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Publication Date

7-1996

Document Type

Casenote

Abstract

In New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., the United States Supreme Court determined that the Employee Retirement Income Security Act of 1974 ("ERISA) did not preempt a New York statute' requiring hospitals to collect surcharges from patients covered by commercial insurers but not from patients insured by a Blue Cross/Blue Shield plan. The surcharge was part of New York's comprehensive regulatory scheme for controlling hospital rates. Patients are not charged for the cost of their individual treatment, but for the average cost of treating the patient's ailment, as classified under various Diagnostic Related Groups ("DRGs"). Patients with coverage through Blue Cross/Blue Shield, Medicaid patients, and Health Maintenance Organization ("HMO") participants are billed at a hospital's DRG rate. Other patients, however, are billed at the hospital's DRG rate plus a surcharge which in some instances exceeds twenty-four percent of the applicable DRG rate. The statute also subjects various -HMOs to surcharges that vary with the number of Medicaid recipients enrolled.' Wanting to invalidate these surcharges, several commercial insurers, acting as fiduciaries for the ERISA plans they administer, joined with their trade associations and brought actions against various state officials in United States District Court for the Southern District of New York. The New York State Conference of Blue Cross and Blue Shield plans, Empire Blue Cross and Blue Shield (collectively "the Blues"), and the Hospital Association of New York State subsequently intervened as defendants." Additionally, several HMOs and the New York State Health Maintenance Organization Conference intervened as plaintiffs. The district court then consolidated the actions and granted the plaintiffs' motion for summary judgment, finding that the effect of these surcharges on choices by ERISA plans was enough to trigger preemption." The Court of Appeals for the Second Circuit affirmed, rejecting the decision of the Third Circuit in United Wire, Metal & Machine Health & Welfare Fund v. Morristown Memorial Hospital upholding a similar rate setting statute in New Jersey, and endorsed a broad interpretation of ERISA's pre-emption clause. The Supreme Court of the United States granted certiorari to resolve the conflict, and in a unanimous opinion reversed and remanded. The preemption clause, and held that "state laws [such as New York's] do not bear the requisite 'connection with' ERISA plans to trigger preemption." The Court, therefore, has now made it clear that in general, indirect economic effects do not "relate to" ERISA plans enough to invoke the preemption clause unless they produce "such acute, albeit indirect, economic effects, by intent or otherwise, as to force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.

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