA has

been assessed against them. A fifth category of in-

come—weekly remittances from the Fund for operat-

ing expenses on an as-needed basis—has not been

subject to the assessment. C.A. App. 80.

2 Although some employers send their contributions di-

rectly to the closest medical center, others (especially those

who operate at more than one location) send their contributions

to the Fund, which in turn funnels the money on an as-needed

basis to the medical centers. C.A. App. 80-81; see note 3, infra.

The remittances derive from employer contributions for

Fund participants and contributions for local union officers and

employees based on hours of work. C.A. App. 80-81. The Fund

maintains that those remittances are akin to a grant that is non-

assessable income under the New York law, Pet. 4 (citing C.A.

App. 84), and the State has not attempted to apply the HFA to

those monies. Pet. App. 8a; see id. at 13a. The assessability of

remittances from the Fund to the centers is therefore not at

issue in this case. Id. at Sa. Application of the assessment to

operating income derived from such activities as records

reproduction fees, which respondents do not challenge, is also

not at issue. Id. at 9a.

5

From January through November 1991, the centers

filed reports and paid the 0.6% assessment applicable

to diagnostic and treatment centers on revenues the

centers received for patient care services. Pet. App.

8a; see C.A. App. 143, 138.“ Thereafter the Fund

placed its assessments into escrow and ceased filing

reports. Pet. App. 8a; C.A. App. 21-22. Beginning in

1992, payment of registration fees by Fund partici-

pants and gervice fees by the NYSA-PPGU Welfare

Fund was redirected to the Fund instead of to the

centers. Pet. App. 8a; C. A. App. 86.

3. In 1992 respondents brought this action to

invalidate and enjoin enforcement of the HFA on the

ground that it is preempted by Section 514(a) of

ERISA, 29 U.S.C. 1144(a), “insofar as [the HFA]

imposes a levy on contributions and payments for

health care benefits provided by the Fund.” Pet. App.

ga. ERISA’s preemption clause provides that ERISA

supersedes all state laws that “relate to” an ERISA

plan. 29 U.S.C. 1144(a).

On cross motions for summary judgment, the dis-

trict court held that ERISA does not preempt the

HFA.“ Pet. App. 19a. Relying on Aetna Life Ins. Co.

v. Borges, 869 F. 2d 142 (2d Cir.), cart. denied, 493 U.S.

811 (1989), the court reasoned that the HFA is a tax

law of general application because “it is not specifi-

For that period, the Fund paid $7,066 on assessable

income of $1,177,670 (patient receipts and operating income).

Pet. App. 8a; C.A. App. 84-85.

5 Petitioners also sought “compensatory damages equal to

the amounts paid to” the State, plus interest, costs and fees.

C. A. App. 23.

The district court did not reach the State’s defenses

under the Tax Injunction Act, 28 U.S.C. 1341, and the

Eleventh Amendment. Pet. App. 19a.

6

cally directed at ERISA plans but applies to all health

care facilities.“ Pet. App. 2la. The court observed

that the tax “does not interfere with the calculation

of benefits” or with “the determination of an em-

ployee’s eligibility for benefits,” and that the HFA’s

“impacts on benefit plans are incidentally economic

resulting only in the need for administrative and

accounting procedures to comply with the law.” Jbid.

The court also concluded that the economic impact of

the 0.6% assessment is not substantial. Id. at 22a.

4. The court of appeals reversed. Pet. App. 6a-14a.

It rejected the district court’s conclusion that the

HFA statute is a law of general application, because

the HFA “does not apply broadly to every sector of

society” in the State, but rather “targets only the

health care industry,” which, “by definition, [is] the

realm where ERISA welfare plans must operate.” Id.

at 12a. Because the HFA “operates as an immediate

tax on payments and contributions which were in-

tended to pay for participants’ medical benefits,” the

court stated, it “directly affects the Fund in its prin-

cipal role” as a provider of health care benefits to plan

participants and beneficiaries. Ibid. The court thus

concluded that the HFA “relates to” the Fund

because it “depletes those assets earmarked for the

provision of health care benefits,” and would cause the

plan either to reduce benefits or increase charges.

