Under the Supremacy Clause,1 federal law issued as a valid exercise of congressional power preempts conflicting state laws.2 Whether federal and state legislation can peacefully coexist is a nuanced question — even where language in a federal law expressly provides for the preemption of state laws, courts have been able to define preemption both broadly and narrowly.3 One notable example of this tension arises in the context of the Employee Retirement Income Security Act of 19744 (ERISA), a federal law that sets standards and reporting requirements for a wide array of employer-provided retirement and welfare benefits, including employer-funded health plans for employees.5 Despite its inclusion of an explicit (and broad) preemption provision,6 ERISA has engendered a complex and inconsistent preemption doctrine.7 While ERISA preemption doctrine had made room for some state laws to peacefully coexist with ERISA, a 2016 Supreme Court decision, Gobeille v. Liberty Mutual Insurance Co.,8 brought a more stringent approach to the doctrine and seemed to spell an end to a number of innovative state initiatives.9 Recently, in Self-Insurance Institute of America, Inc. v. Snyder,10 the Sixth Circuit held that ERISA did not preempt a Michigan state law levying a Medicaid tax on insurers. Cleverly spinning language from Gobeille after a remand from the Supreme Court, the Sixth Circuit created a route out of Gobeille with the potential to save a wide range of state laws from preemption.
In order to meet its financial obligations under Medicaid, in 2011 Michigan passed the Health Insurance Claims Assessment Act.11 The Act levies a one percent tax on paid claims by health insurance companies or third-party administrators, which includes insurers covered by ERISA, for services provided to Michigan residents within the state of Michigan.12 The Act also requires carriers and third-party administrators to devise and execute methodologies for collecting the tax,13 to “keep accurate and complete records and pertinent documents” related to the tax,14 and to submit quarterly returns to the Michigan Department of Treasury.15 In 2011, the Self-Insurance Institute of America16 (SIIA) filed suit against the Governor of Michigan and other state administrators of the Act in the United States District Court for the Eastern District of Michigan, seeking a declaratory judgment that ERISA preempts the Act.17 SIIA also sought an injunction precluding enforcement of the Act.18
The district court granted defendants’ motion to dismiss after determining that the Act does not “relate to any employment benefit plan” governed by ERISA, as required by ERISA’s preemption provision.19 Under the “relate to” standard interpreted by the Supreme Court, courts engage in two inquiries, either of which is sufficient to establish preemption: (1) whether the law makes “reference to” ERISA and (2) whether the law has a “connection with” ERISA.20 First, the district court concluded that although the Act refers to ERISA plans in the “uncritical[ly] literal[]” sense,21 it falls short under the “reference to plus effect on” standard applied in ERISA preemption analysis.22 Second, the court found that under the two prongs of the “connection with” inquiry — whether the law “mandate[s] (or effectively mandate[s]) something” and whether that mandate “fall[s] within the area that Congress intended ERISA to control exclusively”23 — the Act does not include any such mandates concerning benefit structures or benefit choices and thus does not have an impermissible “connection with” ERISA administration.24 On appeal in 2014, the United States Court of Appeals for the Sixth Circuit affirmed.25 Addressing SIIA’s three new arguments that the specific provisions of the Act has an impermissible “connection with” ERISA plans,26 Judge Moore, writing for a unanimous panel, found all three lacked merit.27
In March 2016, however, the Supreme Court decided Gobeille, an ERISA preemption case that concerned a Vermont statute requiring all health insurers to file reports containing claims data and other “information relating to health care” in order to establish an all-payer claims database.28 The Gobeille Court found that although the statute did concern the state’s “traditional power to regulate in the area of public health,”29 it was nonetheless preempted because its reporting requirements intruded upon “a central matter of plan administration” and “interfere[d] with nationally uniform plan administration.”30 Shortly after Gobeille was decided, the Supreme Court granted certiorari in Snyder, vacating the judgment and remanding the case to the Sixth Circuit “for further consideration in light of Gobeille.”31
On remand, Judge Moore again affirmed the district court opinion.32 Much of the earlier opinion’s language remained intact; it was primarily in the evaluation of whether the Act had an impermissible connection with ERISA plans that Gobeille factored into the decision.33 In setting the standard for a “connection with” inquiry, Judge Moore now quoted Gobeille, stating that a law “has an impermissible ‘connection with’ ERISA plans” when it “‘governs . . . a central matter of plan administration’ or ‘interferes with nationally uniform plan administration.’”34 Next, the judge characterized Gobeille as holding that “state laws that directly regulate [reporting, disclosure, and record-keeping] aspects of ERISA — whether by imposing additional administrative burdens or by interfering with uniform administration — are preempted.”35 State law would be preempted where this “direct regulation of a fundamental ERISA function” occurred, regardless of whether the law exercised a traditional state power.36
