America's Health Insurance Plans v. Ralph Hudgens

Citations: 742 F.3d 1319; 57 Employee Benefits Cas. (BNA) 1913; 2014 U.S. App. LEXIS 2771; 2014 WL 563604Docket: 13-10349

Court: Court of Appeals for the Eleventh Circuit; February 14, 2014; Federal Appellate Court

Original Court Document: View Document

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The case involves an appeal by Ralph T. Hudgens, Georgia's Insurance and Safety Fire Commissioner, from a preliminary injunction issued by the District Court for the Northern District of Georgia. This injunction prevents Hudgens from enforcing specific provisions of the Georgia Code that were deemed preempted by Section 514 of the Employee Retirement Income Security Act of 1974 (ERISA). The legal context is framed by two models employers use to provide health benefits: insured plans, where employers contract with insurance companies to cover health costs, and self-funded plans, where employers directly pay health claims. The appeal specifically concerns self-funded health benefit plans and their third-party administrators (TPAs). 

The background notes the enactment of Georgia’s Insurance Delivery Enhancement Act of 2011 (IDEA), which modified existing Prompt Pay laws that mandated insurers to process claims within fifteen working days and pay interest for late payments. These laws, initially applicable to insured plans, excluded self-funded ERISA plans from the definition of "insurer," thereby highlighting a legal distinction that underpins the current dispute. The court affirmed the District Court's decision, reinforcing the preemption of state law by federal ERISA provisions concerning self-funded plans.

Georgia's health benefits payors are increasingly exempt from the Prompt Pay laws due to a trend towards self-funded employee health plans. In response, the Georgia General Assembly enacted IDEA, which aims to extend prompt-pay requirements to self-funded plans and their third-party administrators (TPAs) previously excluded from the original 1999 statute. 

**Section 4** of IDEA amends the Georgia Code regarding insurance administrators, broadening the definition to include entities processing claims for self-funded plans or TPAs. It eliminates the exemption for businesses solely administering ERISA-preempted employee benefit plans and establishes that administrators must comply with the Prompt Pay statute unless the self-insured plan lacks sufficient funding to cover claims.

**Section 5** revises the Prompt Pay statute's requirements, imposing stricter deadlines for claims payment—fifteen days for electronic claims and thirty days for paper claims. It lowers the interest rate on late payments from eighteen percent to twelve percent and allows the Commissioner to penalize insurers failing to process at least ninety-five percent of claims timely. The section also updates definitions within the Prompt Pay statute to include self-insured plans and expands the definition of “insurer” to encompass ERISA-regulated self-funded plans and their administrators.

**Section 6** introduces a new section in the Georgia Code governing payments by administrators and insurers to health care providers under health benefit plans, mirroring the requirements and penalties established in Section 5. However, Section 6 defines “insurer” differently, excluding self-insured health plans and certain administrators while including traditional accident and sickness insurers involved in health plan financing or delivery.

Health benefit plans under Section 6 include self-insured plans. On August 28, 2012, America’s Health Insurance Plans (AHIP) filed a declaratory judgment action against the Commissioner, who enforces IDEA, claiming that Sections 4, 5, and 6 of IDEA, as applied to self-funded health plans and third-party administrators (TPAs), are preempted by ERISA. AHIP sought a preliminary injunction to prevent the Commissioner from enforcing these provisions, which the district court granted on September 14, 2012, determining that they were preempted by ERISA Section 514. An interlocutory appeal followed, primarily arguing that the district court erred in its preemption finding.

Before evaluating the preliminary injunction, jurisdictional issues were addressed, as the Commissioner contested AHIP's standing and claimed that the Tax Injunction Act barred the suit. The district court ruled that AHIP had standing and that the Tax Injunction Act did not apply, denying the Commissioner’s motion to dismiss.

