Supreme Court of the
United States
Syllabus
NEW YORK STATE
CONFERENCE OF BLUE CROSS & BLUE SHIELD PLANS et al. v.TRAVELERS
INSURANCE CO. et al.
certiorari to the united
states court of appeals for the second circuit
No. 93-1408. Argued
January 18, 1995 --Decided April 26, 1995
[n.*]
A New York statute requires hospitals to
collect surcharges from patients covered by a commercial insurer but not from
patients insured by a Blue Cross/Blue Shield plan, and also subjects certain
health maintenance organizations (HMOs) to surcharges. Several commercial
insurers and their trade associations filed actions against state officials,
claiming that §514(a) of the Employee Retirement Income Security Act of 1974
(ERISA)--under which state laws that "relate to" any covered employee
benefit plan are superseded--preempts the imposition of surcharges on bills of
patients whose commercial insurance coverage is purchased by an ERISA plan, and
on HMOs insofar as their membership fees are paid by an ERISA plan. Blue
Cross/Blue Shield plans (collectively the Blues) and a hospital association
intervened as defendants, and several HMOs and an HMO conference intervened as
plaintiffs. The District Court consolidated the actions and granted the
plaintiffs summary judgment. The Court of Appeals affirmed, relying on this
Court's decisions in Shawv. DeltaAir
Lines, Inc.,463 U.S. 85, and District ofColumbiav. GreaterWashington
Board of Trade,506 U. S. ___, holding that ERISA's pre-emption
clause must be read broadly to reach any state law having a connection with, or
reference to, covered benefit plans. The court decided that the surcharges were
meant to increase the costs of certain insurance and HMO health care and held
that this purposeful interference with the choices that ERISA plans make for
health care coverage constitutes a "connection with" ERISA plans
triggering pre-emption.
Held: New York's
surcharge provisions do not "relate to" employee benefit plans within
the meaning of §514(a) and, thus, are not pre-empted. Pp. 7-22.
(a) Under Shaw, supra, the provisions "relate to" ERISA plans if they have a "connection with," or make "reference to," the plans. They clearly make no reference to ERISA plans, and ERISA's text is unhelpful in determining whether they have a "connection with" them. Thus, the Court must look to ERISA's objectives as a guide to the scope of the state law that Congress understood would survive. Pp. 7-9.
(b) The basic thrust of the pre-emption clause was to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans. Thus, ERISA pre-empts state laws that mandate employee benefit structures or their administration as well as those that provide alternate enforcement mechanisms. The purpose and effects of New York's statute are quite different, however. The principal reason for charge differentials is that the Blues provide coverage to many subscribers whom the commercial insurers would reject. Since the differentials make the Blues more attractive, they have an indirect economic effect on choices made by insurance buyers, including ERISA plans. However, an indirect economic influence does not bind plan administrators to any particular choice or preclude uniform administrative practice or the provision of a uniform interstate benefit package. It simply bears on the costs of benefits and the relative costs of competing insurance to provide them. Cost uniformity almost certainly is not an object of pre-emption. Rate differentials are common even in the absence of state action, and therefore it is unlikely that ERISA meant to bar such indirect influences under state law. The existence of other common state actions with indirect economic effects on a plan's cost--such
as quality control
standards and workplace regulation--leaves the intent to preempt even less
likely, since such laws would have to be superseded as well. New York's
surcharges leave plan administrators where they would be in any case, with the
responsibility to choose the best overall coverage for the money, and thus they
do not bear the requisite "connection with" ERISA plans to trigger
pre-emption. Pp. 9-16.
(c)
This conclusion is confirmed by the decision in Mackeyv.
LanierCo
ection Agency & Service, Inc.,486
U.S. 825, that ERISA preemption falls short of barring application of
general state garnishment statutes to participants' benefits in the hands of an
ERISA plan. And New York's surcharges do not impose the kind of substantive
coverage requirement binding plan administrators that was at issue in
Metropolitan Life Insurance Co.v. Massachusetts,471 U.S. 724, since they do not require plans to deal
with only one insurer or to insure against an entire category of illnesses the
plans might otherwise choose not to cover. Pp. 16-18.
(d) Any conclusion other than the one drawn here would have the unsettling result of barring any state regulation of hospital costs on the theory that all laws with indirect economic effects on ERISA plans are pre-empted. However, there is no hint in ERISA's legislative history or elsewhere that Congress intended to squelch the efforts of several States that were regulating hospital charges to some degree at the time ERISA was passed. Moreover, such a broad interpretation of §514 would have rendered nugatory an entire federal statute--enacted after ERISA by the same Congress--that gave comprehensive aid to state health care rate regulation. Pp. 18-21.
(e) In reaching this decision, the Court does not hold that ERISA pre-empts only direct regulation of ERISA plans. It is possible that a state law might produce such acute, albeit indirect, economic effects as to force an ERISA plan to adopt a
certain scheme of coverage
or effectively restrict its choice of insurers, but such is not the case here. P. 22.
14 F. 3d 708, reversed and remanded.
Souter, J.,
delivered the opinion for a unanimous Court.
* Together with No. 93-1414, Pataki, Governor of New York,
et al. v. Travelers Insurance Co. et al., and No. 93-1415, Hospital
Association of New York State v. Travelers Insurance Co. et al.,
also on certiorari to the same court.