Ibid. In the court’s view, those consequences would

“detrimentally affect the central mission and purpose

of the Fund,” and therefore are not “remote or

tenuous.” I[bid.

Further, the court stated, it makes no difference

that the Fund could avoid the HFA by “restructuring

its finances so that funds formerly remitted by plan

participants and employers directly to the medical

7

centers would be remitted to the Fund which would

subsequently transfer them to the centers”; in the

court’s view, state laws “that force plans to change

their traditional methods of administration or to

adopt different methods on a state-by-state basis” are

preempted by ERISA. Pet. App. 13a. Finally, the

court concluded, a state law does not escape ERISA

preemption merely because its economic impact on

ERISA plans is de minimis. Id. at 14a.

5. This Court granted the State’s petition for a

writ of certiorari, vacated the judgment of the court

of appeals, and remanded the case for further con-

sideration in light of its intervening decision in New

York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 115 S. Ct. 1671 (1995).

Pet. App. 5a. The Court in Travelers held that New

York statutes imposing 9%, 11%, and 13% surcharges

on hospital care paid for by health maintenance

organizations and commercial insurers did not “re-

late to” ERISA plans within the meaning of Section

514(a), and thus were not preempted. 115 S. Ct. at

1674. Determining that the surcharge statutes did

not “make ‘reference to’” ERISA plans, the Court

analyzed whether they nevertheless had a “connec-

tion with” the ERISA plans. Id. at 1677; see Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983). The

Court observed that ERISA preempts state laws that

“mandate[] employee benefit structures or their

administration” or “provid[e] alternative enforcement

mechanisms” for ERISA claims. 115 S. Ct. at 1678.

Unlike those effects, the Court reasoned, the sur-

charge statutes had only “an indirect economic effect

on choices made by insurance buyers, including

ERISA plans.” Id. at 1679. The Court noted that the

surcharge statutes did not “bind plan administrators

8

to any particular choice and thus function as a

regulation of an ERISA plan itself.“ bid. Nor, the

Court reasoned, did the “indirect influence of the

surcharges preclude uniform administrative practice

or the provision of a uniform benefit package.” Ibid.

While the surcharges bore “on the costs of benefits,”

the Court concluded, ibid., they did not produce such

an “acute” economic effect “as to force an ERISA

plan to adopt a certain scheme of substantive coverage

or effectively restrict its choice of insurers,” id. at

1683. 7

6. On remand from this Court, the Second Circuit

adhered to its original decision in this case. Pet. App.

la-4a. The court of appeals observed that the sur-

charges in Travelers were imposed not “on ERISA

plans themselves, but on insurance carriers providing

health insurance coverage to the plans and their

beneficiaries.” Jd. at 3a. Those surcharges, the court

stated, “raised costs to the patient, who remained

liable for the balance of any bill” not paid by insurance

or an ERISA plan. Jbid. Accordingly, the court

stated, the surcharges operated] as an indirect

source of merely economic influence” on plan deci-

sions. Jbid., quoting Travelers, 115 S. Ct. at 1680.

The court distinguished the HFA on the ground that

“there is no third party between the plan and the tax

imposed pursuant to the HFA,” so that the HFA

“depletes the Fund’s assets directly.” Pet. App. 3a-4a.

Thus, the court concluded, Inlothing in Travelers

undermines our reliance on the HFA’s direct eco-

nomic impact upon the Fund as a basis for finding

ERISA pre-emption nor precludes a determination

that a state law’s direct economic impact on ERISA

9

plans is sufficient for a finding of pre-emption.” Id. at

4a.

DISCUSSION

The court of appeals erred in holding that, when an

ERISA plan chooses to engage in an economic activ-

ity in which a very brvad group of other entities also

engages and which is traditionally subject to state

regulation, the plan is immune from state taxes that

are imposed on that activity. The logic of that holding

is inconsistent with this Court’s decision in New

York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 115 S. Ct. 1671 (1995), and

with the decision of the Eighth Circuit in a recent,

post-Truvelers case. For that reason, and because the

decision below may have a serious impact on the

ability of States in the Second Circuit to impose even-

handed taxes and regulatory requirements on health

care providers, further review by this Court is

warranted.

