Opinion ID: 661453
Heading Depth: 3
Heading Rank: 1

Heading: The Surcharges: Preemption

Text: 57 Defendants maintain that the district court erred in concluding that the challenged statutes' indirect economic impact upon ERISA plans was substantial and impermissibly affected the structure, the administration, or the type of benefits furnished by a plan. We disagree. While the challenged statutes do not refer to ERISA plans, see Mackey, 486 U.S. at 831, 108 S.Ct. at 2186 (statute need not specifically mention ERISA plans to be preempted), our examination of the surcharges indicates that they satisfy the less stringent connection with standard embraced in Ingersoll-Rand. 58 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 competing 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. See, e.g., National Elevator Indus., Inc. v. Calhoon, 957 F.2d 1555, 1561 (10th Cir.) (ERISA preempts administrative interpretation of Oklahoma's prevailing wage statute insofar as it determines rates of pay and may be used to effect change in the administration, structure and benefits of an ERISA plan), cert. denied, --- U.S. ----, 113 S.Ct. 406, 121 L.Ed.2d 331 (1992); In re Michigan Carpenters Council Health & Welfare Fund, 933 F.2d 376, 382-83 (6th Cir.) (ERISA preempts Michigan state corporate reorganization statute that allows employers unilaterally to alter their obligation to ERISA plans), cert. denied, --- U.S. ----, 112 S.Ct. 585, 116 L.Ed.2d 610 (1991); National Carriers' Conference Comm. v. Heffernan, 440 F.Supp. 1280 (D.Conn.1977) (Connecticut tax on ERISA benefits preempted since it may encourage use of traditional insurance rather than ERISA-covered plans); Morgan Guar. Trust Co. v. Tax Appeals Tribunal of Dep't of Taxation & Finance, 80 N.Y.2d 44, 51, 587 N.Y.S.2d 252, 256, 599 N.E.2d 656, 660 (1992) (New York real estate gains tax preempted as applied to sale of ERISA property because tax will influence plans' investment strategy). 59 The surcharges substantially increase the cost to ERISA plans of providing beneficiaries with a given level of health care benefits. Under similar circumstances, the Fifth Circuit held that a state statute imposing a 2.5% tax on administrative and service fees was preempted by ERISA. E-Systems, Inc. v. Pogue, 929 F.2d 1100 (5th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 585, 116 L.Ed.2d 610 (1991). The court found that the tax was related to ERISA plans because: The cost of the plan must therefore increase for the employer and/or employees or the benefits must be adjusted downwards to offset the tax bite. This is the type of impact Congress intended to avoid when it enacted the ERISA legislation. Id. at 1103. 60 As in E-Systems, the surcharges here force ERISA plans to increase either plan costs or reduce plan benefits. Therefore, they have the requisite connection to ERISA. See also General Electric Co. v. New York State Dep't of Labor, 891 F.2d 25, 28 (2d Cir.1989) (New York Labor Law governing wage requirements was preempted where it required employers to pay certain benefits, because  'private parties, not the Government, control the level of benefits'  under ERISA) (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 511, 101 S.Ct. 1895, 1900, 68 L.Ed.2d 402 (1981)), cert. denied, 496 U.S. 912, 110 S.Ct. 2603, 110 L.Ed.2d 283 (1990); cf. Arkansas Blue Cross & Blue Shield v. St. Mary's Hosp., Inc., 947 F.2d 1341, 1348 (8th Cir.1991) (Like all the factors considered, ... simply because the existence of some economic impact is not dispositive of the preemption issue does not make this factor irrelevant to the preemption inquiry.), cert. denied, --- U.S. ----, 112 S.Ct. 2305, 119 L.Ed.2d 227 (1992). 61 In making its finding that the surcharges are related to ERISA, the district court focused on plaintiffs' claims that they would pass along the higher costs associated with the surcharges, which might in turn lead plans to reduce their level of service or benefits. Defendants and the Department of Labor as amicus contend that the indirect and inevitably speculative economic impact of the challenged statutes alone does not justify a finding of preemption. They argue that the Supreme Court has never held that indirect economic impact, standing alone, is sufficient to justify a finding of preemption. See, e.g., Mackey, 486 U.S. at 830-41, 108 S.Ct. at 2185-91 (indirect economic effect of state garnishment law not enough to warrant preemption); see also Aetna Life, 869 F.2d at 146 (where a state statute of general application 'does not affect the structure, the administration, or the type of benefits provided by an ERISA plan, the mere fact that the statute has some economic impact on the plan does not require that the statute be invalidated.'  (quoting Rebaldo, 749 F.2d at 139)). 62 The Blues Conference, in particular, relies on NYSA-ILA Medical & Clinical Servs. Fund v. Axelrod, No. 92 Civ. 2779 (JSM), 1993 WL 51146, at  4 (S.D.N.Y. Feb. 23, 1993) (The tax is not great enough to pose a serious economic threat to the plan which might trigger preemption.). There, Judge Martin rejected an ERISA plan's challenge to New York's Health Facility Assessment (HFA) because its economic impact on the plan was de minimis. The court distinguished Morgan Guaranty Trust, 80 N.Y.2d 44, 587 N.Y.S.2d 252, 599 N.E.2d 656, on the ground that the New York case involved a substantial tax of 10% of the consideration received for the realty sold therein, as opposed to the HFA of 0.6% of gross receipts to which the HFA was applicable. Further, Judge Martin in NYSA-ILA explicitly compared the result Judge Freeh reached in this case, with its surcharges of 13%, 11%, and 9% on hospital DRGs. See NYSA-ILA, 1993 WL 51146, at  4. Thus, the NYSA-ILA court recognized that a substantial economic impact, standing alone, could be enough to bring ERISA's preemption clause into play. 63 In sum, Judge Freeh properly found that the three surcharges relate to ERISA because they impose a significant economic burden on commercial insurers and HMOs. They therefore have an impermissible impact on ERISA plan structure and administration. 3 Accordingly, the statutes at issue here are preempted--unless they are salvaged by ERISA's saving clause as a law that regulates insurance. 29 U.S.C. Sec. 1144(b)(2)(A).