SUPREME COURT OF THE UNITED STATES
Nos. 93-1408, 93-1414 and 93-1415
NEW YORK STATE
CONFERENCE OF BLUE CROSS & BLUE SHIELD PLANS, et al., PETITIONERS 93-1408 v.TRAVELERS INSURANCE COMPANY et al. GEORGE E. PATAKI,
GOVERNOR OF NEW YORK, et al., PETITIONERS 93-1414
on writs of certiorari to
the united states court of appeals for the second circuit
[April 26,
1995] Justice Souter delivered the
opinion of the Court.
New York's
Prospective Hospital Reimbursement Methodology (NYPHRM) regulates hospital
rates for all in patient care, except for services provided to Medicare
beneficiaries. [n.1] N. Y. Pub. Health
Law §2807-c (McKinney 1993). [n.2] The scheme calls for patients
to be charged not for the cost of their individual treatment, but for the
average cost of treating the patient's medical problem, as classified under one
or another of 794 Diagnostic Related Groups (DRGs).
The charges allowable in accordance with DRG classifications are adjusted for a
specific hospital to reflect its particular operating costs, capital
investments, bad debts, costs of charity care and the like.
Patients with Blue
Cross/Blue Shield coverage, Medicaid patients, and HMO participants are billed
at a hospital's DRG rate. N. Y. Pub. Health Law §2807-c(1)(a);
see also Brief for Petitioners Pataki et al.4. [n.3] Others,
however, are not. Patients served by commercial insurers providing in patient
hospital coverage on an expense incurred basis, by self insured funds directly
reimbursing hospitals, and by certain workers' compensation, volunteer
firefighters' benefit, ambulance workers' benefit, and no fault motor vehicle
insurance funds, must be billed at the DRG rate plus a 13% surcharge to be
retained by the hospital. N. Y. Pub. Health Law §2807-c(1)(b).
For the year ending March 31, 1993, moreover, hospitals were required to bill commercially
insured patients for a further 11% surcharge to be turned over to the State,
with the result that these patients were charged 24% more than the DRG rate. §2807-c(11)(i).
New York law also imposes a
surcharge on HMOs, which varies depending on the number of eligible Medicaid
recipients an HMO has enrolled, but which may run as high as 9% of the
aggregate monthly charges paid by an HMO for its members' in patient hospital
care. §2807-c(2-a)(a) " (2-a)(e). This assessment
is not an increase in the rates to be paid by an HMO to hospitals, but a direct
payment by the HMO to the State's general fund.
ERISA's
comprehensive regulation of employee welfare and pension benefit plans extends
to those that provide "medical, surgical, or hospital care or benefits"
for plan participants or their beneficiaries "through the purchase of
insurance or otherwise." §3(1), 29 U.S.C. § 1002(1). The federal statute does not go about protecting plan
participants and their beneficiaries by requiring employers to provide any
given set of minimum benefits, but instead controls the administration of
benefit plans, see §2, 29 U.S.C. § 1001(b), as by imposing reporting and disclosure mandates, §§101-111, 29 U.S.C. §§ 1021-1031, participation and
vesting requirements, §§201-211, 29 U.S.C. §§ 1051-1061, funding standards, §§301-308, 29 U.S.C. §§ 1081-1086, and fiduciary
responsibilities for plan administrators, §§401-414, 29 U.S.C. §§ 1101-1114. It envisions
administrative oversight, imposes criminal sanctions, and establishes a
comprehensive civil enforcement scheme. §§501-515, 29 U.S.C. §§ 1131-1145. It also pre-empts
some state law. §514, 29 U.S.C. § 1144.
Section 514(a) provides that ERISA "shall
supersede any and all State laws insofar as they . . . relate to any employee
benefit plan" covered by the statute, 29 U.S.C. § 1144(a), although pre-emption stops short of "any law of any
State which regulates insurance." §514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). (This exception
for insurance regulation is itself limited, however, by the provision that an
employee welfare benefit plan may not "be deemed to be an insurance
company or other insurer . . . or to be engaged in the business of insurance .
. . ."§514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B).) Finally, ERISA
saves from preemption "any generally applicable criminal law of a
State." §514(b)(4), 29 U.S.C. § 1144(b)(4).
On the claimed
authority of ERISA's general pre-emption provision, several commercial
insurers, acting as fiduciaries of ERISA plans they administer, joined with
their trade associations to bring actions against state officials in United
States District Court seeking to invalidate the 13%, 11%, and 9% surcharge
statutes. The New York State Conference of Blue Cross and Blue Shield plans,
Empire Blue Cross and Blue Shield (collectively the Blues), and the Hospital
Association of New York State intervened as defendants, and the New York State
Health Maintenance Organization Conference and several HMOs intervened as
plaintiffs. The District Court consolidated the actions and granted summary
judgment to the plaintiffs. 813 F. Supp. 996 (SDNY 1993).
