If you were to ask most employers whether reporting is a core function of employee benefit plan administration, they would likely say yes, particularly as many are currently in the middle of completing IRS Forms 1094-C and 1095-C. On top of the numerous reporting requirements for group health plans imposed by IRS and other federal agencies, a number of states, including Vermont, have enacted laws that add a layer of state reporting obligations for plans, including self-funded group health plans.  In what is clearly welcome news for employers and plan sponsors, this added state law burden has been lessened by yesterday’s Supreme Court decision in Gobeille v. Liberty Mutual Ins. Co., No. 14-181.

The Court decided that state reporting mandates, like the one in Vermont, are preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The essence of the Supreme Court’s rationale is that ERISA’s goal of having a uniform plan administration system — especially for core functions like reporting — would be frustrated by multi-jurisdictional mandates that impose conflicting administrative obligations, resulting in wasteful administrative costs and subjecting plans to wide-ranging liability.

Vermont’s law was intended to create a resource — a database known as an “all–payer claims database” — for insurers, employers, providers, and the state to examine health care utilization, expenditures, and performance. To create the database, the law required covered entities (which included self-funded group health plans and any third party administrators) to provide information such as health care costs, prices, quality, utilization, and health insurance claims and enrollment data. Reporting intervals could be as often as monthly, and the failure to comply could expose covered entities to penalties as high as $2,000 per day and disqualification of administrators from performing services in the state.

Liberty Mutual sponsors a self-funded group health plan which provides health benefits to over 80,000 individuals across the United States. Concerned about the burden Vermont’s law placed on its self-funded group health plan, as well as its fiduciary obligations to maintain the confidentiality of sensitive plan information that could be made available to entities with access to the database, Liberty Mutual challenged Vermont’s law, arguing it was preempted by ERISA. In short, ERISA’s preemption doctrine holds that, except for laws regulating insurance, state laws that relate to employee benefit plans covered by ERISA are preempted.

The reach of the ERISA preemption doctrine has been an area of frequent litigation, finding its way to the high court several times. Some commentators see the Court trending toward a more narrow view of ERISA preemption.  However, this decision makes clear that when core plan administrative functions such as reporting are at stake, state laws like the one in Vermont will not survive ERISA preemption.

“The fact that reporting is a principal and essential feature of ERISA demonstrates that Congress intended to pre-empt state reporting laws like Vermont’s, including those that operate with the purpose of furthering public health.”   Justice Kennedy

Thus, even though the state law’s purpose was to further the public good, it will not necessarily be enough to overcome ERISA preemption. Additionally, the state’s argument that its law had little, if any, economic impact did little to persuade the Court.  It reasoned that employer-sponsored plans should not have to wait until they are burdened by multiple state laws with inconsistent obligations resulting in growing costs before seeking protection under the preemption doctrine.

The Supreme Court’s decision may prompt many plan sponsors to look more critically at state reporting and other requirements which affect their plans, particularly larger plan sponsors with employees in multiple states. But they should proceed cautiously as the Supreme Court’s decision does not invalidate all state reporting laws.  Even though the decision places employers in a strong position, particularly with respect to onerous state and local requirements, the decision not to follow a similar law, or even to challenge it in court, should include an appropriate cost/benefit analysis.

It is also anticipated that the decision may change the focus of efforts to collect health plan data from individual states to national efforts by the federal government, notably the U.S. Department of Labor and the U.S. Department of Health and Human — the agencies vested with such authority by ERISA and the Affordable Care Act, respectively, as noted by Justice Breyer’s concurring opinion in Gobeille.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.