The court of appeals’ analysis on remand in the instant

case was foreshadowed by its decision on remand in Travelers.

This Court had remanded the case to the court of appeals to

determine whether the 13% surcharge applicable to hospital

bills incurred by members of “self-insured funds” was pre-

empted. 115 S. Ct. at 1675 n.4. On remand, the Second Circuit

held that the 13% surcharge did not relate to “self-insured

funds.” Travelers Ins. Co. v. Pataki, 63 F.3d 89, 93-94 (1995).

The court distinguished the HFA from the 13% surcharge on

the ground that the HFA directly depletes plan assets, whereas

self-insured plans are “not directly liable for the surcharge.”

Id. at 94. The court questioned, however, whether it “should

continue to distinguish between laws that directly deplete

ERISA plans’ assets and laws that only indirectly do so.“ Jbid.

In the court’s decision on remand in the instant case, it did not

cite to its remand decision in Travelers.

10

1. The Second Circuit held that the New York tax

“relates to” the NYSA-ILA plan within the meaning

of Section 514(a) of ERISA because the NYSA-ILA

plan, as the owner of the medical center on which the

tax is imposed, must directly pay the tax to the State.

See Pet. App. 3a (“there is no third party between the

plan and the tax”). That holding is inconsistent with

the reasoning of this Court’s decision in Travelers.“

First, the surcharge statutes upheld in Travelers

and the tax at issue here are both “generally applica-

ble statute[s]” that operate in an area of traditional

state regulation and that “make[] no reference to,

{and} indeed function[] irrespective of, the existence

of an ERISA plan.” Ingersoll-Rand Co. v. McClen-

don, 498 U.S. 133, 139 (1990). The tax applies to all

The United States stated in its amicus curiae brief at the

petition stage in Travelers that “[a)pplication of the 13%

surcharge to ‘self-insured funds’ may raise some distinct

issues,” not that it necessarily “would present entirely distinct

issues,” as respondents assert (Br. in Opp. 6 n.4; emphasis

added). See Brief for the United States as Amicus Curiae at 14

n.5 in Nos. 93-1408, 93-1414 and 93-1415 (filed Sept. 14, 1994)

(emphasis added); accord Brief for the United States as Amicus

Curiae Supporting Petitioners at 12 n.3 in Nos. 93-1408, 93-1414

and 93-1415 (filed Nov. 15, 1994). The distinct issue we had in

mind—but which was not before the Court—was whether the

13% surcharge payable by “self-insured funds” (but not other

favored payors like Blue Cross/Bive Shield) singled out self-

insured plans for special treatmer and thus “relate[d] to

plans” for that reason. Here, no such distinct analysis is

necessary because the tax applies to hospitals generally and is

entirely neutral with respect to ERISA plans.

The HFA does not “refer to” ERISA plans. Indeed, if

the HFA did expressly exempt plan-owned hospitals from the

tax, which is the result respondents seek to achieve in this

litigation, the exemption would be preempted as a law that

“singles out ERISA employee welfare benefit plans for

11

“hospitals” without regard to their ownership, their

patient composition, or the ultimate source of patient

revenues subject to the tax. Similarly, the surcharge

statutes upheld in Travelers affect the hospital bills

of all entities that pay for hospital care without

regard to whether the payor is an ERISA plan, a

commercial insurer, or a health maintenance or-

ganization. In both contexts, the state law has an

effect on ERISA plans only because, and to the extent

that, plans have chosen to engage in economic activity

that is covered by the generally applicable law. That

effect is “too tenuous, remote, or peripheral” to

warrant a finding that the law “relate[s] to” ERISA

plans. Travelers, 115 S. Ct. at 1680; Shaw, 463 U.S.

at 100 n.21.

Second, the economic impact of the surcharge

statutes in Travelers and the HFA on plans is the

same. They both increase the cost of hospital care.