However, Judge Moore pointed out that Gobeille had distinguished the statute at issue from an earlier ERISA preemption decision about a state tax, De Buono v. NYSA–ILA Medical & Clinical Services Fund,37 by stating that “[t]he analysis may be different when applied to a state law, such as a tax on hospitals, the enforcement of which necessitates incidental reporting by ERISA plans.”38 This distinction, according to Judge Moore, indicates first that Gobeille’s preemption will occur only in the case of direct regulation of fundamental functions, and second that where regulation is incidental to those functions, the inquiry will be evaluated under principles established in earlier Supreme Court ERISA preemption decisions like De Buono and New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co.39 that consider the extent of the burden upon an ERISA plan.40 As “the thrust of the Act” is to generate taxes and its reporting requirements are merely “peripheral,” Judge Moore concluded that it “falls in the De Buono and Travelers category of state laws that necessitate incidental reporting and record-keeping and thus are not preempted.”41
With its clever spin on language from the Gobeille majority opinion, the Sixth Circuit has provided courts with a means to work around Gobeille’s limitation on state regulation of ERISA entities. Despite ERISA’s express intention to preempt state law, the statute has proved a challenge to courts, engendering the development of a doctrine far removed from its vague and far-reaching language.42 Since the mid-1990s, courts have generally avoided finding ERISA preemption in “areas of traditional state concern,” preventing ERISA-covered entities from skirting crucial state laws.43 Breaking from this approach, Gobeille makes it extremely difficult for courts to uphold state regulation of ERISA-covered entities that requires reporting or record keeping. Judge Moore’s reading of the language referring to hospital taxes, although somewhat forced, locates and expands a loophole in Gobeille’s holding that will enable courts to return to earlier ERISA preemption doctrine that is more amenable to avoiding preemption.
Judge Moore was correct to refer to preemption doctrine as a “quagmire.”44 In theory, the concept of express preemption is simple — where Congress expressly states that a federal law preempts state law, the Supremacy Clause dictates that the conflicting state law shall be invalid.45 Yet the express preemption inquiry, which requires judges to decide first what the statutory clause in question means and then whether Congress is constitutionally permitted to prevent states from “exercising the powers in question,”46 has led to complicated and contradictory doctrines across a variety of areas, each distinctly tied to the relevant federal statutes.47 The ERISA preemption provision is particularly striking due to its stipulation that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan”48 — an expansive mandate that could potentially preempt broad swaths of state law.49
Indeed, for many years the ERISA provision was applied fairly broadly to strike down state laws such as wage laws and workers’ compensation programs,50 tort law damages and medical malpractice statutes,51 and hospital taxes,52 leading many to lament that those seeking reform in the health care arena were shackled by the specter of ERISA preemption.53 But this trend was reversed to some extent by Travelers.54 In Travelers, the Court emphasized its “assumption that the historic police powers of the States were not to be superseded by [federal law] unless that was the clear and manifest purpose of Congress,”55 a familiar preemption concept that had in fact received little attention in the Court’s ERISA preemption cases.56 Applying this presumption against preemption, the Travelers Court concluded that ERISA did not preempt a New York statute requiring certain hospital surcharges affecting employees covered by employer-sponsored health insurance.57 Since Travelers, the Court has found that numerous statutes were not preempted by ERISA — for example, in De Buono, the Court concluded that the presumption against preemption militated against preemption of a state tax on hospitals.58
Gobeille, as the Supreme Court’s most recent elaboration on ERISA preemption, pushed back against this trend.59 Although the Gobeille Court dutifully stated its “starting presumption that Congress does not intend to supplant state law,”60 the Court went on to emphasize that even if a state law regulates a “subject of traditional state power,” it will not be saved from preemption as long as it also regulates “a principal and essential feature of ERISA.”61 Beyond its divergence from Travelers, this standard is further complicated by the fact that the “reporting” mandated by the state law at issue in Gobeille appeared to be quite distinct from the ERISA reporting requirements (a point raised by the Gobeille dissent),62 meaning that Gobeille’s lower standard could potentially be applied fairly broadly.63 Gobeille, then, markedly shifted the tide toward more findings of ERISA preemption. It did so through its strong enunciation of principles protecting core ERISA functions and, perhaps even more so, through its stretched application of those principles to the facts of the case.64 In doing so, Gobeille jeopardized state regulations intended to reign in health care spending and improve the quality of health care.65
Through her reading of Gobeille, Judge Moore recognized and expanded an escape hatch that could save other legislation that involves incidental reporting from being overturned by Gobeille’s broad language. Judge Moore derived the principles that would guide her reconsideration of Snyder from a single sentence in Gobeille. In his opinion for the Court, Justice Kennedy had written, citing De Buono: “The analysis may be different when applied to a state law, such as a tax on hospitals, the enforcement of which necessitates incidental reporting by ERISA plans; but that is not the law before the Court”66 — a sentence that could even be characterized as dictum insofar as it suggests what type of treatment hospital taxes might receive under a preemption challenge. Were one satisfied with Gobeille’s shift toward an outcome that promotes preemption of core ERISA functions, then, this statement could have been seen merely as a means to avoid overruling earlier precedent and thus could have been interpreted in the limited scope of state taxing of hospitals. However, Judge Moore instead utilized this language to provide a more expansive interpretation of the Gobeille majority opinion, first drawing out the principle that “incidental” reporting is distinct from the “direct” regulation of fundamental ERISA functions discussed in Gobeille, and then clarifying that incidental reporting would be governed by the earlier principles established under De Buono and Travelers.67