The court found that although the surcharges "do not directly increase a
plan's costs or [a]ffect the level of benefits to be
offered" there could be "little doubt that the [s]urcharges
at issue will have a significant effect on the commercial insurers and HMOs
which do or could provide coverage for ERISA plans and thus lead, at least
indirectly, to an increase in plan costs." Id., at 1003
(footnote omitted). It found that the "entire justification for the
[s]urcharges is premised on that exact result--that
the [s]urcharges will increase the cost of obtaining
medical insurance through any source other than the Blues to a sufficient
extent that customers will switch their coverage to and ensure the economic
viability of the Blues." Ibid. (footnote omitted). The District Court
concluded that this effect on choices by ERISA plans was enough to trigger
pre-emption under §514(a) and that the surcharges were not saved by §514(b) as
regulating insurance. Id., at 10031008. The District
Court accordingly enjoined enforcement of "those surcharges against any
commercial insurers or HMOs in connection with their coverage of . . . ERISA
plans." Id., at 1012. [n.4]
The Court of Appeals
for the Second Circuit affirmed, relying on our decisions in Shawv. Delta Air Lines, Inc., 463 U.S. 85 (1983), and District of Columbiav. Greater Washington
Board of Trade, 506 U. S. ___ (1992), holding that ERISA's pre-emption clause
must be read broadly to reach any state law having a connection with, or
reference to, covered employee benefit plans. 14 F. 3d
708, 718 (1994). In the light of our decision in
Ingersoll Rand Co.v. McClendon, 498
U.S. 133, 141 (1990), the Court of Appeals abandoned its own prior decision
in Rebaldov. Cuomo, 749 F. 2d 133, 137 (1984), cert.
denied, 472 U.S. 1008 (1985), which had
drawn upon the definition of the term "State" in ERISA §514(c)(2), 29 U.S.C. § 1144(c)(2), to conclude that "a state law must `purport[] to
regulate, . . . the terms and conditions of employee benefit plans' to fall
within the preemption provision" of ERISA. 14 F.3d, at
719 (internal quotation marks omitted). Rejecting that narrower approach
to ERISA pre-emption, it relied on our statement in Ingersoll Rand that under
the applicable " `broad common sense meaning,' a state law may `relate to'
a benefit plan, and thereby be pre-empted,even if the
law is not specifically designed to affect such plans, or the effect is only
indirect." 498 U. S., at 139; see 14 F. 3d, at 718.
The Court of Appeals agreed with the trial
court that the surcharges were meant to increase the costs of certain insurance
and health care by HMOs, and held that this "purpose[ful]
interfer[ence] with the
choices that ERISA plans make for health care coverage . . . is sufficient to
constitute [a] `connection with' ERISA plans" triggering pre-emption. Id., at 719. The court's conclusion, in sum, was that
"the three surcharges `relate to' ERISA because they impose a significant
economic burden on commercial insurers and HMOs" and therefore "have
an impermissible impact on ERISA plan structure and administration." Id., at 721. In the light of its conclusion that the
surcharge statutes were not otherwise saved by any applicable exception, the
court held them pre-empted. Id., at 723. It recognized
the apparent conflict between its conclusion and the decision of the Third
Circuit in United Wire, Metal and Machine Health and Welfare Fundv. Morristown Memorial Hosp., 995 F. 2d 1179, 1191,
cert. denied, 510 U. S. ___ (1993), which held that New Jersey's similar rate
setting statute "does not relate to the plans in a way that triggers
ERISA's preemption clause." See 14 F. 3d., at 721,
n. 3. We granted certiorari to resolve this conflict, 513 U. S. ___ (1994), and
now reverse and remand.
Our past cases have recognized that the
Supremacy Clause, U. S. Const., Art. VI, may entail
pre-emption of state law either by express provision, by implication, or by a
conflict between federal and state law. See Pacific Gas & Elec. Co.v. State Energy Resources Conservation
and Development Comm'n, 461
U.S. 190, 203-204 (1983); Ricev. Santa Fe Elevator Corp., 331 U.S. 218,
230 (1947). And yet, despite the variety of these opportunities for
federal preeminence, we have never assumed lightly that Congress has derogated
state regulation, but instead have addressed claims of pre-emption with the
starting presumption that Congress does not intend to supplant state law. See
Maryland
v. Louisiana, 451 U.S. 725, 746 (1981). Indeed, in
cases like this one, where federal law is said to bar state action in fields of
traditional state regulation, see Hillsborough Countyv.
Automated Medical Laboratories, Inc., 471 U.S. 707, 719 (1985), we have worked on the "assumption that the
historic police powers of the States were not to be superseded by the Federal
Act unless that was the clear and manifest purpose of Congress." Rice,
supra, at 230. See, e.g., Cipollonev.
Liggett Group, Inc., 505 U. S. ___, ___ (1992) (slip
op., at 10-11); id., at ___ (slip op., at 3) (Blackmun, J., concurring in part,
concurring in judgment in part, and dissenting in part); Metropolitan Life Ins.
Co.v. Massachusetts, 471 U.S. 724, 740 (1985); Jonesv.
Rath
Packing Co., 430 U.S. 519 (1977); Napierv. Atlantic Coast Line R.
Co., 272 U.S. 605, 611 (1926).
Since pre-emption claims turn on Congress's
intent, Cipollone, supra, at ___ (slip op., at 10);
Shaw, supra, at 95, we begin as we do in any exercise of statutory construction
with the text of the provision in question, and move on, as need be, to the structure
and purpose of the Act in which it occurs. See, e.g.,
Ingersoll Rand, 498 U. S., at 138. The governing text of ERISA is
clearly expansive. Section 514(a) marks for pre-emption "all state laws
insofar as they . . . relate to any employee benefit plan" covered by
ERISA, and one might be excused for wondering, at first blush, whether the
words of limitation ("insofar as they . . .
relate") do much limiting.