Moreover, the increased cost resulting from both

laws is paid from the accumulation of participant and

employer contributions for plan benefits. Yet this

Court in Travelers held that that sort of draw on plan

assets does not suffice for preemption. See Travelers,

115 S. Ct. at 1679, 1681.

Third, application of other factors that the Court

identified in Travelers as legally relevant to whether

a state law “relate[s] to” ERISA plans reinforces the

conclusion that the HFA is not preempted. The pro-

vider tax does not mandatel] employee benefit

structures or their administration,” 115 S. Ct. at

1678, or impose any “substantive coverage require-

ment binding plan administrators,” id. at 1681. While

different treatment.” See Mackey v. Lanier Collection Agency

& Serv., Inc., 486 U.S. 825, 830, 838 n.12 (1988).

12

the tax might cause the Fund’s cost of providing

hospital care to vary across state lines, that differ-

ence does not interfere with its ability to administer

the plan uniformly on a multistate basis, id. at 1677-

1678, and in any event, cost uniformity is not an object

of ERISA preemption, id. at 1680. Nor is the eco-

nomic effect of the tax so “acute” that it forces the

Fund to “adopt a certain scheme of substantive cover-

age” or “effectively restrict[s] its choice” in the man-

ner of providing benefits. Id. at 1681, 1683.“ Thus,

the HFA exhibits none of the characteristics of a

state law that Travelers identified as warranting

preemption.

We acknowledge that the Court in Travelers re-

ferred to New York’s surcharge statutes in terms of

their “indirect economic influence” on plan choices.

115 S. Ct. at 1679. But that was because the only

question before the Court in Travelers was whether

the surcharges—which were not directly paid by

plans—were preempted. This Court has not sug-

gested that the “direct” or “indirect” nature of a

state law’s effect on ERISA plans is dispositive of

1 Indeed, the HFA has less effect on ERISA plans than

the surcharges at issue in Travelers; because the HFA is set at

a uniform, low rate (unlike the surcharges in Travelers, which

varied among different types of health-care coverage provid-

ers), it was not designed to and will not have any effect on the

choices of purchasers of health care (including plans) regard-

ing what kind of health care to obtain. Once again, it is only if

the court of appeals’ decision is permitted to stand that the

HFA would have an effect on plan choice, since in that event

the effect of the HFA would be to encourage plans to set up

their own hospitals rather than to provide hospitalization

benefits in facilities owned by others. See note 9, supra.

13

whether the law relates to plans." See e.g., id. at

1678-1681. Moreover, while Travelers held that sur-

charge laws having only an “indirect” influence on

ERISA plans are not preempted, this Court has

recognized that laws whose “effect is only indirect”

may also relate to plans and be preempted. Ingersoll.

Rand Co. v. McClenddn, 498 U.S. at 139; accord

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

525 (1981); See Travelers, 115 S. Ct. at 1683. By the

same token, this Court has held that ERISA does not

preempt a generally applicable state garnishment law

even as it applies to “participants’ benefits in the

hands of an ERISA welfare benefit plan.” Travelers,

115 8. Ct. at 1680 (describing Mackey v. Lanier Col-

lection Agency & Serv., Inc., supra). Thus, whether

ERISA preempts a state law depends not on

characterization of the law’s effect as direct or

indirect, but on the actual nature of the impact of the

law on ERISA plans.”

" Respondents mischaracterize (Br. in Opp. 6 n.4) the

United States’ position in Travelers. In urging that the indi-

rect economic effects of the New York surcharges were insuffi-

cient for ERISA preemption, we expressed the broader view

that Aal state regulation does not relate to plans so long as its

only effect is to subject all buyers in a broad-based market in

which ERISA plans and others substantially participate to a

single set of marketplace incentives.” Brief for the United

States as Amicus Curiae Supporting Petitioners at 9 in Nos. 93-

1408, 93-1414 and 93-1415 (filed Nov. 15, 1994). The United

States never contended, as respondents here suggest, that the

preemption analysis turns solely on the indirect or direct

nature of the regulatory impact.

