In another blow to employer-sponsored benefit plans, the U.S. Supreme Court last week upheld New York state's tax on plan-sponsored clinics.
Ruling 7-2, justices said the federal law governing employer-sponsored plans does not preclude the state from imposing a tax on gross receipts of plan-sponsored clinics.
It's the second time in two years the high court has defended New York's provider surcharges. In April 1995, the court vindicated the state's practice of adding surcharges to the hospital rates of patients covered under employee benefit plans. The "Travelers case," named for the insurer, was widely viewed as a watershed for states, affording them broad power to regulate hospital rates and impose taxes.
"We're gratified that the Supreme Court affirmed our authority to oversee and regulate the healthcare finance delivery system," said Bob Hinckley, a spokesman for the state health department. He said the tax generates some $6.5 million to $7 million annually in revenues from clinics alone.
Although the Healthcare Association of New York State still opposes provider taxes, it joined with the American Hospital Association in supporting the state. "While the tax is in effect, it should be applied to all facilities without regard to whether they are owned by a self-insured fund," said Daniel Sisto, HANYS' president.
Representatives of benefit plan sponsors, though, characterized last week's ruling as a further erosion of the Employee Retirement Income Security Act, the federal law regulating employee benefit plans.
"This is obviously a loss for those of us who believe in ERISA preemption," said Neil Grossman, vice president for legal and regulatory affairs at the Association of Private Pension and Welfare Plans, a Washington-based trade association whose 240 members represent large employer plan sponsors. Although not as devastating as the decision in the landmark Travelers case, it is "another small step down the road to watering down the protections that ERISA has afforded," he said.
And the plans worry this latest crack in ERISA will spring another leak. "Is it possible for states to now impose ordinary income taxes on plans? That's a mighty fat calf when you start looking at the amounts of contributions made to ERISA plans," said Donato Caruso, an attorney with Lambos & Junge, the defendant's co-counsel.
In 1990, New York state imposed a tax on the gross receipts of hospitals, nursing homes, home-care agencies and diagnostic and treatment centers. The following year, a trust fund sponsored by the New York Shipping Association-International Longshoremen's Association sued the state, claiming an exemption from the tax under ERISA. The fund owns and operates two New York-based outpatient clinics that provide medical diagnosis and treatment services to longshore workers, retirees and their dependents. Those clinics, subject to a 0.6% tax, paid more than $7,000 in 1991.
Although a federal court denied relief, the 2nd U.S. Circuit Court of Appeals reversed the decision, saying the tax directly affects the fund.
Writing for the high court, Justice John Paul Stevens echoed the Travelers Insurance Co. decision, in which the court said the taxes do not directly relate to the plan sponsors in a way that triggers an ERISA exemption.
"Any state tax, or other law, that increased the cost of providing benefits to covered employees will have some effect on the administration of ERISA plans, but that simply cannot mean that every state law with such an effect is preempted by the federal statute," Stevens wrote.