If "relate to" were taken to extend to the furthest stretch of its
indeterminacy, then for all practical purposes pre-emption would never run its
course, for "[r]eally,
universally, relations stop nowhere, "H. James, Roderick Hudson xli (New
York ed., World's Classics 1980). But that, of course, would be to read
Congress's words of limitation as mere sham, and to read the presumption
against pre-emption out of the law whenever Congress speaks to the matter with
generality. That said, we have to recognize that our
prior attempt to construe the phrase "relate to" does not give us
much help drawing the line here.
In Shaw, we explained that
"[a] law `relates to' an employee benefit plan, in the normal sense of the
phrase, if it has a connection with or reference to such a plan." 463 U. S., at 97. The latter alternative, at least, can be
ruled out. The surcharges are imposed upon patients and HMOs, regardless of
whether the commercial coverage or membership, respectively, is ultimately
secured by an ERISA plan, private purchase, or otherwise, with the consequence
that the surcharge statutes cannot be said to make "reference to"
ERISA plans in any manner. Cf. Greater Wash. Bd. of Trade, 506 U. S., at ___
(slip op., at 4) (striking down District of Columbia law that
"specifically refers to welfare benefit plans regulated by ERISA and on
that basis alone is pre-empted"). But this still leaves us to question
whether the surcharge laws have a "connection with" the ERISA plans, and here an uncritical literalism is no more help
than in trying to construe "relate to." For the same reasons that
infinite relations cannot be the measure of pre-emption, neither can infinite
connections. We simply must go beyond the unhelpful text and the frustrating
difficulty of defining its key term, and look instead to the objectives of the
ERISA statute as a guide to the scope of the state law that Congress understood
would survive.
As we have said before, §514 indicates Congress's intent to
establish the regulation of employee welfare benefit plans "as exclusively
a federal concern." Alessiv. Raybestos Manhattan, Inc., 451 U.S. 504, 523
(1981). We have found that in passing §514(a), Congress intended
"to ensure that plans and plan sponsors would be subject to a
uniform body of benefits law; the goal was to minimize the administrative and
financial burden of complying with conflicting directives among States or
between States and the Federal Government . . ., [and to prevent] the potential
for conflict in substantive law . . . requiring the tailoring of plans and
employer conduct to the peculiarities of the law of each jurisdiction." Ingersoll-Rand, 498 U. S., at 142.
This objective was
described in the House of Representatives by a sponsor of the Act,
Representative Dent, as being to "eliminat[e]
the threat of conflicting and inconsistent State and local regulation." 120 Cong. Rec. 29197 (1974). Senator Williams made the same
point, that "with the narrow exceptions specified in the bill, the
substantive and enforcement provisions . . . are intended to preempt the field
for Federal regulations, thus eliminating the threat of conflicting or
inconsistent State and local regulation of employee benefit plans." Id., at 29933. The basic thrust of the pre-emption clause,
then, was to avoid a multiplicity of regulation in order to permit the
nationally uniform administration of employee benefit plans.
Accordingly in Shaw, for example, we had no trouble finding that
New York's "Human Rights Law, which prohibit[ed] employers from
structuring their employee benefit plans in a manner that discriminate[d] on
the basis of pregnancy, and [New York's] Disability Benefits Law, which
require[d] employers to pay employees specific benefits, clearly `relate[d] to'
benefit plans." 463 U. S., at 97. These mandates
affecting coverage could have been honored only by varying the subjects of a
plan's benefits whenever New York law might have applied, or by requiring every
plan to provide all beneficiaries with a benefit demanded by New York law if
New York law could have been said to require it for any one beneficiary.
Similarly, Pennsylvania's law that prohibited "plans from . . . requiring
reimbursement [from the beneficiary] in the event of recovery from a third
party" related to employee benefit plans within the meaning of §514(a). FMC Corp. v. Holliday, 498 U.S. 52,
60 (1990). The law "prohibit[ed] plans from being structured in a
manner requiring reimbursement in the event of recovery from a third
party" and "require[d] plan providers to calculate benefit levels in
Pennsylvania based on expected liability conditions that differ from those in States
that have not enacted similar antisubrogation
legislation," thereby "frustrat[ing] plan
administrators' continuing obligation to calculate uniform benefit levels
nationwide." Ibid. Pennsylvania employees who recovered in negligence
actions against tortfeasors would, by virtue of the
state law, in effect have been entitled to benefits in excess of what plan
administrators intended to provide, and in excess of what the plan provided to
employees in other States. Along the same lines, New Jersey could not prohibit plans
from setting workers' compensation payments off against employees' retirement
benefits or pensions, because doing so would prevent plans from using a method
of calculating benefits permitted by federal law. Alessi, supra, at 524. In
each of these cases, ERISA pre-empted state laws that mandated employee benefit
structures or their administration. Elsewhere, we have held that state laws
providing alternate enforcement mechanisms also relate to ERISA plans,
triggering pre-emption. See Ingersoll Rand, supra.