To be sure, Judge Moore’s reading of an incidental/direct dichotomy might be dubbed “clever” insofar as it may not intuitively flow from Gobeille. Under some interpretations of Gobeille, an inquiry concerning this dichotomy might appear quite similar to a purpose-based inquiry as to whether reporting requirements were essential to the purpose of the state law.68 The Gobeille Court seemed to explicitly reject such an inquiry, stating that a “perceived difference . . . in the objectives” of a state law and ERISA would not protect the state law from preemption where it regulated core ERISA functions.69 Judge Moore’s determination that the Michigan Act did not “directly regulate any integral aspects of ERISA” was based on an assessment that its purpose was “to generate the revenue necessary to fund Michigan’s obligations under Medicaid.”70 Taking the facts of Gobeille itself as an example, then, a court adopting Judge Moore’s approach could find that the Vermont law’s reporting requirements were incidental to its functions in establishing a research-oriented claims database, relying on what looks a lot like an analysis of the law’s purpose to uphold the Act.71 Thus, although the Gobeille Court did not reject the notion of an incidental/direct distinction, it is not necessarily clear that the Court intended the inquiry that could result from drawing this distinction.
Despite this tension, however, Judge Moore’s take on Gobeille’s application to Snyder stands up to scrutiny. The Gobeille Court mentioned an exception to its holding and then left the precise nature of that inquiry open; it was reasonable that in addressing the type of law drawn out as an exception, Judge Moore would pick up on the Court’s use of the term “incidental” and derive from that term a doctrine concerning the exception. And indeed, although Judge Moore appeared to believe otherwise, the laws at issue in Gobeille (requiring “claims data, eligibility data, provider files, and other information relating to health care provided to [a] Vermont resident”72) and Snyder (requiring only reporting relevant to the tax73) may well fall on opposite sides of the incidental/direct dichotomy. Limiting Gobeille’s interpretation of ERISA’s core reporting function to the facts of that case, then, Judge Moore’s interpretation of the Gobeille language could still prevent preemption of a variety of health care–regulating state laws (although it does seem unfortunate to abandon such a valuable type of initiative as the all-payer claims database74).
Not only was Judge Moore’s interpretation reasonable, but it also draws Gobeille back from a potentially drastic shift in ERISA preemption doctrine. By enabling courts to sidestep Gobeille where they can identify state laws only incidentally regulating core ERISA functions, Judge Moore’s interpretation softens Gobeille, providing the decision with a nuance that allows it to fit comfortably within the larger canon of ERISA preemption doctrine. Despite its affirmation of the presumption against preemption, Gobeille functionally removes this presumption unless the distinction drawn in Snyder applies. If a law containing truly insignificant reporting or record-keeping requirements, operating in an area of traditional state regulation, were to be so easily preempted, Gobeille would indeed be a harsh reversal from earlier ERISA preemption doctrine. Snyder reasonably tempers that reversal, and does so in a manner that may help set a realistic line for ERISA preemption moving forward.
One helpful lens for conceptualizing Snyder’s impact on Gobeille doctrine is provided by the notion of “narrowing Supreme Court precedent from below.”75 As described by Professor Richard Re, narrowing occurs where lower courts adopt a narrow, yet reasonable, reading of ambiguous Supreme Court precedent, often as a means of engaging in “dialogue” with the Court.76 Judge Moore’s interpretation of Gobeille could be characterized as “narrowing” that decision in that Snyder used Gobeille’s ambiguous language to limit the holding to direct regulations of core ERISA functions. The result of this process is that “the narrowed precedent recedes from view, and the court is left with open ground that it . . . might occupy with a new legal rule.”77 Having limited Gobeille to direct regulation, Judge Moore neatly developed an incidental/direct dichotomy, determining that incidental regulation would belong to the realm of earlier, more flexible ERISA preemption doctrine.
Although the textual source from which Judge Moore’s interpretation arose seems unlikely fodder for such a robust inquiry, her reading is certainly plausible. And indeed, Judge Moore will be appreciated for wrangling such an interpretation out of Gobeille — she may have provided a means by which state laws with incidental reporting and record-keeping requirements (or state laws that can be framed as such) can continue to operate unimpeded by ERISA. While a more limited reading of Gobeille probably could have saved the tax law at issue in Snyder, Judge Moore’s elaboration of the language into a more explicit principle (or “narrowing” of Gobeille) could be a saving grace for numerous other state regulations that could otherwise suffer preemption under Gobeille.