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Nysa-Ila Medical and Clinical Services Fund, by Its Trustees, John Bowers, James Capo, Frank Lonardo, William P. Lynch, M. Brian Maher, James P. Melia, Gerald Owens, and Peter Vickers v. David Axelrod, M.D., in His Capacity as New York State Commissioner of Health Lorna H. McBarnette in Her Capacity as New York State Executive Deputy Commissioner of Health Steven C. Anderman, in His Capacity as Deputy Director, Division of Health Care Financing, Office of Health Systems Management, New York State Department of Health

Citations: 74 F.3d 28; 19 Employee Benefits Cas. (BNA) 2361; 1996 U.S. App. LEXIS 213Docket: 1294

Court: Court of Appeals for the Second Circuit; January 3, 1996; Federal Appellate Court

Narrative Opinion Summary

This case involves an appeal by the NYSA-ILA Medical and Clinical Services Fund against New York State health officials regarding the preemption of a state health facility assessment (HFA) under the Employee Retirement Income Security Act (ERISA). Initially, a district court ruled that ERISA did not preempt the HFA, as the tax was not considered significantly burdensome. However, the United States Court of Appeals for the Second Circuit reversed this decision, asserting that the HFA significantly impacted the Fund by directly affecting assets intended for healthcare benefits. The Supreme Court vacated this ruling and remanded the case for reconsideration in light of the Travelers decision, which discussed indirect economic influences on ERISA plans. After review, the appellate court reaffirmed its original decision, citing that the HFA imposes a direct tax on the Fund, thus preempted by ERISA. The court's ruling distinguishes this case from Travelers by highlighting the direct economic impact on the ERISA plan, leading to a reversal of the previous district court's summary judgment and a remand for further proceedings consistent with this conclusion.

Legal Issues Addressed

Direct Economic Impact and ERISA

Application: The court found that the direct economic impact of the HFA on the Fund's assets is sufficient for ERISA preemption, as it directly affects the employee welfare benefit plan's ability to provide benefits.

Reasoning: The court maintains that the direct economic impact of a state law on ERISA plans is sufficient for a finding of pre-emption, consistent with the Supreme Court's rationale in Travelers.

Distinction from Travelers Case

Application: The court distinguished the current case from Travelers, emphasizing that the HFA imposes a direct tax on ERISA plans, unlike the indirect economic influence observed in Travelers.

Reasoning: Upon review, the court distinguished this case from Travelers, where the surcharge was imposed on insurers rather than directly on ERISA plans.

ERISA Preemption of State Law

Application: The court determined that ERISA preempts the New York state health facility assessment (HFA) as it directly impacts the ERISA plan's assets, affecting the Fund's operations.

Reasoning: The HFA directly taxes payments meant for participants' medical benefits, thus having a direct economic effect on the Fund as an employee welfare benefit plan.