Don’t Take Your Eyes Off Vermont:
Gobeille v. Liberty Mutual Insurance Company

Okay, maybe as a California colleague suggests, it’s one of the “boutique states” and yes, its single payer plan stumbled, but don’t take your eyes off Vermont.

Vermont is at work to hold down costs and reform payment and delivery systems. The Green Mountain Care Board (GMCB) is engaged in comprehensive efforts to control health care costs; the state requires all individual and small group insurance to be sold through the state’s insurance exchange, there are well-established integrated delivery systems, and a history of action to improve population health. But today there is an emerging issue of interest to all states – the challenge to Vermont’s ability to collect claims data from self-insured plans in a case pending before the Supreme Court: Gobeille v. Liberty Mutual Insurance Company.

Liberty Mutual is a multi-state employer operating a self-insured health plan for its employees, including those who live in Vermont. Blue Cross Blue Shield of Massachusetts functions as its third party administrator. Vermont operates an all-payer claims database (APCD), known as VHCURES, and requires larger health insurers, defined to include third-party administrators of self-insured health plans, to submit data. In 2011, Vermont subpoenaed Blue Cross, saying they had to submit Liberty Mutual’s data or risk penalties. Liberty Mutual refused and instead filed suit against the state, arguing the Vermont law was preempted by the Employee Retirement Income Security Act of 1974 (ERISA).

The U.S. District Court for Vermont rejected Liberty Mutual’s ERISA preemption argument, but Liberty Mutual appealed and the 2nd Circuit ruled in Liberty Mutual’s favor, despite an amicus brief supporting Vermont’s position filed by the U.S. Department of Labor. The Second Circuit found that ERISA preempted Vermont’s ability to compel submission of claims data because “reporting” is a core ERISA administrative function and Vermont’s requirements burdened and interfered with ERISA plan administration. Vermont appealed to the Supreme Court, which is now considering whether to hear the case. After conferring in December, 2014, the Court asked the U.S. Solicitor General to weigh in on whether the Court should grant certiorari.

An ERISA refresher may be in order. ERISA is a federal law enacted in 1974 to provide federal standards and accountability for employer-sponsored benefit plans offered across state lines. To ensure uniform regulation, ERISA preempts state laws that “relate to” employer-sponsored plans. However, ERISA’s “savings clause” preserves state regulation of health insurance, meaning that in most cases states can regulate insurers, but cannot regulate employer-sponsored health plans directly. Also, states have no direct authority over “self-insured” employer-sponsored health plans. ERISA has long posed a challenge to states that seek comprehensive health reforms because they effectively cannot regulate or burden self-insured plans. And, unlike the Section 1115 waivers granted for Medicaid programs, ERISA offers no statutory foothold for the Department of Labor, to grant a waiver.

Why should other states care about Gobeille v. Liberty Mutual? Three important reasons.

First, a growing majority of individuals receive coverage from self-insured employer plans. In 2011, more than two-thirds (68.5 percent) of enrollees in employer-sponsored plans with 50 or more participants were enrolled in self-insured plans. If the Court grants certiorari and finds ERISA preemption, relying on the 2nd Circuit’s more expansive interpretation, states’ ability to regulate health coverage provided to their citizens will diminish that much further.

Second, this decision could impact states’ ability to monitor their health care markets. Sixteen states including Vermont have either established or are implementing an APCD. Self-insured plan enrollees are disproportionately likely to be young and healthy. If the Court rules for Liberty Mutual, an entire demographic group would be largely left out of the state’s data, leaving a significant hole and possibly deterring other states from establishing or implementing an APCD. In Vermont, such a decision would significantly lessen the value of those data sets that report on costs of care. As more states are engaged in payment reform and delivery system re-design, valid system-wide data is an essential ingredient to know the impact of those reforms.

Third, preempting state action here leaves a critical hole in oversight and engagement of these entities in payment and delivery system reforms generally. As the Second Circuit noted in its dissenting opinion, ERISA’s oversight is strictly limited to the “financial integrity” of the plan. If states aren’t allowed to act and no federal standards exist, a critical segment of the market is being missed in efforts to modernize the health care system to move to value-based payments and ensure greater accountability.

Gobeille v. Liberty Mutual shines a spotlight on ERISA’s preemption itself, long the bane of state reformers seeking to establish “pay or play” requirements on employers or all-payer health system reform. In an era of payment reform, and as states consider major reforms through 1332 and “super waivers”, the time is ripe to reconsider ERISA’s preemption and provide states with more capacity to engage all health care purchasers in their reform efforts. Although this case won’t address these larger concerns, protecting state authority to collect health data would be a good start.