Opinion ID: 1669962
Heading Depth: 1
Heading Rank: 4

Heading: ERISA Preemption of Iowa Code Chapter 513C.

Text: 1. Framework for ERISA preemption analysis. ERISA provides three clauses that relate to the relationship between ERISA and state law: the preemption clause, the savings clause, and the deemer clause. Under ERISA, any provision of state law which relates to an ERISA plan is superseded under what is known as the preemption clause of ERISA. 29 U.S.C. § 1144(a). On the other hand, state insurance, banking, or securities laws are explicitly removed from preemption under ERISA's savings clause. Id. § 1144(b)(2)(A). What is known as the ERISA deemer clause, however, further provides that an employee benefit plan may not be deemed to be an insurance company ... or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, [or] insurance contracts.... 29 U.S.C. § 1144(b)(2)(B). Analysis of ERISA preemption ordinarily requires three steps. The first step is whether the state statute in question relates to an ERISA plan and is therefore within the scope of the preemption clause. If so, the next question is whether the state statute is nonetheless saved through application of the savings clause. Finally, where a state statute falls within the scope of the preemption clause but is also within the scope of the savings clause, the analysis moves on to a determination of whether the savings clause does not apply as a result of the deemer clause. 2. Highmark arguments in favor of ERISA preemption of Iowa Code chapter 513C. Highmark asserts that Iowa Administrative Code rule 191-75.7(4) is unenforceable because it is preempted by ERISA. According to Highmark, the always secondary provision relates to or is connected with the ERISA plan in this case. In support of its position, Highmark cites FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990). In FMC, the United States Supreme Court held that a Pennsylvania anti-subrogation statute which prohibited self-funded ERISA plans from requiring reimbursement in the event of recovery from a third party was preempted by ERISA. Id. at 65, 111 S.Ct. at 411, 112 L.Ed.2d at 369. According to the Supreme Court in FMC, the anti-subrogation statute was an insurance statute under the ERISA savings clause, but could not be applied against a self-funded ERISA plan by virtue of the deemer clause. Id. Highmark asserts that like the Pennsylvania statute in FMC, Iowa Code chapter 513C impermissibly overrides benefit provisions in self-funded ERISA plans. Highmark claims that the approach in FMC has been followed in at least three federal circuits. For example, in LaRocca v. Borden, Inc., 276 F.3d 22, 30 (1st Cir. 2002), the First Circuit Court of Appeals held that ERISA preempts state legislation designed to limit plans' ... coordination of benefit provisions. Similarly, in Auto Owners Insurance Co. v. Thorn Apple Valley, Inc., 31 F.3d 371, 375 (6th Cir.1994), the Sixth Circuit Court of Appeals held that COB provisions of self-insured ERISA plans trump state laws which seek to make no-fault policies always secondary payers. Further, the Eighth Circuit Court of Appeals in Prudential Insurance Co. of America v. National Park Medical Center, Inc., 413 F.3d 897, 912-13 (8th Cir.2005), utilizing FMC concepts, held that an Arkansas any willing provider law was preempted by the deemer clause as applied to self-funded plans. Highmark recognizes that in several cases subsequent to FMC, the United States Supreme Court sharpened its review of ERISA preemption. See De Buono v. NYSA-ILA Med. & Clinical Serv. Fund, 520 U.S. 806, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997) (finding gross receipts tax not preempted); Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) (finding wage payment statute not preempted); N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995) (finding surcharges on hospital rates not preempted). According to Highmark, however, these cases did not represent a sea change from the approach in FMC, but only a refinement of ERISA preemption analysis. Further, Highmark emphasizes that unlike, for instance, the wage payment statute involved in Dillingham, the payment of plan benefits is a core area of ERISA concern. Highmark asserts that its position is supported by the relatively recent case of Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 121 S.Ct. 1322, 149 L.Ed.2d 264 (2001). In that case, the United States Supreme Court held that a state statute providing for automatic revocation of beneficiary designations upon divorce was