America's Health Insurance Plans v. Ralph Hudgens

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_________________
No. 13-10349
_________________
D.C. Docket No. 1:12-cv-02978-WSD
AMERICA’S HEALTH
INSURANCE PLANS,
Plaintiff-Appellee,
versus
RALPH T. HUDGENS, in his Official
Capacity as Georgia Insurance and Safety
Fire Commissioner,
Defendant-Appellant.
_________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________
(February 14, 2014)
Before HILL, and COX, Circuit Judges and MIDDLEBROOKS, ∗ District Judge.
MIDDLEBROOKS, District Judge:
∗
Honorable Donald M. Middlebrooks, United States District Judge for the Southern District of
Florida, sitting by designation.
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This appeal is taken from an opinion and order by the District Court for the
Northern District of Georgia preliminarily enjoining Defendant Ralph T. Hudgens
(the “Commissioner”), in his official capacity as Georgia Insurance and Safety Fire
Commissioner, from enforcing several provisions of the Georgia Code as
preempted by Section 514 of the Employee Retirement Income Security Act of
1974 (“ERISA”), 29 U.S.C. §§ 1144(a).
Before getting into the merits of this case, it is helpful to understand the two
general models that employers use to provide health care to their employees. One
way is through an “insured” health benefit plan. In this situation, ACME
Corporation might enter into a contract with an insurance company for a fixed cost
to provide health benefits to ACME’s employees.1 The insurance company will
process claims for health care payments, utilizing its own funds to pay claims
covered by the health insurance plan. The insurance company – not ACME – will
assume the entire risk in paying out health care claims.
Alternatively, ACME Corporation might provide its employees with “self-
funded” or “self-insured” health benefit plans, in which case ACME would pay out
any claims from its own funds.2 Thus, in this model, it would be ACME
Corporation – the employer – that endures the financial risk associated with being
1
Employees often pay premiums to contribute to the price their employers pay to insurance
companies.
2
Similar to insured plans, the employee may share the cost through premiums deducted from
their paycheck, and some employers might impose certain deductibles or co-payments.
2
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responsible for paying health care charges incurred by its employees.
Additionally, employers providing self-funded plans often contract with third-party
administrators (“TPAs”) to perform certain administrative functions for the
employer and each plan. 3 A TPA’s administrative duties might include processing
claims, paying claims, and managing the everyday functioning of a plan.
This case deals with the latter-described health care model – “self-funded”
health benefit plans – and the TPAs of self-funded plans. For the reasons set forth
below, we affirm.
I. BACKGROUND
In May 2011, the State of Georgia enacted the Insurance Delivery
Enhancement Act of 2011 (“IDEA”), which amends certain portions of Georgia’s
Insurance Code, including Georgia’s “Prompt Pay” laws. These Prompt Pay laws
had been in place since 1999 and required “insurers” to either pay a claim for
benefits, or give notice of why a claim would not be paid, within fifteen working
days after receipt of a claim. See O.C.G.A. § 33-24-59.5(b)(1) (2005). If an
insurer did not comply with the Prompt Pay requirements, the insurer would have
to pay annual interest of eighteen percent on the proceeds or benefits due under the
terms of the plan. See id. § 33-24-59.5(c).
3
As seen in this case, TPAs are often insurance companies acting solely in an administrative
capacity.
3
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Under the 1999 Prompt Pay statute, the statutory definition of “insurer”
included “accident and sickness insurers,” but expressly excluded entities that
provide for the financing or delivery of health care services through a health
benefit plan “subject to the exclusive jurisdiction of the federal Employee
Retirement Income Security Act of 1974 [(“ERISA”)], 29 U.S.C. Section 1001, et
seq.” O.C.G.A. § 33-24-59.5(a)(3) (2005). Thus, the 1999 Prompt Pay statute
applied to insured ERISA plans (where employers contract with insurance
companies to provide health insurance), but not to self-funded ERISA plans (where
the employer bears the ultimate risk).
In recent years, fewer and fewer of Georgia’s health benefits payors have
become subject to the Prompt Pay laws because of a rising trend amongst
employers to provide self-funded plans to employees. In response to the abated
impact the 1999 Prompt Pay laws have on health benefits payors, the Georgia
General Assembly passed IDEA, and Georgia’s Governor subsequently signed
IDEA into law. Several sections of IDEA, if placed into effect, would extend the
prompt-pay restrictions to self-funded health plans and their TPAs – something the
original statute expressly excluded from its breadth – and impose additional
timeliness restrictions and penalties.
