U.S. Supreme Court ERISA Ruling Instructive to Opt-Out Proponents
Although not our standard MSP fare, the U.S. Supreme Court ruling on March 1, 2016, in Gobeille v. Liberty Mutual Insurance Company caught my attention nonetheless as potentially interesting to our work comp readers so here goes. The Court ruled that ERISA reporting requirements preempted a Vermont law that requires certain entities to report payments and other information related to health care services to a state agency for compilation in an all-inclusive health care database. As a self-insured employer with employees in all states, Liberty maintains an ERISA employee benefit plan and is such an entity for purposes of the state law. Liberty refused to report, stating that doing so would be unduly burdensome in light of its mandatory ERISA reporting requirements. Because section 1144(a) of ERISA expressly states that it preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan,” Liberty does not need to comply. The Court found that preemption is necessary to keep multiple jurisdictions from imposing differing regulations in each state and more importantly, that it is the Secretary of Labor, not the separate states, that decides whether plans are exempt from ERISA reporting requirements or required to report data such as required in Vermont.
But even though ERISA preempts any and all state laws that relate to any employee benefit plan, in Oklahoma, it is the state law that permits use of an ERISA plan at all that caused the problem in Vasquez v. Dillard’s. Therefore this Supreme Court ruling seems to point out that the failing of the Oklahoma opt-out plan is found in its attempts to have its cake and eat it too. Had Oklahoma adopted the Texas model, where there is no mandatory comp and you either opt-in to traditional workers’ compensation with exclusive remedy or take your chances with tort liability, then Liberty Mutual might have made a difference because the plan’s terms would have governed. But because Oklahoma wanted both state mandated indemnity benefits and a virtual exclusive remedy, leaving only medical in flux, it created this hybrid situation where inequities have resulted despite stated statutory guarantees of equal or better benefits leading to the unconstitutionality ruling. It is because there is a state program that the option is still tied to that prevents ERISA preemption from being effective.
Although ERISA expressly does not govern plans exclusively maintained for workers’ compensation purposes, plans in both Texas and Oklahoma have worked around that technicality by providing additional benefits, such as a non-industrial death benefit, in order to get ERISA to apply. In Texas, where is there is no mandatory workers’ compensation system, an ERISA plan outlines all of an employer’s obligations to its injured workers as there is no state law dictating what benefits must be provided. So a Vasquez denial in a Texas nonsubscription plan would likely stand as there is no state law that requires a particular amount of coverage. However the Vasquez outcome in Oklahoma was different because a traditional plan requires coverage whereas the opt-out plan that is supposed to provide equal or better benefits doesn’t, causing the violation of equal protection rights deemed unconstitutional. The opt-out plan can’t claim federal preemption under ERISA so that its terms govern the benefits because the plan itself violates the state law that permits its existence because it does not provide equal or better benefits.
But the state law is not unconstitutional if all employers operated in good faith and truly provided equal or better benefits as required. Therefore it is not the law that is the problem here but this particular employer’s plan. As such, the Workers’ Compensation Commission likely overstepped its authority, even as a “court of competent jurisdiction” under ERISA, in ruling the entire law unconstitutional. At best, it should have ruled the Dillard’s plan in violation of the state law. However, the state is culpable since all plans are registered and approved, meaning the state was on notice of the employer’s intent to minimize benefits and authorized the plan anyway.
Regardless of how the issue is resolved in Oklahoma, states still considering opt-out legislation should take from this Supreme Court ruling that ERISA still can be a powerful tool to overcome the loss of exclusive remedy when operating outside a state workers’ compensation system. But they need to accept that the fantasies created in Oklahoma where employers could have both exclusive remedy and ultimate control are not sustainable when it is obvious that such a system requires all participating employers operate in good faith and too many examples of bad behavior have already surfaced that demonstrate otherwise. Exposure to tort liability obviously helps drive reasonable behavior as seems to work in Texas. When tort exposure is removed, as it essentially was in Oklahoma, it appears that the tendency is to provide bare minimal benefits. Opt-out is a workable alternative to costly state mandated programs but only if employers behave reasonably or are forced to pay the price when they don’t.