The Sixth Circuit Court of Appeals, in BlueCross BlueShield of Tennessee, Inc. v. Nicolopoulos, determined that an insurer, which also acted as a plan fiduciary, could not evade state insurance law requirements under ERISA’s preemption rule.
Law. ERISA generally preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” A state law relates to an ERISA plan if it has: (1) a “connection with” or (2) a “reference to” an ERISA plan. However, ERISA’ s “savings clause” provides that 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.” So, a state may enforce its insurance laws, including “mandated benefit laws,” against an insurer
Facts. A participant in a group health plan covered by BlueCross, who lived in New Hampshire, received treatment for infertility, but when she filed a claim for the treatment, BlueCross, which also acted as the plan administrator, denied the claim, stating that the plan document specifically excluded this type of treatment. The plan provisions specify that it is subject to Tennessee law, which does not require coverage for fertility treatment.
The New Hampshire Insurance Commission then informed BlueCross that, as an issuer of a group health insurance policy to an employer with New Hampshire employees, its coverage must follow New Hampshire’s insurance mandates, which includes coverage for infertility treatments. The Commission then proceeded to take regulatory action against BlueCross. BlueCross responded that it was acting as an ERISA-plan fiduciary and not an insurer when it denied benefits because the plan document specifically denied coverage for fertility benefits. It sued in Federal court to enjoin the Commission’s regulatory action, but the district court refused to do so.
Appeals Court. The Sixth Circuit began its decision by noting that the dispute was based on whether the Commission brought action against BlueCross as an insurer or as an ERISA-plan fiduciary. It determined that the Commission was targeting BlueCross as an insurer, not as a fiduciary, because the issue was whether BlueCross had violated New Hampshire insurance law requiring coverage for medically necessary fertility treatment. “These laws patently concern insurance regulation and could apply to BlueCross only in its capacity as an insurer.”
The Sixth Circuit also noted that the U.S. Supreme Court had previously ruled that insurers who also function as ERISA-plan fiduciaries cannot use their fiduciary status to evade enforcement of state insurance laws and that fiduciary duties created by the terms of an ERISA-governed employee benefit plan “are not an escape hatch” from valid state insurance regulations.
Therefore, the Sixth Circuit ruled in favor of the Commission and permitted it to continue its regulatory action against BlueCross.