preempted as applied to ERISA plans. Id. at 152, 121 S.Ct. at 1330, 149 L.Ed.2d at 274-75. The Court noted that the state statute that bound plan administrators to a particular choice of rules in determining beneficiary status involved an area of core ERISA concern including ERISA's provision that a plan shall `specify the basis on which payments are made to and from the plan.' Id. at 147, 121 S.Ct. at 1327, 149 L.Ed.2d at 271 (quoting 29 U.S.C. § 1102(b)(4)). The Supreme Court further stated that the payment of benefits was a central matter of plan administration. Id. at 148, 121 S.Ct. at 1328, 149 L.Ed.2d at 272. Finally, the Supreme Court in Egelhoff stressed the need for nationally uniform plan administration in such core matters. Id. According to Highmark, the Supreme Court's emphasis in Egelhoff on the core nature of payment of benefit provisions and the need for national uniformity apply with equal force in this case. Additionally, Highmark notes that the Eighth Circuit has adopted a multi-factored test to determine whether a state law has sufficient connection with ERISA plans to trigger preemption. See Ark. Blue Cross & Blue Shield v. St. Mary's Hosp., Inc., 947 F.2d 1341, 1344-45 (8th Cir.1991). According to Highmark, the always secondary regulation meets most of the criteria of the multi-factored test by negating a provision of the Magellan 90/60 Policy, affecting the relationships between primary ERISA entities and the structure of ERISA plans, adversely impacting the uniform administration of ERISA plans, causing an economic impact on an ERISA plan, and being inconsistent with the deemer clause, which provides that self-funded ERISA plans are not subject to the state regulation. 3. Magellan and Wellmark arguments against ERISA preemption of Iowa Code chapter 513C. Magellan and Wellmark provide a markedly different analysis of ERISA preemption. They assert that the always secondary regulation does not fall within the scope of the preemption clause and that as a result, the statute is fully applicable and Magellan is entitled to reimbursement. While Magellan and Wellmark recognize the broad preemption analysis in FMC, they claim the Supreme Court significantly narrowed the scope of preemption in De Buono, 520 U.S. at 806, 117 S.Ct. at 1747, 138 L.Ed.2d at 21, Dillingham, 519 U.S. at 316, 117 S.Ct. at 832, 136 L.Ed.2d at 791, and Travelers Insurance, 514 U.S. at 645, 115 S.Ct. at 1671, 131 L.Ed.2d at 695. Specifically, Magellan and Wellmark note that in Travelers Insurance, the United States Supreme Court stated that Congress addressed the claims of preemption with the starting presumption that Congress does not intend to supplant state law. Travelers Ins., 514 U.S. at 654, 115 S.Ct. at 1676, 131 L.Ed.2d at 704. Further, Magellan and Wellmark cite Dillingham for the proposition that a state law has reference to ERISA only [w]here a State's law acts immediately and exclusively upon ERISA plans ... or where the existence of ERISA plans is essential to a law's operation.... Dillingham, 519 U.S. at 325, 117 S.Ct. at 838, 136 L.Ed.2d. at 799. Magellan and Wellmark further assert that under Dillingham, the connection with test of ERISA preemption requires the court to look at both `the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive' ... as well as the nature of the effect of the state law on ERISA Plans. Id. (quoting Travelers Ins., 514 U.S. at 656, 115 S.Ct. at 1677, 131 L.Ed.2d at 705). Under these authorities, Magellan and Wellmark argue, the district court correctly held that Iowa's always secondary regulation has no relation to ERISA plans because it does not operate directly and exclusively on them. Nor is it connected with ERISA plans, according to Magellan and Wellmark, because the statute does not clearly touch on the objectives of ERISA. Congress thus must have understood that it is the type of law that would survive ERISA preemption. Magellan and Wellmark also argue that Highmark's reliance upon Egelhoff is misplaced. In Egelhoff, the Supreme Court held that a state statute which automatically revoked beneficiary designations where the beneficiary is a divorced spouse, had a connection with a core area of ERISA concern, namely, rules for determining the status of beneficiaries. Egelhoff, 532 U.S. at 147, 121 S.Ct. at 1327, 149 L.Ed.2d at 271-72. According to Magellan and Wellmark, Egelhoff is distinguishable from the present case because the state statute interfered with the relationship between an ERISA plan and a plan beneficiary and with national uniform