1975 view of state prepaid health law preemption

P/OPINION 75-22




                                                           3(12)✓
                                                           4(a)
                                                           4(b)
                                                           514


                          July 18, 1975


Dear              :

This is in response to your letter of January 9, 1975,
which raises the question of whether          Prepaid
Health Care Act [statute] has been preempted by the
Employee Retirement Income Security Act of 1974 (ERISA)
and, if so, the extent of such preemption.

It is our opinion that the [State] Act has been entirely
superseded by ERISA with respect to employers engaged
in interstate commerce or in an industry or activity
affecting such commerce.

Section 514 of ERISA states the general rules that with
certain exceptions, "the provisions of this title and
Title IV shall supersede any and all State laws insofar
as they may now or hereafter relate to any employee benefit
plan described in section 4(a) and not exempt under section
4(b)." The exceptions to preemption given in section 514(b)
relate to prior causes of action, insurance, banking, securities,
and generally applicable criminal laws, none of which appear
to be pertinent to the [State] Act.

The plans covered by section 4(a) are pension or welfare
plans (including prepaid comprehensive health care plans)
established or maintained by an employer, employee
organization or both when either the employer or the employee
organization is engaged in commerce or in an industry or
activity affecting commerce. Given the broad definition
of "industry or activity affecting commerce" in section 3(12)
of ERISA and the Supreme Court's interpretation of this concept
over the last three decades, it is unlikely that plans of
many employers in [State] would fail to be covered by ERISA.
2

P/OPINION 75-22


The exceptions from coverage in section 4(b) of ERISA
would not appear to operate to preserve the [State] Act.
In your letter you noted the exception of section 4(b)(3)
for plans "maintained solely for the purpose of complying
with applicable workmen's compensation laws or unemployment
compensation or disability insurance laws." State laws
requiring plans for any of the enumerated purposes would not
be within the scope of preemption since the exception
from coverage discloses an explicit federal policy of
leaving those laws intact. However, we believe that the
provision of basic health care is fundamentally different
and distinguishable from the three listed purposes,
each of which provides at least partially for income
replacement rather than the prevention and treatment
of illness. The three statutory purposes are to provide
income replacement in the event of disability, unemployment
or job-related injuries. Basic health care might be made
available to disabled, unemployed or injured workers, but
the nature of the service provided would still be unrelated
to income replacement. Workmen's compensation may provide
medical reimbursement in addition to income replacement,
but it will do so only for job-related injuries. Indeed,
[State] has recognized the basic distinction through section
45 of Regulation XLII, providing that if a health care contractor
pays a workmen's compensation claim where a workmen's compensation
liability is established, the health care contractor shall
be reimbursed by the workmen's compensation carrier.

The reasons for broad exemption of State laws under ERISA
were succinctly stated by Senator Williams, a major sponsor
and floor manager of the bill, during final consideration.

     Both House and Senate bills provided for
     preemption of State law, but -- with one major
     exception appearing in the House bill -- defined
     the perimeters of preemption in relation to the
     the areas regulated by the bill. Such a formulation
     raised the possibility of endless litigation
     over the validity of State action that might impinge
     on Federal regulation, as well as opening the door
     to multiple and potentially conflicting State laws
     hastily contrived to deal with some particular aspect
     of private welfare or pension plans not clearly
     connected to the Federal regulatory scheme.
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P/OPINION 75-22


     Although the desirability of further regulation --
     at either the State or Federal level -- undoubtedly
     warrants further attention, on balance, the emergence
     of a comprehensive and pervasive Federal interest
     and the interests of uniformity with respect
     to interstate plans required -- but for certain
     exceptions -- the displacement of State action in
     the field of private employee benefit programs.
     120 Cong. Rec. S15751 (daily ed. Aug. 22, 1974).

The major reasons for broad preemption disclosed in these
remarks are (1) the need to prevent conflicting regulation
over interstate plans, (2) the desire to avoid the litigation
that would result from piecemeal preemption, (3) the
emergence of a pervasive Federal interest in employee
benefit plans, and (4) the existence of a comprehensive
federal program for future study (see section 3022, ERISA).

Provisions of the type that gave rise to these concerns
are the essence of the [State] Act. They include, but are
not limited to, minimum benefit coverage (section 393-7),
minimum proportion of employer contributions (section 393-13),
participation by certain employees (section 393-14), and
continuation of coverage during sickness (section 393-21).
Also, these detailed provisions are explicitly applied
to interstate plans by section 393-20, raising the spectre
of conflicting regulation by various states.

Because these provisions are so important to the system
of health care established by the [State] Act, there appears
to be no way that it could be interpreted in a manner that
would avoid the preemptive effect of ERISA.

For these reasons, it is our opinion that the [State] Act is
entirely superseded by ERISA to the extent that it relates
to employee welfare benefit plans established or maintained
by an employer engaged in commerce or in an industry or
activity affecting commerce.

Sincerely,