In Hansen v. Group Health Plan Cooperative, the Ninth Circuit Court of Appeals ruled that a state’s unfair trade practices and mental health parity laws will not be preempted by ERISA unless certain requirements are met.
Facts: A group of psychiatric service providers sued an insurance company under the state’s unfair trade practices law, claiming that the insurer’s use of certain screening criteria for mental health care coverage: (i) is inherently unfair and deceptive because the treatment guidance is biased against mental health care; (ii) deceptively uses the guidelines to avoid paying for mental health care coverage; and (iii) the insurer unfairly competes by employing its own psychotherapists. The providers also claimed violations of the state’s mental health parity law.
The insurer moved the case to federal court on the grounds that the providers had been assigned benefits by ERISA plan participants, and then asserted that the state law claims were preempted by ERISA.
Law: In general, ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” However, ERISA’s “savings clause” says ERISA does not preempt “any law of any State which regulates insurance, banking, or securities.” With regards to insurance laws, a law is not preempted if it satisfies the following two elements: (i) it must be “specifically directed toward entities engaged in insurance”; and (ii) it “must substantially affect the risk pooling arrangement between the insurer and the insured.”
In this case, the insurer was not claiming the insurance law exception.
Decision: The court began by noting that “Once completely preempted, a state-law claim ceases to exist.” However, the court noted that under an earlier U.S. Supreme Court ruling, a state-law is completely preempted only if “(1) the plaintiff, at some point in time, could have brought the claim under ERISA and (2) there is no other independent legal duty that is implicated by the defendant’s actions.”
Therefore, the controlling question is whether a claim relies on the violation of a legal duty that arises independently of the plaintiffs’, or their assignor’s, ERISA plan rights
The court then stated that any duty for the insurer to refrain from unfairly harming its competitors arises under state law, not under the terms of an ERISA plan. This claim would exist regardless of whether any ERISA plans were involved, because the insurer has an independent duty to refrain from engaging in unfair and deceptive business practices. Similarly, even if ERISA plans weren’t involved, the insurer would have to abide by the mental health parity law.
The court therefore ruled that the lawsuit was not preempted by ERISA and allowed the providers to continue their state law claims.