The Commissioner appealed the standing determination, arguing that AHIP did not demonstrate injuries to itself or its members and that discovery on standing should have been allowed. To establish standing under Article III, AHIP must show a concrete injury, a causal connection between the injury and the conduct, and that a favorable decision would redress the injury. An injury is considered imminent if it is likely to occur, not abstract or hypothetical. Additionally, an association like AHIP can sue on behalf of its members if those members would have standing, the interests sought are relevant to the organization's purpose, and individual member participation is not required for the claim or relief sought.

The Commissioner disputes whether AHIP adequately demonstrated an injury in fact to one of its members but does not contest the district court's conclusions regarding the second and third prongs of the CAMP analysis. The district court determined that with the implementation of IDEA, AHIP’s members would face either compliance costs or penalties for non-compliance, supported by the Commissioner’s public intent to enforce the prompt-pay requirements. The court cited that the allegations in the Complaint and the Executive Vice President’s declaration provided sufficient basis for the imminent injury to AHIP's members. The Commissioner’s argument regarding the lack of opportunity for discovery on standing was rejected, as no discovery requests were made during the proceedings. 

Additionally, the Commissioner claims that AHIP's lawsuit is barred by the Tax Injunction Act, which prevents federal courts from interfering with state tax systems. The Commissioner argues that fees and fines under IDEA classify as "taxes" because they benefit the public and can be contested through administrative and judicial processes. However, this argument was dismissed since IDEA is regulatory and not designed to generate revenue, thus the district court maintains jurisdiction as the challenged provisions primarily aim to regulate payment practices to healthcare providers.

The Commissioner indicated that the Individuals with Disabilities Education Act (IDEA) aims to tackle the issue of Third Party Administrators (TPAs) of health benefit plans failing to process medical claims promptly. It is noted that since a regulatory agency administers IDEA’s penalties, this suggests that its purpose is not revenue generation, as established in case law. Specifically, assessments imposed by legislatures are typically deemed taxes, whereas those imposed by administrative agencies are not. Consequently, fees and penalties under IDEA are not classified as taxes, allowing the Tax Injunction Act to not impede the current suit.

The focus then shifts to the district court's preliminary injunction, specifically regarding whether Sections 4, 5, and 6 of IDEA are preempted by the Employee Retirement Income Security Act (ERISA). The standard for reviewing a preliminary injunction includes assessing the moving party's likelihood of success, potential irreparable injury, the balance of harms, and the public interest. The court emphasized that granting a preliminary injunction is a significant remedy that requires clear establishment of each criterion.

The Commissioner disputes the district court's findings on these elements, particularly questioning the determination that Sections 4, 5, and 6 of IDEA are preempted by ERISA. The Constitution grants Congress the authority to preempt state law, which can occur through express or conflict preemption. AHIP claimed the provisions were expressly preempted by ERISA’s Section 514 and also presented an argument for conflict preemption. The district court found the IDEA provisions were expressly preempted, thus not addressing the conflict preemption arguments, a conclusion that the current analysis affirms.

ERISA’s express preemption under Section 514(a) supersedes state laws relating to employee benefit plans. However, this preemption is limited by the Saving Clause, which preserves state laws regulating insurance, banking, or securities. The Deemer Clause further clarifies that ERISA plans are not considered insurance companies for state law purposes. The analysis of preemption begins by assessing whether a law "relates to" ERISA plans; if it does, the Saving Clause is evaluated, followed by the applicability of the Deemer Clause.

In this context, the court evaluates whether provisions of the IDEA relate to self-funded ERISA plans. Although ERISA's preemption is broad, the "relates to" requirement must not be interpreted too expansively. The Supreme Court's precedent indicates that a state law relates to an ERISA plan if it has a connection to it, but warns against overly broad interpretations that could negate preemption.

The court concludes that Sections 4, 5, and 6 of IDEA impermissibly relate to ERISA plans by imposing specific timeliness requirements for processing claims, which contradict ERISA’s objective of establishing a uniform administrative scheme for claims processing. These provisions would create varied obligations for employers with self-funded plans across states, undermining Congress's intent for consistency in benefit administration.

