Self-insured health plans that have claimed exemptions from state surcharges on hospital bills are finding scant protection under ERISA, the federal Employee Retirement Income Security Act.
A recent ruling by the 2nd U.S. Circuit Court of Appeals in New York exposes self-insured plans to the same treatment as other employee benefit plans.
In an opinion dated Aug. 15, the appeals court said ERISA doesn't pre-empt self-insured plans from paying state surcharges on hospital rates.
Ruling on behalf of New York state, the court saw "no statutory basis for treating self-insured plans differently from the other plans....." As a result, self-insured plans must continue paying New York's 13% surcharge on hospital bills. The surcharge generates about $200 million a year for hospitals.
In a sweeping ruling this spring, the U.S. Supreme Court upheld New York state's system of adding surcharges to hospital bills paid by commercial insurers (May 1, p. 2). But the high court asked the 2nd Circuit to rule on whether self-insured plans also must pay the add-on.
"We're disappointed, obviously, but not surprised given the Supreme Court's decision," said Dennis Milewski, a spokesman for Hartford, Conn.-based Travelers Insurance Co., a lead plaintiff in the case. He said Travelers is "leaning against" an appeal. Given the heavy volume of cases that the Supreme Court hears, it's unlikely the court would take up the matter, he said.
Hospital association attorneys said the odds of a contradictory ruling were slim. "The Supreme Court decision was so broad; people would have been surprised if this decision came out differently," said Susan C. Waltman, senior vice president and general counsel to the Greater New York Hospital Association.
It's fairly clear that states can set prices that include surcharges for healthcare purposes, said Mark Thomas, counsel to the Hospital Association of New York State. As hospitals prepare to negotiate the overhaul or replacement of the state's rate-setting system, which will expire next summer, the Supreme Court and 2nd Circuit rulings expand the options for funding uncompensated care and graduate medical education costs, he said.
"We will have more flexibility, and we will be able to broaden the potential source of funding," Thomas said.