Both the purpose and the effects of the New York surcharge
statutes distinguish them from the examples just given. The charge
differentials have been justified on the ground that the Blues pay the
hospitals promptly and efficiently and, more importantly, provide coverage for
many subscribers whom the commercial insurers would reject as unacceptable
risks. The Blues' practice, called open enrollment, has consistently been cited
as the principal reason for charge differentials, whether the differentials
resulted from voluntary negotiation between hospitals and payers as was the
case prior to the NYPHRM system, or were created by the surcharges as is the
case now. See, e.g., Charge Differential Analysis Committee, New York State
Hospital Review and Planning Council, Report (1989), reprinted in Joint
Appendix in No. 93-7132 (CA2), pp. 702, 705, 706 (J.A.CA2); J. Corcoran,
Superintendent of Insurance, Update of 1984 Position Paper of The New York
State Insurance Department on Inpatient Reimbursement Rate Differential
Provided Non Profit Insurers 6-7 (1988) (J.A.CA2 699-700); R. Trussell, Prepayment for Hospital Care In New York State
170 (1958) (J.A.CA2, at 664) (Trussell); Thorpe, Does
All Payer Rate Setting Work? The Case of the New York
Prospective Hospital Reimbursement Methodology, 12 J. Health Politics, Policy,
& Law 391, 402 (1987). [n.5] Since the surcharges are presumably
passed on at least in part to those who purchase commercial insurance or HMO
membership, their effects follow from their purpose. Although there is no
evidence that the surcharges will drive every health insurance consumer to the
Blues, they do make the Blues more attractive (or less unattractive) as
insurance alternatives and thus have an indirect economic effect on choices
made by insurance buyers, including ERISA plans.
An indirect economic
influence, however, does not bind plan administrators to any particular choice
and thus function as a regulation of an ERISA plan itself; commercial insurers
and HMOs may still offer more attractive packages than the Blues. Nor does the
indirect influence of the surcharges preclude uniform administrative practice
or the provision of a uniform interstate benefit package if a plan wishes to
provide one. It simply bears on the costs of benefits and the relative costs of
competing insurance to provide them. It is an influence that can affect a
plan's shopping decisions, but it does not affect the fact that any plan will
shop for the best deal it can get, surcharges or no surcharges.
There is, indeed, nothing remarkable about surcharges on hospital
bills, or their effects on overall cost to the plans and the relative
attractiveness of certain insurers. Rate variations among hospital providers
are accepted examples of cost variation, since hospitals have traditionally
"attempted to compensate for their financial shortfalls by adjusting their
price . . . schedules for patients with commercial health insurance." Thorpe, supra, at 394. Charge differentials for commercial
insurers, even prior to state regulation, "varied dramatically across
regions, ranging from 13 to 36 percent," presumably reflecting the
geographically disparate burdens of providing for the uninsured. Id.,at 400; see id., at 398-399;
see also, e.g., Trussell 170 (J.A.CA2, at 664); Bobinski, Unhealthy Federalism: Barriers to Increasing
Health Care Access for the Uninsured, 24 U. C. Davis L. Rev. 255, 267, and n.
44 (1990).
If the common character of
rate differentials even in the absence of state action renders it unlikely that
ERISA pre-emption was meant to bar such indirect economic influences under
state law, the existence of other common state action with indirect economic
effects on a plan's costs leaves the intent to pre-empt even less likely.
Quality standards, for example, set by the State in one subject area of
hospital services but not another would affect the relative cost of providing
those services over others and, so, of providing different packages of health
insurance benefits. Even basic regulation of employment conditions will
invariably affect the cost and price of services.
Quality control and workplace regulation, to be sure, are
presumably less likely to affect premium differentials among competing
insurers, but that does not change the fact that such state regulation will
indirectly affect what an ERISA or other plan can afford or get for its money.
Thus, in the absence of a more exact guide to intended pre-emption than §514,
it is fair to conclude that mandates for rate differentials would not be
pre-empted unless other regulation with indirect effects on plan costs would be
superseded as well. The bigger the package of regulation with indirect effects
that would fall on the respondent's reading of §514, the less likely it is that
federal regulation of benefit plans was intended to eliminate state regulation
of health care costs.
Indeed, to read the pre-emption provision as
displacing all state laws affecting costs and charges on the theory that they
indirectly relate to ERISA plans that purchase insurance policies or HMO
memberships that would cover such services, would effectively read the limiting
language in §514(a) out of the statute, a conclusion that would violate basic
principles of statutory interpretation and could not be squared with our prior
pronouncement that "[p]reemption does not occur
. . . if the state law has only a tenuous, remote, or peripheral connection
with covered plans, as is the case with many laws of general
applicability." District of Columbiav.
Greater Washington Board of Trade, 506 U.
S. ___, ____ n. 1 (1992) (slip op., at 4, n. 1) (internal
quotation marks and citations omitted). While Congress's
extension of pre-emption to all "state laws relating to benefit
plans" was meant to sweep more broadly than "state laws dealing with
the subject matters covered by ERISA[,] reporting, disclosure, fiduciary
responsibility, and the like," Shaw, 463 U. S., at 98, and n. 19, nothing
in the language of the Act or the context of its passage indicates that
Congress chose to displace general health care regulation, which historically
has been a matter of local concern, see Hillsborough Countyv.
Automated Medical Laboratories, Inc., 471 U.S. 707, 719 (1985); 1 B. Furrow, T. Greaney,
S. Johnson, T. Jost, & R. Schwartz, Health Law §§1-6,
1-23 (1995).
