The Cases in Question

The two cases decided by the Court were initiated by a participant and a beneficiary in two separate ERISA-regulated employee benefit plans:

• In one case, Aetna refused to provide coverage for a particular arthritis drug.
• In the other case, CIGNA refused to authorize a continued hospital stay after surgery.

In both cases, the care or treatment was recommended by the plaintiff's treating physician. Each plaintiff claimed to have suffered injuries as a result of the managed care entity's coverage denial.

Both individuals sued in state court under the Texas Health Care Liability Act, which makes managed care entities liable for damages caused by their failure to exercise ordinary care when making health care treatment decisions. Aetna and CIGNA argued that the plaintiffs' state law-based claims were preempted by ERISA and that ERISA provided the exclusive remedy.

The High Court's Ruling

The U.S. Supreme Court agreed with the managed care plans. It ruled that these state law-based damage claims were completely preempted by ERISA, specifically Section 502(a)(1)(B), which provides a cause of action for recovery of wrongfully denied benefits. The Court stated:

[A]ny state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.²

The plaintiffs tried to avoid ERISA preemption by arguing that these managed care entities were essentially making health care treatment decisions, not merely coverage decisions.³ The Court rejected this line of argument and characterized these benefit determinations as "pure eligibility decisions" despite the role that medical judgment may have played in reaching them.⁴

The Court also rejected the argument that these claims were saved from preemption because the Texas law at issue was a law "regulating insurance." The Court stated that even if a law can be characterized as one "regulating insurance," it will be preempted "if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme."⁵

Implications for ERISA Plans

This decision has obvious implications for managed care entities that administer ERISA-regulated plans: they are clearly shielded from state-based lawsuits arising from coverage determinations — even when benefit determinations are based extensively on medical judgment. ERISA provides the exclusive remedy whether the coverage decision is made by the plan or plan sponsor or by another entity (such as a TPA or a managed care company) under contract with the plan or plan sponsor.

Possible Responses to the Decision

This Supreme Court decision, however, may not be the end of the story — at least in the long run. It is likely to spark renewed efforts in Congress to pass a patients' bill of rights. Patients' rights legislation became stalled a few years ago due largely to disagreement over what additional remedies patients should have when injured by health plan denials of care or coverage. Whether this decision will break that impasse remains to be seen.

As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on this Supreme Court decision. Segal can be retained to work with plan sponsors and their attorneys to evaluate the impact of the decision and possible compliance responses.

Back to Top