American Medical Security, Inc. v. Bartlett
111 F.3d 358 (1997)
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Rule of Law:
The Employee Retirement Income Security Act of 1974 (ERISA) preempts state laws that, while purporting to regulate the business of insurance, have the purpose and effect of mandating benefits or otherwise regulating self-funded employee benefit plans. A state cannot use the regulation of stop-loss insurance as a vehicle to impose its health benefit mandates on such plans.
Facts:
- Client First Brokerage Services, Maran, and Trio Metal Products were Maryland employers who sponsored self-funded employee health benefit plans covered by ERISA.
- These self-funded plans provided fewer health benefits than the 28 benefits mandated by Maryland law for standard health insurance policies.
- The employers engaged American Medical Security, Inc. (AMS) to administer their plans.
- The employers purchased stop-loss insurance from United Wisconsin Life Insurance Company to cover their plans' benefit payments above a $25,000-per-employee annual 'attachment point.'
- The stop-loss insurance protected the plans themselves against catastrophic loss, not the individual plan participants or beneficiaries.
- The Maryland Insurance Commissioner adopted a regulation stating that any stop-loss policy with a specific attachment point below $10,000 per beneficiary would be deemed a standard health insurance policy and must therefore include all state-mandated benefits.
Procedural Posture:
- The Maryland Insurance Agency disapproved United Wisconsin Life's stop-loss policies because their attachment points were below the state's informally mandated minimum.
- American Medical Security, the employers, and United Wisconsin Life (plaintiffs) sued the Maryland Insurance Commissioner (defendant) in the U.S. District Court for the District of Maryland.
- Plaintiffs sought a declaratory judgment that the state regulations were preempted by ERISA and an injunction against their enforcement.
- On cross-motions for summary judgment, the U.S. District Court ruled for the plaintiffs, declaring the regulations void as applied to ERISA plans.
- The Maryland Insurance Commissioner, as the defendant-appellant, appealed the district court's judgment to the United States Court of Appeals for the Fourth Circuit.
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Issue:
Does the Employee Retirement Income Security Act of 1974 (ERISA) preempt a Maryland state regulation that deems a stop-loss insurance policy purchased by a self-funded employee benefit plan to be a standard health insurance policy, and thus subject to state-mandated benefits, if the policy's 'attachment point' is below a certain monetary threshold?
Opinions:
Majority - Niemeyer
Yes, ERISA preempts the Maryland regulation. The court reasoned that while the regulation is carefully drafted to directly target insurance companies, its clear purpose and effect are to regulate self-funded ERISA plans. First, the court determined the regulation 'relates to' ERISA plans because it explicitly references them and its operation is dependent on their existence. Second, although states have the authority to regulate insurance under ERISA's 'savings clause,' the 'deemer clause' prohibits states from deeming an ERISA plan to be an insurance company for the purpose of state regulation. The court found that Maryland's regulation violates the deemer clause because it uses stop-loss insurance as a 'vehicle to impose the requirements of Maryland health insurance law on self-funded ERISA plans.' By forcing plans to either adopt state-mandated benefits or forgo low-attachment-point stop-loss coverage, the regulation impermissibly intrudes on plan administration and the design of benefits, which is an area of exclusive federal concern.
Analysis:
This decision reinforces the broad preemptive scope of ERISA over self-funded employee benefit plans, strictly limiting the ability of states to regulate them indirectly. The court clarified that the distinction between a self-funded plan (even with stop-loss insurance) and a fully insured plan is fundamental and cannot be erased by state regulation based on the level of an insurance attachment point. This ruling protects the national uniformity of ERISA plan administration, allowing employers to design benefit packages without conforming to 50 different sets of state insurance mandates. However, it also solidifies a 'regulatory gap' where self-funded plans may legally offer fewer benefits than those required for fully insured plans in a given state, a gap the court states only Congress has the authority to address.