The Commissioner contends that only state statutes directly regulating substantive aspects of ERISA plans "relate to" them, arguing that the IDEA’s prompt-pay and notice requirements are procedural and thus not applicable. This argument is rejected, as the Supreme Court has established that ERISA aims for a uniform administrative scheme for claims processing and benefits disbursement. The district court pointed out that while IDEA’s requirements may not directly change coverage decisions, they compel actions from plans and administrators, influencing benefit payments in cases of late responses. 

Furthermore, the Commissioner claims that IDEA cannot be connected to ERISA since it regulates non-fiduciary third-party administrators (TPAs) and medical providers, which he asserts are not ERISA entities. This argument fails, as prior rulings have indicated that ERISA's goal of uniform benefit regulation prevails over such distinctions. In Jones v. LMR International, state law claims against non-ERISA entities were preempted when they affected relations among principal ERISA entities.

The discussion also addresses the implications of the Saving and Deemer Clauses. The district court determined that the challenged IDEA provisions fall under the Saving Clause, which exempts state laws from ERISA preemption if they regulate insurance. For the Saving Clause to apply, the law must target insurance entities and significantly impact the risk pooling between insurers and insureds. The district court found that the IDEA provisions meet these criteria, particularly noting that the timeliness requirements influence the agreement between insurers and beneficiaries, thus affecting the risk arrangement.

AHIP acknowledges that the Insurance Discrimination Enforcement Act (IDEA) targets entities engaged in insurance but contests whether its timeliness amendments significantly impact the risk pooling arrangement. The Supreme Court's framework for evaluating state laws that regulate insurance, particularly from the Miller case, suggests that a law aimed at insurance companies does not qualify under the Saving Clause unless it substantially affects the insurer-insured risk pooling arrangement. The Court clarified that state laws need not alter insurance policy terms to apply under the Saving Clause; they simply need to influence the risk pooling dynamics.

AHIP argues that the IDEA amendments do not modify the permissible insurance contracts, citing the Fifth Circuit's Ellis case, which deemed IDEA provisions as purely remedial. The district court distinguishes this by stating that IDEA imposes specific requirements on insurers and administrators beyond mere remedies. It highlights that all health insurance policies must include Georgia's timeliness provisions.

While the inclusion of IDEA's requirements in self-funded policies is not determinative, it is noted that these requirements cater primarily to medical providers and resemble the remedial nature observed in Ellis. However, Georgia’s timeliness standards differ from the notice-prejudice rules referenced in Miller, which dictate coverage responsibilities for late claims.

Despite recognizing that Georgia's prompt pay requirements and other laws affect the interactions between insurers and insureds, the court defers a definitive conclusion on their regulatory impact. It concurs with the district court's interpretation of the Deemer Clause, which stipulates that states can regulate insured plans indirectly through insurers, while self-funded plans are exempt from such state regulations. The IDEA's provisions on payment timeliness for self-funded ERISA plans extend Georgia's prompt pay laws, leading to the conclusion that these provisions are preempted by ERISA Section 514.

The district court's ruling that AHIP is likely to succeed on the merits of its claim is upheld. The Commissioner contended that the district court erred in finding that AHIP met the requirements for a preliminary injunction. The court found that AHIP’s members would incur irreparable injury if Sections 4, 5, and 6 of IDEA were enforced. Compliance would necessitate significant costs, including modifications to claims processing systems, increased employee time, and preparation of quarterly reports for Georgia regulators. The Commissioner’s intent to enforce IDEA indicated that without an injunction, AHIP's members would face either compliance costs with a preempted state law or potential penalties. The district court also determined that imposing a preliminary injunction would not harm the Commissioner or the public interest. Upon review, it was concluded that the district court did not abuse its discretion in finding irreparable injury and balancing equities in favor of the injunction. The enforcement of Sections 4, 5, and 6 of IDEA is viewed as an impermissible infringement on federal law, leading to the affirmation of the district court’s order to preliminarily enjoin these sections. Frustration of federal statutes is not in the public interest, and no harm results from a state's nonenforcement of invalid legislation.