administration of ERISA. Further, according to Magellan and Wellmark, the always secondary regulation in this case, unlike the beneficiary-terminating provision in Egelhoff, is a health measure designed to mandate the availability of a standard or basic insurance policy for residents who do not otherwise qualify for health care. Magellan and Wellmark assert that such a generally applicable health care measure is not the kind of legislation that Congress intended to preempt. Magellan and Wellmark further challenge Highmark's claim that the always secondary regulation is preempted under the multi-factored ERISA preemption test utilized by the Eighth Circuit in Arkansas Blue Cross & Blue Shield, 947 F.2d at 1341. According to Magellan and Wellmark, Iowa Code chapter 513C and Iowa Administrative Code rule 191-75.7(4) do not conflict with the terms of the Magellan 90/60 Policy, but instead simply determine which of the available COB provisions in the Magellan 90/60 Policy applies. Magellan and Wellmark further contend that Iowa Code chapter 513C and the always secondary regulation do not affect the relations between primary ERISA entities or the structure of the Magellan 90/60 Policy, do not have an economic impact other than a remote or peripheral one, are not inconsistent with other provisions of ERISA, and simply involve a health care regulatory issue that is historically a matter of local concern. 4. Analysis of Preemption Issue. At the outset, it is clear that Iowa Code chapter 513C and the accompanying always secondary regulation do not make reference to ERISA plans and are not targeted directly and exclusively toward ERISA plans. As a result, the only question regarding the application of the preemption clause in ERISA is whether the always secondary regulation is sufficiently connected with ERISA to trigger preemption. The standard for determining whether a state law is connected with ERISA plans in a fashion sufficient to cause preemption is subject to considerable controversy. In Dillingham, the Supreme Court stated that courts should look to the objectives of ERISA as well as the nature of the effect of the state law on ERISA plans in determining whether state law is preempted. Dillingham, 519 U.S. at 325, 117 S.Ct. at 838, 136 L.Ed.2d at 800. This formulation hardly provides clear guidance. In Travelers Insurance, however, the Supreme Court stated that reviewing courts should begin the preemption analysis with the starting presumption that Congress does not intend to supplant state law. Travelers Ins., 514 U.S. at 654, 115 S.Ct. at 1676, 131 L.Ed.2d at 704. In this case, the main objective of ERISA, namely, providing employees with stable benefits, is not seriously eroded by the application of the always secondary language of Iowa Administrative Code rule 191-75.7(4). John's mother determined that in order to avoid the possibility of an unreasonable benefits determination by an ERISA plan, she would purchase an individual non-ERISA insurance plan as a back-up policy. When there is multiple coverage of a given loss, COB analysis is commonplace in the insurance industry. Unlike Egelhoff, Iowa Code chapter 513C and the always secondary regulation do not affect rules for determining the status of beneficiaries. Further, the objective of Iowa Code chapter 513C and the always secondary regulation is to promote the availability of health insurance coverage to individuals regardless of their health status or claims experience.... Iowa Code § 513C.2. The policy underlying Iowa Code chapter 513C and Iowa Administrative Code rule 191-75.7(4), thus does not undercut ERISA objectives. Further, promoting the availability of health insurance coverage to persons who might not otherwise obtain it is within the scope of police powers traditionally left to state regulation. De Buono, 520 U.S. at 814, 117 S.Ct. at 1752-53, 138 L.Ed.2d at 29. Under this record, we conclude there is no reason to believe that chapter 513C and Iowa Administrative Code rule 191-75.7(4) so clearly touch on the objectives of ERISA that Congress must have understood that this is the type of law that would not survive ERISA. As a result, we hold that the always secondary provision in Iowa Code chapter 513C as implemented by Iowa Administrative Code rule 191-75.7(4) is not preempted by ERISA. [2] Because of the mandate of the always secondary rule, the Magellan 90/60 Policy provides primary coverage in this case. Therefore, the district court properly granted summary judgment to Magellan and denied summary judgment to Highmark.