In sum, cost uniformity was almost certainly
not an object of pre-emption, just as laws with only an indirect economic
effect on the relative costs of various health insurance packages in a given
State are a far cry from those "conflicting directives" from which
Congress meant to insulate ERISA plans. See 498 U. S., at 142. Such state laws
leave plan administrators right where they would be in any case, with the
responsibility to choose the best overall coverage for the money. We therefore
conclude that such state laws do not bear the requisite "connection
with" ERISA plans to trigger pre-emption.
This conclusion is
confirmed by our decision in Mackeyv. LanierCo
ection Agency & Service, Inc., 486 U.S. 825 (1988), which held that
ERISA pre-emption falls short of barring application of a general state
garnishment statute to participants' benefits in the hands of an ERISA welfare
benefit plan. We took no issue with the argument of the Mackeyplan's
trustees that garnishment would impose administrative costs and burdens upon
benefit plans, id., at 831, but concluded from the text and structure of
ERISA's pre-emption and enforcement provisions that "Congress did not
intend to forbid the use of state law mechanisms of executing judgments against
ERISA welfare benefit plans, even when those mechanisms prevent plan
participants from receiving their benefits." Id., at 831-832. If a law
authorizing an indirect source of administrative cost is not pre-empted, it
should follow that a law operating as an indirect source of merely economic
influence on administrative decisions, as here, should not suffice to trigger
pre-emption either.
The commercial challengers counter by invoking the earlier case of
Metropolitan Life Insurance Co.v. Massachusetts, 471 U.S. 724 (1985), which considered
whether a State could mandate coverage of specified minimum mental health care
benefits by policies insuring against hospital and surgical expenses. Because
the regulated policies included those bought by employee welfare benefit plans,
we recognized that the law "directly affected" such plans. Id., at 732. Although we went on to hold that the law was
ultimately saved from preemption by the insurance savings clause, §514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A), respondents proffer the first steps in our decision as
support for their argument that all laws affecting ERISA plans through their
impact on insurance policies "relate to" such plans and are
pre-empted unless expressly saved by the statute. The challengers take
Metropolitan Lifetoo far, however.
The Massachusetts statute applied not only to "
`[a]ny blanket or general policy of insurance
. . . or any policy of accident and sickness insurance' " but also to
" `any employees' health and welfare fund which provide[d] hospital
expense and surgical expense benefits.' " 471 U.
S., at 730, n. 11. In fact, the State did not even try to defend its law as
unrelated to employee benefit plans for the purpose of §514(a). Id., at 739. As a result, there was no reason to distinguish
with any precision between the effects on insurers that are sufficiently
connected with employee benefit plans to "relate to" the plans and
those effects that are not. It was enough to address the distinction bluntly,
saying on the one hand that laws like the one in Metropolitan Life relate to
plans since they "bea[r]
indirectly but substantially on all insured benefit plans, . . . requir[ing] them to purchase the mental health benefits
specified in the statute when they purchase a certain kind of common insurance
policy," id., at 739, but saying on the other that "laws that
regulate only the insurer, or the way in which it may sell insurance, do not
`relate to' benefit plans," id., at 741. Even this basic distinction
recognizes that not all regulations that would influence the cost of insurance
would relate to employee benefit plans within the meaning of §514(a). If, for
example, a State were to regulate sales of insurance by commercial insurers
more stringently than sales by insurers not for profit, the relative cost of
commercial insurance would rise; we would nonetheless say, following
Metropolitan Life, that such laws "do not `relate to' benefit plans in the
first instance." Ibid. . And on the same
authority we would say the same about the basic tax exemption enjoyed by non
profit insurers like the Blues since the days long before ERISA, see Marmor, New York's Blue Cross and Blue Shield, 1934-1990:
The Complicated Politics of Nonprofit Regulation, 16 J. Health Politics,
Policy, & Law 761, 769 (1991) (tracing New York Blue Cross's special tax
treatment as a prepayment organization back to 1934); 1934 N. Y. Laws, ch. 595; and yet on respondent's theory the exemption would
necessarily be pre-empted as affecting insurance prices and plan costs.
In any event, Metropolitan Life can not carry the weight the
commercial insurers would place on it. The New York surcharges do not impose
the kind of substantive coverage requirement binding plan administrators that
was at issue in Metropolitan Life. Although even in the absence of mandated
coverage there might be a point at which an exorbitant tax leaving consumers
with a Hobson's choice would be treated as imposing a substantive mandate, no
showing has been made here that the surcharges are so prohibitive as to force
all health insurance consumers to contract with the Blues. As they currently
stand, the surcharges do not require plans to deal with only one insurer, or to
insure against an entire category of illnesses they might otherwise choose to
leave without coverage.
It remains only to speak further on a point
already raised, that any conclusion other than the one we draw would bar any
state regulation of hospital costs. The basic DRG system (even without any
surcharge), like any other interference with the hospital services market,
would fall on a theory that all laws with indirect economic effects on ERISA
plans are pre-empted under §514(a). This would be an unsettling result and all
the more startling because several States, including New York, regulated
hospital charges to one degree or another at the time ERISA was passed, see,
e.g., Cal. Ins. Code Ann. §11505 (West 1972) (nonprofit hospitals); Colo. Rev.