* Respondents contend (Br. in Opp. 10-11 & n.7) that if

the direct economic effect of the tax on ERISA plans is held to

be insufficient for preemption, no state law will be preempted

except those that mandate plan decisions. That contention is

14

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

empts the HFA insofar as it applies to a plan-owned

hospital conflicts with the Eighth Circuit’s decision

in Boyle v. Anderson, 68 F.3d 1093 (1995), cert. denied,

116 S. Ct. 1266 (1996). That case concerned a Minne-

sota law that imposed a 2% tax on the gross patient

revenues of hospitals and other health care providers.

68 F.3d at 1097-1098. The statute permitted the pro-

viders to transfer the cost of the tax to third-party

purchasers of health care services, a category that

included self-insured ERISA health plans. Id. at 1098.

Hospitals passed the tax through in the form of

increased charges for services, an itemized charge on

the hospital bill, or a separate bill. Jd. at 1098, 1104.

The statute expressly provided that purchasers of

health care services must pay the passed-through tax,

even if their contracts with health care providers did

not provide for such payments. See Minn. Stat.

§ 295.582 (Supp. 1993) (“{aJll third-party purchasers of

health care services * * * must pay the transferred

expense in addition to any payments due under

existing or future contracts with the hospital” or

health care provider). Therefore, where the providers

incorrect. While an exhaustive list is not possible, this Court

has made clear that a law that has an economic effect would be

preempted if it targets ERISA plans, e.g., District of Columbia

v. Greater Washington Bd. of Trade, 506 U.S. 125, 128 (1992);

Mackey, 486 U.S. at 830, or if a state law produces such an

“acute” economic effect that it forcels] an ERISA plan to

adopt a certain scheme of substantive coverage or effectively

restrict(s] its choice of insurers.” Travelers, 115 S. Ct. at 1683.

A state law would also be preempted if it dictates the admini-

stration of plan benefit structures, or frustrates the “nationally

uniform administration of employee benefit plans,” or “pro-

vid{es] alternate enforcement mechanisms” to those contained

in ERISA. Id. at 1678.

15

elected to pass-through the tax to ERISA plans, the

state statute directly imposed on those plans the legal

requirement to pay it.

A number of self-insured ERISA welfare plans

challenged the pass-through of the 2% tax to their

plans. Boyle, 68 F.3d at 1097. The Eighth Circuit

held that, notwithstanding the requirement that the

ERISA plans themselves had to pay the tax, ERISA

did not preempt the state tax law. Id. at 1110. The

court noted that the law applied generally to

purchasers of health care, regardless of whether they

were ERISA plans. Id. at 1101. The court further

observed that the tax did not “negate a plan

provision,” “contradict any provision of ERISA,”

“alter{] relationships among the primary ERISA

entities,” or “change[] the plan structure.” Ibid. The

court also determined that the tax did not “impose an

extra administrative burden” on ERISA plans other

than subjecting them to “a minor difference in cost of

services among the states.” Id. at 1104. Moreover,

the court reasoned, the “economic impact” on an

ERISA plan of a law that merely increases the plan’s

cost of doing business does not “suffice for a finding of

preemption.” Id. at 1105; see id. at 1109. The court

thus concluded that the Minnesota tax had “only a

tenuous, remote and peripheral affect on the plans,”

and was not preempted. Id. at 1110.

Like the Minnesota tax, New York’s HFA is

generally applicable to all “hospitals” and is entirely

neutral with respect to ERISA plans. Neither tax

favors or discriminates against plans, affects plan

terms, interferes with eligibility or benefit determi-

nations, or dictates plan structure. The taxes merely

increase the cost of hospital care to plans and non-

plans alike. Moreover, the liability of ERISA plans for

16

payment of the tax is the same under both statutes:

The tax is payable by ERISA plans to the extent they

fall within the neutral category of taxed entities.

