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.