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Eleventh Circuit Affirms Injunction Barring Georgia Prompt Pay Amendment

Tuesday, February 18, 2014

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, 2/14/14).

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).

Prompt Pay Challenge

Georgia's “prompt 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 As originally enacted in 1999, the statute excluded self-funded ERISA plans and their administrators through a specific exemption.

The 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).

According 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.

The commissioner 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).

Preemption Ruling Affirmed

On appeal, the Eleventh Circuit found that the challenged amendments “relate to” ERISA plans for purposes of the express preemption analysis.

According 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.

Procedural Argument Fails

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.

The 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.”

Savings and Deemer Clauses

After 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.

Jurisdictional Challenge Fails

The 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.

Disagreeing, the 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.”

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 act.

The Eleventh Circuit disagreed, saying that the prompt pay amendments were “regulatory in nature” and “not intended to raise revenues.”

Senior Judges James C. Hill and Emmett R. Cox joined in the opinion.

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.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com


Text of the opinion is at http://www.bloomberglaw.com/public/document/AMERICATMS_HEALTH_INSURANCE_PLANS_PlaintiffAppellee_versus_RALPH_.

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