Safeco Life Insurance Company v. Josephine W. Musser, in Her Capacity as Wisconsin Commissioner of Insurance, and the Wisconsin Health Insurance Risk Sharing Plan
Docket: 94-1657
Court: Court of Appeals for the Seventh Circuit; September 12, 1995; Federal Appellate Court
Wisconsin imposes fees on health insurers to fund the Health Insurance Risk Sharing Plan (HIRSP), which provides health insurance to individuals with conditions that hinder their ability to obtain coverage in the private market. Safeco Life Insurance Company, which offers stop-loss insurance to Wisconsin employers with self-funded employee welfare benefit plans, is assessed fees based on its coverage sales. Safeco seeks a declaration that Wisconsin's fee scheme is preempted by the Employee Retirement Income Security Act (ERISA) as it pertains to sales to ERISA plan sponsors. The district court ruled that the fee structure is not preempted by ERISA and that it lacked jurisdiction under the Tax Injunction Act to grant Safeco's requested relief. The Seventh Circuit affirmed this decision, referencing a Supreme Court ruling that supports the conclusion that the Wisconsin scheme remains intact under ERISA.
The HIRSP was established to assist individuals under 65, particularly those with HIV or other significant health issues, who face challenges in obtaining insurance. Eligibility criteria include cancellation of insurance, rejection of applications, significant modifications to existing coverage, or steep premium increases. Eligible individuals can purchase major medical insurance through HIRSP at state-determined premiums, with reduced rates for low-income participants. Despite premium collections of $17,846,040 in 1992, HIRSP's claims and administrative costs amounted to $39,868,370, necessitating annual assessments on health insurance companies to cover the deficits. The number of participants in HIRSP grew from 309 in 1981 to 12,380 by 1992, highlighting the plan's increasing reliance on these fees due to the high costs associated with insuring its members.
The fee for insurers is calculated based on the ratio of their health care coverage revenue from Wisconsin residents to the total revenue of all participating insurers for that year. An additional fee applies to insurers that deny coverage to HIRSP participants. Safeco, licensed in Wisconsin since 1959, offers stop-loss insurance for self-funded ERISA plans, which cover various employee benefits. From 1988 to 1992, HIRSP assessed Safeco $239,577.93 in fees, plus an additional $22,889.15 in 1993. Safeco contested the assessment, claiming that ERISA preempts HIRSP's provisions regarding ERISA plan insurance policies, and sought a declaratory judgment against the Wisconsin Commissioner of Insurance and HIRSP.
The district court ruled that ERISA does not preempt HIRSP assessments related to insurance sold to ERISA plans. The court determined that the HIRSP assessments tax only Safeco's health care revenue without referencing or connecting to specific employee benefit plans or benefits paid to employees. It concluded that the assessments do not alter the benefits provided under employee benefit plans. Although Safeco claimed costs might be passed to employers and affect plans, the court found this effect too remote to establish a relation to employee benefit plans. The court further noted that even if the assessments were considered related, they would fall under ERISA's savings clause, which permits state regulation of insurance.
The court determined that the 'deemer clause' in ERISA, Section 1144(b)(2)(B), was not applicable because HIRSP does not regulate or tax employee benefit plans; instead, HIRSP assessments are levied on Safeco, an insurance company subject to Wisconsin's regulatory authority under ERISA. The district court also concluded it lacked jurisdiction over Safeco's suit due to the Tax Injunction Act, which prohibits federal courts from interfering with state tax assessments when an adequate state remedy exists. The court noted that no party disputed the availability of such a remedy for Safeco regarding the HIRSP assessment. Safeco appealed, arguing that ERISA preempts the HIRSP assessments on its stop-loss policies and that the Tax Injunction Act does not bar its request for declaratory relief. The court found the preemption issue more straightforward than the jurisdictional matter concerning the classification of the assessments as taxes. It noted that the defendants successfully invoked the Tax Injunction Act's jurisdictional shield while also prevailing on the preemption question. The inquiry into preemption must start with the explicit provisions of ERISA, which include a preemption clause stating that ERISA supersedes state laws related to employee benefit plans, with exceptions outlined in the savings clause.
The 'saving clause' in 29 U.S.C. Sec. 1144(b)(2)(A) specifies that, except for the 'deemer clause,' no provision in this subchapter exempts individuals from state laws regulating insurance, banking, or securities. The 'deemer clause' in 29 U.S.C. Sec. 1144(b)(2)(B) clarifies that employee benefit plans or trusts under such plans are not considered insurance companies or engaged in the insurance or banking business for state regulatory purposes. The inquiry focuses on whether HIRSP assessments on Safeco for insurance provided to self-funded employee benefit plans 'relate to' those plans, leading to the conclusion that they do not, thus rendering the saving and deemer clauses unnecessary for consideration.