Contrary to respondents’ assertion (Br. in Opp. 12),

the circuit conflict is not obviated by distinguishing

between the “direct” and “indirect” economic impact

of the tax on “targets.” In neither case does the tax

on hospital revenues target ERISA plans, although in

both cases ERISA plans are legally obligated to pay

it. Nor can respondents distinguish Boyle (see ibid.)

on the ground that the Minnesota statute requires

purchasers of health care to pay the transferred

expense only “to the extent allowed by federal law.”

Minn. Stat. § 295.52 (Supp. 1993). The holding of the

Eighth Circuit in Boyle was that federal law allows

the direct imposition of the tax on health care

purchasers, a conclusion directly contrary to the

conclusion reached by the Second Circuit in this

case.”

® The Second Circuit's reasoning that the HFA relates

to an ERISA plan because it constitutes “an immediate tax on

payments and contributions which were intended to pay for

participants’ medical benefits” (Pet. App. 4a)—is also in some

tension with two decisions of the Sixth Circuit. That court

held that a city ordinance and a state law that imposed taxes

calculated on a basis that included employee or employer

contributions for health and other benefits provided by ERISA

plans were laws of general application that were not preempted

by ERISA. Thiokol Corp. v. Roberts, 76 F.3d 751, 753, 755

(1996), petition for cert. pending, No. 95-1913 (filed May 23,

1996) (2.35% state tax imposed on business tax base that

included employers’ payments to ERISA plans); Firestone Tire

& Rubber Co. v. Neusser, 810 F.2d 550, 551, 554 (1987) (2% city

tax imposed on earned income of city residents that included

employee contributions for ERISA plan benefits); see also

17

3. The issue in this case is of substantial impor-

tance. Under the Second Circuit’s “direct economic

impact” test, virtually every state law that taxes or

regulates hospital care would be invalidated insofar as

it applies to hospitals owned by ERISA-covered plans.

For example, payment of generally applicable unem-

ployment compensation taxes, payroll taxes, or real

property taxes by a plan-owned hospital depletes plan

assets at least as “directly” as payment of the pro-

vider tax at issue here. See Boyle, 68 F.3d at 1107;

Morgan Guar. Trust Co. v. Tax Appeals Tribunal,

587 N.Y.S.2d 252 (N.Y. 1992) (ERISA preempts state

tax on gain from property transfer when applied to

transfer of plan-owned property). Similarly, state

laws that impose quality control or workplace stan-

dards on hospitals have an impact on plans that own

hospitals that is fully as “direct” as the impact of the

provider tax. In both situations, the law’s effect

necessarily falls on the plan because the plan provides

hospital care rather than purchasing it from “third

party” providers in the marketplace. Indeed, if

“directness” of a law’s impact were the test of ERISA

preemption, New York State’s basic licensing laws

could not survive, because they require “hospitals” to

conform to state-approved systems of cost analysis,

reporting and audits, and to maintain “premises,

equipment, personnel, rules and by-laws, standards of

medical care, and hospital service” that are “fit and

adequate” according to state law.“ N.Y. Pub. Health

Law § 2805(1) and (2)(b) (McKinney 1993).

Retirement Fund Trust of Plumbing, Heating and Piping

Industry v. Franchise Tax Bd., 909 F. 2d 1266 (9th Cir. 1990).

“ The breadth of the Second Circuit’s decision is demon-

strated by the court’s decision to hold the HFA preempted as

18

Moreover, the court of appeals’ reasoning leads to

the conclusion that ERISA plans are exempt from a

host of state laws that may tax or regulate the

provision of other benefits and services that ERISA

welfare plans provide rather than purchase. In addi-

tion to hospital and medical services, welfare benefits

may include death benefits, day care services and

prepaid legal services. 29 U.S.C. 1002(1); see 29

U.S.C. 186(c). Application of the court of appeals’

“direct effect” test would invalidate, as applied to

plan-owned service providers, state laws that tax

client funds escrowed with attorneys, staffing re-

quirements for day care centers, and embalming

procedures for funeral homes. In short, the court of

appeals’ reasoning would lead to preemption of myriad

state laws that constitute an otherwise valid exercise

of a State’s traditional police powers.