Stat. §§10-16-130, 10-17-108(2)%108(3), 10-17-119(b) (1973); Conn. Gen. Stat. §§33-166,
33-172 (medical service corporations), 33-179k (health care centers) (1975);
Md. Ann. Code, Art. 43, §§568H, 568U, 568W (Michie
Supp. 1976); Mass. Gen. Laws Ann. ch. 176A, §§5, 6
(West 1958), as amended by 1968 Mass. Acts, ch. 432, §2
and 1969 Mass. Acts, ch. 874, §1 (hospital service
corporations), Mass. Gen. Laws Ann., ch. 176B, §4
(1958 West and Supp. 1987) (medical service corporations); Health Maintenance
Organization Act, 1973 N. J. Laws, ch. 337, §8, N. J.
Stat. Ann. §26:2J-8(b) (West Supp. 1986); N. Y. Pub. Health
Law §2807 (McKinney 1971); 1973 Wash. Laws, ch. 5, §15,
Rev. Code Wash. Ann. §70.39.140 (West 1975). And yet there is not so
much as a hint in ERISA's legislative history or anywhere else that Congress
intended to squelch these state efforts.
Even more revealing is the
National Health Planning and Resources Development Act of 1974 (NHPRDA), Pub.
L. 93-641, 88 Stat. 2225, §§1-3, repealed by Pub. L. 99-660, title VII, §701(a),
100 Stat. 3799, which was adopted by the same Congress that passed ERISA, and
only months later. The NHPRDA sought to encourage and help fund state responses
to growing health care costs and the widely diverging availability of health
services. §2, 88 Stat. 2226-2227; see generally National Gerimedical Hospital
and Gerontology Centerv. Blue Cross of Kansas City, 452 U.S. 378, 383-388 (1981). It
provided for the organization and partial funding of regional "health
systems agencies" responsible for gathering data as well as for planning
and developing health resources in designated health service areas. 88 Stat. 2229-2242. The scheme called for designating state
health planning and development agencies in qualifying States to coordinate
development of health services policy. Id., at 2242-44. These state agencies,
too, would be eligible for federal funding, id., at 2249, including grants
"[f]or the purpose of demonstrating the effectiveness of State Agencies
regulating rates for the provision of health care . . . within the State."
Ibid. Exemption from ERISA pre-emption is nowhere mentioned as a prerequisite
to the receipt of such funding; indeed, the only legal prerequisite to be
eligible for rate regulation grants was "satisfactory evidence that the
State Agency has under State law the authority to carry out rate regulation
functions in accordance with this section . . . ."Ibid.
The Secretary was required
to provide technical assistance to the designated agencies by promulgating
"[a] uniform system for calculating rates to be charged to health insurers
and other health institutions payors by health service institutions." Id., at 2254. Although the NHPRDA placed substantive
restrictions on the system the Secretary could establish, the subject matter
(and therefore the scope of envisioned state regulation) covers the same ground
that New York's surcharges tread. The Secretary's system was supposed to:
"(A) [b]e based on an all inclusive rate
for various categories of patients . . . [,]
%(B) [p]rovide
that such rates reflect the true cost of providing services to each such
category of patients . . . [,]
%(C) [p]rovide
for an appropriate application of such system in the different types of
institutions . . . [, and]
%(D) [p]rovide
that differences in rates to various classes of purchasers (including health
insurers, direct service payors, and other health institution payors) be based
on justified and documented differences in the costs of operation of health
service institutions made possible by the actions of such purchasers."
Id., at 2254-55.
The last quoted
subsection seems to envision a system very much like the one New York put in
place, but the significant point in any event is that the statute's provision
for comprehensive aid to state health care rate regulation is simply
incompatible with pre-emption of the same by ERISA. To interpret ERISA's
preemption provision as broadly as respondent suggests, would have rendered the
entire NHPRDA utterly nugatory, since it would have left States without the
authority to do just what Congress was expressly trying to induce them to do by
enacting the NHPRDA. Given that the NHPRDA was enacted after ERISA and by the
same Congress, it just makes good sense to reject such an interpretation. [n.6]
That said, we do not hold today that ERISA pre-empts only direct
regulation of ERISA plans, nor could we do that with fidelity to the views expressed
in our prior opinions on the matter. See, e.g., Ingersoll
Rand, 498 U. S., at 139; Pilot Life Ins. Co.v.
Dedeaux, 481 U.S. 41, 47-48
(1987); Shaw, 463 U. S., at 98. We acknowledge that a state law might
produce such acute, albeit indirect, economic effects, by intent or otherwise,
as to force an ERISA plan to adopt a certain scheme of substantive coverage or
effectively restrict its choice of insurers, and that such a state law might
indeed be pre-empted under §514. But as we have shown, New York's surcharges do
not fall into either category; they affect only indirectly the relative prices
of insurance policies, a result no different from myriad state laws in areas
traditionally subject to local regulation, which Congress could not possibly
have intended to eliminate.
The judgment of the Court of Appeals is therefore reversed and the
case remanded for further proceedings consistent with this opinion.
It isso ordered.
1 Medicare rates are set by the
Federal Government unless States obtain an express authorization from the
United States Department of Health and Human Services. See 42
U.S.C.
§ 1395et
seq.;
see also infra, Part II D.
