By Jacklyn Wille
Feb. 14 --The Employee Retirement Income Security Act preempts a Georgia law
requiring self-funded health plans to pay benefit claims within 15 business
days, the U.S. Court of Appeals for the Eleventh Circuit ruled (Am.'s
Health Ins. Plans v. Hudgens, 2014 BL 39821, 11th Cir., No. 13-10349,
The court's Feb. 14 ruling affirmed a preliminary injunction issued by the U.S.
District Court for the Northern District of Georgia blocking enforcement of the
law one day before it was scheduled to go in effect.
Judge Donald M.
Middlebrooks, writing for the court and sitting by designation from the U.S.
District Court for the Southern District of Florida, found that the law was
expressly preempted by ERISA, because it related to ERISA-governed plans and
fell within ERISA's savings and deemer clauses.
The ruling may have
implications for a recently-filed lawsuit challenging Texas's prompt pay law on
ERISA preemption grounds (Aetna Life Ins. Co. v. Methodist Hosps. of
Dall., S.D. Tex., No. 4:13-cv-03412, complaint filed 11/19/13 (225
PBD, 11/21/13; 40 BPR 2750, 11/26/13)).
In that case, which was recently
transferred to the U.S. District Court for the Northern District of Texas,
Aetna Life Insurance Co. seeks a judicial declaration that the Texas law
doesn't apply to self-funded health plans governed by ERISA (19 PBD, 1/29/14;
41 BPR 270, 2/4/14).
pay” statute, Ga. Code Ann. Section 33-24-59, requires “insurers” to pay
benefit claims within 15 business days and pay interest on any late claim
payments made. As originally enacted in 1999, the statute excluded self-funded
ERISA plans and their administrators through a specific exemption.
Georgia General Assembly passed legislation in 2010 removing the self-funded
ERISA plan exemption. Georgia Gov. Nathan Deal (R) signed the legislation in
May 2011, with an effective date of Jan. 1, 2013.
In August 2012, AHIP,
a national trade organization representing companies that provide
administrative services to self-funded plans, filed a complaint against Georgia Insurance and Safety Fire
Commissioner Ralph T. Hudgens, alleging that ERISA Section 514 preempted the
prompt pay amendment (168 PBD, 8/30/12; 39 BPR 1687, 9/4/12).
to AHIP's complaint, the prompt pay statute was both expressly preempted by
ERISA Section 514(a) and “independently preempted” as applied to ERISA plans,
because it conflicted with ERISA Section 502. AHIP argued that the amendment
“unquestionably 'relate[s] to' the administration of self-funded ERISA plans,”
because it “affects a core function of plan administration: the processing of
claims for plan benefits.”
AHIP sought a declaration that ERISA
preempted the prompt pay amendment; it also asked the district court to
permanently enjoin enforcement of the statute against self-funded ERISA plans
and their administrators.
On Dec. 31, 2012--one day before the law was
scheduled to go into effect--the district court granted a preliminary injunction prohibited Georgia from
enforcing the amendment (02 PBD, 1/3/13; 40 BPR 87, 1/8/13; 54 EBC 2464).
The district court found that the amendment was ERISA-preempted, because it
compelled specific action on behalf of plans and plan administrators and
interfered with uniformity in regulating ERISA plans.
appealed to the Eleventh Circuit, which received multipleamicusbriefs taking opposing positions on the law (222 PBD,
11/18/13; 40 BPR 2685, 11/19/13).
appeal, the Eleventh Circuit found that the challenged amendments “relate to”
ERISA plans for purposes of the express preemption analysis.
to the Eleventh Circuit, the amendments impose timing requirements on ERISA
plans that “fly in the face of one of ERISA's main goals” of allowing
employers to establish a uniform administrative scheme for the processing of
claims and benefits.
Further, the amendments would cause ERISA plans to
be faced with different timeliness requirements in different states, “thereby
frustrating Congress's intent,” the Eleventh Circuit said.
In challenging the district court's preemption ruling,
the commissioner argued that because the prompt-pay amendments were procedural
in nature, they couldn't be found to “relate to” ERISA plans.
Eleventh Circuit said it was “not persuaded” by this argument, saying that it
“runs contrary to Supreme Court precedent.” Further, while the amendments “will
not necessarily directly alter the coverage decision-making process,” the
Eleventh Circuit said that they “will compel certain action (prompt
benefit determinations and payments) by plans and their administrators.”
Similarly, the commissioner's argument that the amendments survived
preemption because they only regulated “non-fiduciary” third party
administrators “h[eld] no water” with the Eleventh Circuit. It explained that
ERISA's “overarching purpose of uniform regulation of plan benefits
overshadows this distinction.”
concluding that the challenged amendments related to ERISA-governed plans, the
Eleventh Circuit considered the district court's finding that the amendments
fell within ERISA's savings clause, which provides that state laws regulating
insurance are saved from ERISA preemption.
The Eleventh Circuit said
that it “save[d] this determination for another day,” however, because it
agreed with the district court's conclusion that the amendments also fell
within ERISA's “Deemer Clause,” which acts as an exception to the exception
provided by the savings clause.
The deemer clause, the court explained,
exempts self-funded ERISA plans from state laws that regulate insurance and
keeps them within the purview of ERISA.
According to the Eleventh
Circuit, the challenged amendments “regulate the timeliness of benefit
payments under self-funded ERISA plans, and it is apparent that the
purpose and effect of [the amendments] is to extend Georgia's prompt pay laws
to claims made under self-funded ERISA plans.”
Given this, the Eleventh
Circuit affirmed the district court's ruling and found that ERISA preempted
the challenged amendments.
Eleventh Circuit also considered the commissioner's argument that AHIP failed
to demonstrate sufficient injury to its members in order to have
constitutional standing to challenge the amendments.
Eleventh Circuit deferred to the district court's conclusion that AHIP had
standing to challenge the law, because the law would force AHIP's members to
choose between “complying with its requirements, which impose direct and
indirect costs, or ignoring it, which will expose them to penalties imposed by
The commissioner also argued that the Tax Injunction
Act, which strips federal district courts of jurisdiction to enjoin the
collection of state taxes, barred AHIP's lawsuit, because the fees and
assessments collected pursuant to the prompt pay law were “taxes” under such
The Eleventh Circuit disagreed, saying that the prompt pay
amendments were “regulatory in nature” and “not intended to raise
Senior Judges James C. Hill and Emmett R. Cox joined in the
AHIP was represented by Miguel A. Estrada, Nikesh Jindal and
Geoffrey M. Sigler of Gibson, Dunn & Crutcher LLP, Washington; Bruce P.
Brown of Bruce P. Brown Law, Atlanta; and James A. Washburn of McKenna Long
& Aldridge LLP, Atlanta. The commissioner was represented by Alex F.
Sponseller, Isaac Byrd, Robin G. Cohen, Samuel S. Olens and Daniel S. Walsh of
the Georgia Attorney General's Office, Atlanta.
the reporter on this story: Jacklyn Wille in Washington at firstname.lastname@example.org
To contact the editor responsible
for this story: Jo-el J. Meyer at email@example.com
Text of the opinion is at http://www.bloomberglaw.com/public/document/AMERICATMS_HEALTH_INSURANCE_PLANS_PlaintiffAppellee_versus_RALPH_.
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