The principal teaching of Travelers is that “where

federal law is said to bar state action in fields of

traditional state regulation, [the Court has] worked

on the ‘assumption that the historic police powers of

the States were not to be superseded by the Federal

Act unless that was the clear and manifest purpose of

Congress.” 115 S. Ct. at 1676 (citations omitted).

Health care regulation is such a field of traditional

state regulation, as Travelers emphasized. Id. at

1680. Because of the posture of the case decided in

to all receipts for patient care by the Fund's centers—even

when the Fund is merely acting like any other hospital in

providing services to patients that are not paid for out of Fund

assets. Thus, under the Second Circuit’s decision, even when

the Fund’s hospitals treat patients who are not beneficiaries of

the Fund (such as members of the PPGU) or whose care is paid

for by workers’ compensation, the income from those activities

is immune from the HFA.

19

Travelers, however, the Court addressed only the

question of whether indirect economic effects on

plans as a result of the imposition of a state law of

general applicability are sufficient to trigger ERISA

preemption, and held that they are not. This case

presents the question of whether direct economic

effects of a like nature also do not “relate to plans”

within the meaning of ERISA Secti.n 514(a). That

important issue warrants resolution by the Court.

4. This case need not be held pending the Court’s

disposition of California Div. of Labor Standards

Enforcement v. Dillingham Construction, N.A., Inc.,

No. 95-789 (to be argued Nov. 5, 1996). Dillingham

presents the question whether ERISA preempts a

state law requiring contractors on state public works

projects to pay prevailing journeyman wages to

apprentices unless the apprentices are enrolled in

state-approved programs. In our amicus brief in

Dillingham (at 10-22), we argue that the state law is

not preempted because the employer may choose

whether to provide apprenticeship training through

apprenticeship programs that are ERISA plans or

through apprenticeship programs that are not. Since

the state law does not distinguish between those two

types of programs or otherwise encourage or discour-

age employers to employ one rather than the other,

we argue that it relates to the field of apprenticeship

training—a subject of traditional state regulation—

and not to ERISA plans.

There is a surface similarity between this case and

Dillingham. In both cases, one of the primary enti-

ties subject to ERISA (the employer in Dillingham,

the NYSA-ILA plan here) decided to take action

(establishing an apprenticeship program in Dilling-

ham, operating a hospital here) in an area tradition-

20 21

ally subject to state regulation. The entity thereby con

became subject to state laws of general applicability CLUSION

(the prevailing wage scheme and its requirements for The petition for a writ of certiorari should be

state approval for apprenticeship programs in granted.

Dillingham, the HFA in this case) that operate in the Respectfully submitted.

area. In both cases, we argue that that consequence

is insufficient to trigger ERISA preemption. WALTER DELLINGER

Notwithstanding that similarity, however, this Acting Solicitor General

Court’s decision in Dillingham is unlikely to affect ge ne tees EDWIN S. KNEEDLER

the Second Circuit’s disposition of this case. The 2 — or of Deputy Solicitor General

Second Circuit made clear in its decision on remand 112 JAMES A. FELDMAN

ence ; Associate Solicitor Assistant to the Solicitor

that in its view the HFA is preempted because the tax NATHANIEL I. SPILLER General

applies directly to ERISA plans that own hospitals. Deputy Associate

See Pet. App. 3a (“there is no third party between the Solicitor

plan and the tax imposed pursuant to the HFA”). The JUDITH D. HEIMLICH

Second Circuit recognized that this Court’s decision Attorney

in Travelers established that similar taxes that had Department of Labor

only indirect effects on ERISA plans are not pre-

empted. See ibid. In Dillingham, the state law at SEPTEMBER 1996

issue applies to employers, not directly to ERISA

plans, by regulating the wages that employers pay to

apprentices (some of whom are enrolled in ERISA

apprenticeship plans) under state public works

projects. Accordingly, the Court in Dillingham may

have no occasion to address the distinction that was

crucial to the Second Circuit’s decision in this case:

the one between laws that directly apply to ERISA

plans and those that indirectly affect them.