2 References are made to the laws of New York as
they stood at the times relevant to this litigation.
3 Under certain circumstances, New York law
permits HMOs to negotiate their own hospital payment schedules subject to state
approval. §2807-c(2)(b)(i).
4 The District Court and the Court of Appeals both held that the
injunctive remedy was not prohibited by the Tax Injunction Act, 28 U.S.C. § 1341 which provides that
federal district courts "shall not enjoin, suspend or restrain the
assessment . . . of any tax under State law where a plain, speedy and efficient
remedy may be had in the courts of such State." Although these courts
considered the surcharges to be taxes, they found no "plain, speedy and
efficient remedy" to exist in state court, since ERISA §502(e), 29 U.S.C. § 1132(e)(1)
(1988 ed., Supp. V), divests state courts of jurisdiction over such claims. See
813
F. Supp., at 1000-1001; 14 F. 3d 708,
713-714 (CA2 1994). Neither party challenges this conclusion
and we have no occasion to examine it.
Nor do we address the surcharge statute
insofar as it applies to self insured funds. The trial court's ERISA analysis
originally led it to enjoin defendants "from enforcing those surcharges
against any commercial insurers or HMOs in connection with their coverage of .
. . ERISA plans," without any further mention of self insured funds. 813 F. Supp., at 1012. After staying its decision as to the
13% surcharge pending appeal, see id., at 1012-1015, it ordered all named
parties, including the Travelers Insurance Company (which served as fiduciary
to a self insured plan), to pay that surcharge whenever required by state law,
see Travelers Ins. Co.v. New York State Health
Maintenance Conference, No. 92 Civ. 3999 (SDNY Apr.
27, 1993), reprinted in Brief for National Carriers' Conference Committee, as
Amicus Curiae 29a-31a. The Court of Appeals, in turn, did not expressly address
this application of the surcharge and, accordingly, we leave it for
consideration on remand.
5 Although respondents argue that the surcharges have become
superfluous now that all insurers have become subject to certain open
enrollment requirements, see Brief for Respondents Travelers Insurance Co. et
al. 6-7, n. 5; 1992 N. Y. Laws, ch. 501, §4
(effective April 1, 1993), N. Y. Ins. Law §3231 (Supp. 1995), it is not our
responsibility to review the continuing substantive rationale for the
surcharges. Even so, the surcharges may well find support in an effort to
compensate the Blues for the current makeup of their insurance pool, which presumably
continues to reflect their longer history of open enrollment policies. See J.
Corcoran, Superintendent of Insurance, Position Paper of New York State
Insurance Department on Inpatient Reimbursement Rate Differential Provided Non
Profit Insurers 8 (1984) (J.A.CA2, at 679) ("If there is any possibility
of an abrupt abandonment of the current hospital discount, consideration should
be given to the past history of health insurance enrollment in New York which
has left the Blue Cross/Blue Shield Plans with a core of uninsurables
obtained over the years and the ongoing liability resulting from that
enrollment").
6 The history of Medicare regulation makes the same point,
confirming that Congress never envisioned ERISA pre-emption as blocking state
health care cost control, but rather meant to encourage and rely on state
experimentation like New York's. See generally K. Davis, G. Anderson, D.
Rowland, & E. Steinberg, Health Care Cost Containment 23-25, 81, 99 (1990).
Since the time DRG systems were tried out in the 1960's and 1970's, Congress
has consistently shown its awareness and encouragement of controlled payment
alternatives to the federal regulatory scheme. The Social Security Amendments
of 1967, Pub. L. 90-248, § 402(a), 81 Stat. 930-931, as amended 42 U.S.C. § 1395b-1, for example, granted
the Secretary of Health, Education, and Welfare (now Health and Human Services)
the authority to waive Medicare rules to allow for physician and hospital
reimbursement according to approved state payment schedules. In
the Social Security Amendments of 1972, Pub. L. 92-603, §222(a)(5), 86
Stat. 1391, Congress specifically called upon the Secretary to report on
prospective reimbursement schemes that had been thus favored already or could
be in the future. Later on, after the development of all payor rate setting
schemes like the NYPHRM and New Jersey's Health Care Cost Reduction Act of
1978, 1978 N. J. Laws, ch. 83, Congress's Medicare
waiver provisions evolved to the point of explicit reference to a State's
commitment to apply its hospital reimbursement control system to a substantial
portion of hospitals and inpatient services statewide. See 42 U.S.C. § 1395ww(c)(1),
(c)(5)(A). Indeed, in its Report on the Social Security Amendments of 1983, the
House Committee on Ways and Means recommended that States should not be held to
traditional DRG based reimbursement systems. "State systems provide a
laboratory for innovative methods of controlling health care costs, and should,
therefore, not be limited to one methodology." H. R. Rep. No. 98-25, pt.
1, pp. 146-147 (1983). The Committee concluded that "State systems
covering all payors have proven effective in reducing health costs and should
be encouraged. Such State programs may be useful models for our national
system." Id., at 147-148. While the history of Medicare waivers and
implementing legislation enacted after ERISA itself is, of course, not
conclusive proof of the congressional intent behind ERISA, the fact that
Congress envisioned state experiments with comprehensive hospital reimbursement
regulation supports our conclusion that ERISA was not meant to pre-empt basic
rate regulation.