The excerpt references the Supreme Court case New York State Conference of Blue Cross, Blue Shield Plans v. Travelers Ins. Co., where New York's surcharges on certain hospital patients were determined to relate to employee benefit plans as they increased costs for insurance outside of specific providers, thereby interfering with ERISA plans' healthcare choices. The Second Circuit ruled these surcharges were preempted under ERISA. However, the Supreme Court reversed this decision, stating that a law 'relates to' an employee benefit plan if it has a connection or reference to such a plan. The Court found that the surcharges did not reference ERISA plans since they applied regardless of how insurance was procured. The discussion concludes that determining the connection between state laws and ERISA plans requires looking beyond mere textual definitions to consider the objectives of the ERISA statute.
Congress aimed to prevent conflicts among federal, state, and local laws governing employee benefit plans by designating their regulation as a federal responsibility. The preemption clause is intended to eliminate multiple regulatory frameworks, facilitating a uniform administration of these plans. Previous court rulings have found that state laws impacting the structure or administration of ERISA plans or providing alternative avenues for employees to assert rights under these plans are preempted.
Examining New York's surcharges, the Court recognized that these fees might indirectly influence the choices of employers sponsoring ERISA plans regarding health care coverage. While the surcharges could make certain insurance providers more appealing, this indirect economic effect did not constitute a regulation of ERISA plans themselves, as plan administrators retain the freedom to choose among various offerings. The Court noted that the presence of surcharges affects costs but does not impede the uniformity of plan administration or benefit packages.
The Court asserted that variations in hospital bill surcharges and insurance costs are typical and unlikely to have been intended for preemption under ERISA. It is improbable that Congress sought to eliminate the impact of state regulations, such as health care quality controls or employment rules, on ERISA plans, even if those regulations influence the affordability of benefits. A broad interpretation of the preemption provision that would override all state laws impacting costs would contradict statutory interpretation principles and established precedents, which affirm that preemption does not apply to laws with only a tenuous or peripheral connection to ERISA plans. Furthermore, the Act does not suggest that Congress aimed to displace general health care regulation, which has traditionally been a local matter.
Wisconsin's regulatory scheme for health insurance, similar to New York's, aims to improve access for those struggling to obtain insurance in the private market. However, the methods differ: New York's surcharges benefit not-for-profit insurers and HMOs, while Wisconsin funds a public insurance pool through assessments on insurance carriers. These surcharges, although they may increase costs for employers sponsoring self-funded ERISA plans when seeking stop-loss coverage, do not directly reference or interfere with ERISA plans. The HIRSP assessment is applied uniformly to insurance sales in Wisconsin, independent of the insurance's association with ERISA plans. The additional costs, while burdensome, do not dictate employee benefit offerings or significantly alter the responsibilities of plan administrators. The impact of the assessment on the overall cost of benefits is seen as similar to other state regulations that may elevate expenses without triggering ERISA preemption, as established in the Travelers case, which deemed the influence of such levies on ERISA plans as too minimal to warrant preemption.
The HIRSP assessments imposed by Wisconsin on health insurance carriers do not significantly interfere with the provisions or administration of ERISA plans, thus they do not "relate to" such plans in a way that would trigger ERISA's preemption clause. Any indirect effects of these assessments, such as increased insurance costs for employee benefit plans, fall outside ERISA's jurisdiction. Consequently, the court agrees with the district court that the defendants are entitled to summary judgment regarding Safeco's complaint. However, since the district court dismissed the complaint based on a lack of jurisdiction (a point not addressed by this court), the judgment of dismissal is vacated and the case is remanded with instructions to enter summary judgment in favor of the defendants. Additionally, Safeco does not contest HIRSP fees for policies unrelated to ERISA plans and has already paid those fees. Safeco’s complaint also included a claim that the HIRSP assessment should not apply to stop-loss insurance policies, but the district court indicated it would abstain from ruling on this if it had jurisdiction; Safeco has chosen not to pursue this claim on appeal, potentially reserving it for future state proceedings. The resolution of this case was previously postponed pending the Supreme Court's decision in Travelers. It is noted that Safeco will pass the surcharge from HIRSP assessments onto its insureds, including employers with stop-loss coverage for ERISA plans.
