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Fifth Circuit Rejects Distinction Between Existence of Coverage and Extent of Coverage in ERISA Preemption Analysis

November 9, 2011—The United States Court of Appeals for the Fifth Circuit issued an opinion yesterday that assures healthcare provider’s viable state law claims against employee benefit plans will not be dismissed based on ERISA preemption. The decision does not signal a major change in the law, but corrects a common misapplication of existing law.

Although there are two types of preemption—complete and express—this case deals only with express preemption. Express preemption is based on ERISA § 514, which provides that ERISA supercedes any state laws that relate to an employee benefit plan. (Express preemption also contains two other clauses—the savings clause and the deemer clause—that make the express preemption statute a nightmare, but those clauses, thankfully, are in implicated by the case at hand. If a state law claim “relates to” an ERISA plan, the claim must be dismissed. By tempering preemption on whether the law “relates to” an ERISA plan, Congress left it to the courts to determine how broadly or narrowly “relates to” should be interpreted.

Each circuit applies a slightly different test to determine whether a particular claim is expressly preempted by ERISA. For example, the Fifth Circuit holds that a state law claim is expressly preempted if it addresses an area of exclusive federal concern (such as the right to receive benefits under the terms of an ERISA plan) and it directly affects the relationships among traditional ERISA entities (employers, plans, fiduciaries, participants, and beneficiaries). The Third Circuit, on the other hand, holds that a state law claim is expressly preempted if the existence of an ERISA plan is a critical factor in establishing liability and the court’s inquiry would be directed to the plan. If you figure out whether these tests are consistent or not, let me know and then we can talk about the dozen or so other tests applied by courts in various corners of the country.

Yesterday, though, the Fifth Circuit’s decision in Access Mediquip LLC v. UnitedHealthcare Ins. Co., No. 10-20868, slip op. (5th Cir. Nov. 8, 2011), reversed a trend to oversimply the preemption analysis by simply looking to whether the state law claim turned merely on the existence of coverage under an ERISA plan or on the extent of coverage under an ERISA plan. The district court below had held (consistently with many other district courts) that if the state law claim had anything to do with the extent of coverage offered under an ERISA plan, then it was preempted; whereas a state law claim where the mere existence of an ERISA plan was a factor was not preempted. This analysis was an oversimplification and did not track any of the tests for preemption.

Access Mediquip rejects the existence / extent analysis. In Access Mediquip the plaintiff claims that the defendant misrepresented the amount of reimbursement that it would pay the plaintiff. In essence, the defendant promised one amount, but when the bill came it paid another amount. When the plaintiff filed suit to enforce the promise to pay the higher amount, the defendant (as any defendant would) tried to hide behind ERISA preemption. The Fifth Circuit did not buy it. The misrepresentation-type claims alleged by the plaintiff do not implicate ERISA or any other federal concern. The misrepresentations are run-of-the-mill state law claims that have always been enforced by state courts and Congress did not intend to change that when it enacted ERISA. The fact that the defendant happened to be an ERISA entity does not mean that it cannot be held to fulfill its promises. The Fifth Circuit identified that key issue for preemption purposes as whether the claims are dependent upon or derived from the rights of plan participants and beneficiaries to recover benefits under an ERISA plan. Since the plaintiff healthcare provider was not an ERISA entity and merely sued to enforce a promise made to it, it was irrelevant what the ERISA plan said.

While the case would have been preempted if the existence / extent rule was applied, the rule was disavowed and the court instead looked to whether the claim impacted an area of federal concern—they did not, thus they were not preempted.

This decision assures that healthcare providers will be allowed to bring claims to enforce promises that are later ignored. If these claims were preempted, the healthcare providers would have to bring claims that were derivative of the participants and beneficiaries, which would make the terms of the ERISA plan supremely important, and perhaps unavoidable notwithstanding any extraneous promises.