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"Everyone knows" that the Employee Retirement Income Security Act of 1974 preempts state laws that "relate to" employer-sponsored health plans — but it's a lot more complicated than that.
Anu Gogna and Benjamin Lupin, attorneys who work as senior regulatory advisors at Willis Towers Watson, a giant insurance broker, warn in a new analysis against employers assuming that federal law will automatically protect their self-insured health plans against state efforts to regulate pharmacy benefit managers.
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"Under ERISA, preemption of state laws is not automatic," the WTW advisors warn. "It requires a federal court decision."
Drafters of ERISA wanted to protect large employers and multistate employers from the effects of state benefits rules that might make administering benefit plans more complicated and drive up benefits costs.
But, in recent years, pharmacists and prescription drug manufacturers have fought back against PBMs' efforts to shape the pharmaceutical market. Some states have applied their PBM laws to PBMs serving self-insured employer health plans.
The U.S. Supreme Court said in 2020, in a ruling on Rutledge v. Pharmaceutical Care Management Association, that Arkansas could apply its PBM law to self-insured plans because the law "did not force plans to structure benefits in a particular way... and did not make 'reference to' or have an impermissible 'connection with' ERISA plans," according to Gogna and Lupin.
The court held that "laws 'that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage' are not preempted," the attorneys add.
Related: Supreme Court takes up PBM case: Does ERISA preempt states' efforts to regulate drug prices?
The court is now considering a case, Mulready v. PCMA, that could affect whether a state can take steps such as requiring a PBM to work with any pharmacy that's willing to accept its terms or forbidding PBM use of discounts that encourage plan participants to fill prescriptions at specific pharmacies.
What it means: ERISA plan administrators and PBMs should pay close attention to state PBM laws and get legal advice from their own attorneys, Gogna and Lupin write.
"Employer plan sponsors should not solely rely on their PBM vendor for legal interpretation of state and federal PBM laws," the attorneys add.
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