A. Section 4
4
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Section 4 of IDEA amends a section of the Georgia Code that governs the
licensure of insurance “administrators.” Section 4 does several things. First, it
expands the definition of “administrator” to include business entities that provide
claims processing services “on behalf of a single or multiple employer self-
insurance health plan” – or TPAs. Second, it removes a provision that exempted
from licensure a “business entity that acts solely as an administrator of one or more
bona fide employee benefit plans established by an employer or an employee
organization, or both, for whom the insurance laws of this state are preempted
pursuant to [ERISA].” Third, Section 4 adds a new subsection providing that
“administrators” (which now includes TPAs) are subject to the 1999 Prompt Pay
statute, as amended, unless the self-insured health plan failed to fund the plan
enough to allow the TPA to pay the claim. 4
B. Section 5
Section 5 of IDEA amends the Prompt Pay statute as it relates to the timely
payment of health benefits. This Section changes the substantive prompt-pay
requirements by: (1) providing new deadlines for payment or notice – fifteen days
for electronic claims and thirty days for paper claims for processing and paying (or
denying) a claim; (2) reducing the interest rate on untimely payments from
eighteen percent to twelve percent; and (3) adding a provision authorizing the
4
Thus, for the most part, TPAs are subject to the Prompt Pay laws.
5
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Commissioner to impose an “administrative penalty” on an insurer that fails to
timely process at least ninety-five percent of its claims in a financial quarter.
Section 5 charges the Commissioner with the duty to collect timeliness data and
impose the aforementioned penalties.
Additionally, Section 5 changes certain statutory definitions in the Prompt
Pay statute. It amends the definition of “health benefit plan” to specifically include
a “self-insured plan.” It also changes the Prompt Pay statute’s definition of
“insurer” in three ways. First, it deletes the express exemption for ERISA-
regulated self-funded plans, which effectively includes an ERISA “self-insured
health plan” in the definition of “insurer.” Second, it adds “the plan administrator
of any health plan” and “any other administrator as defined in . . . Code Section 33-
23-100 [Section 4]” to the definition of “insurer.” This modification brings TPAs
for self-funded plans within the breadth of the Prompt Pay regulations. Third,
Section 5 adds a new subsection that states: “This Code section shall be applicable
when an insurer is adjudicating claims for its fully insured business or its business
as a third-party administrator.”
C. Section 6
Section 6 of IDEA creates a new section of the Georgia Code – Section 33-
24-59.14 – that governs payments made by “administrators” and “insurers” to
health care providers and facilities claiming benefits under health benefit plans.
6
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Section 6’s substantive requirements and penalties are identical to those set forth in
Section 5. Section 6 expressly adopts Section 5’s definitions of “benefits” and
“health benefits plans.” By cross-reference, Section 6 also provides the definition
of “administrator” as defined in Section 4.
Section 6, however, provides a different definition for “insurer” from what is
provided in Section 5. Unlike Section 5, Section 6’s definition of “insurer” does
not include “any self-insured health benefit plan” or “any other administrator as
defined in paragraph (1) of subsection (a) of Code Section 33-23-100 [Section 4]”;
however, Section 6’s definition of insurer does include “an accident and sickness
insurer . . . or any similar entity, which entity provides for the financing or delivery
of any health plan.” As noted above, “health benefit plan” under Section 6
includes self-insured plans.
On August 28, 2012, appellee America’s Health Insurance Plans (“AHIP”) 5
filed an action for declaratory judgment against the Commissioner, as the State
official charged with enforcing IDEA. Specifically, AHIP’s complaint seeks a
declaration that Sections 4, 5, and 6 of IDEA, as applied to self-funded health plans
and their administrators (or TPAs), are preempted by ERISA. On September 14,
5
AHIP is a national trade association that represents companies that provide and administer
employer health benefit plans. In reality, AHIP’s members are health insurance companies
acting as TPAs for self-funded employer health plans.
7
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2012, AHIP moved to preliminarily enjoin the Commissioner from enforcing the
challenged statutes.
On the eve of the amendments’ effective date, which was scheduled for
January 1, 2013, the district court granted AHIP’s motion and preliminarily
enjoined the Commissioner from enforcing Sections 4, 5, and 6 of IDEA on the
ground that each was preempted by Section 514 of ERISA. America’s Health Ins.
Plans v. Hudgens, 915 F. Supp. 2d 1340 (N.D. Ga. 2012).6 This interlocutory
appeal followed, arguing largely that the district court erred by finding that the
challenged IDEA provisions were preempted.
II. JURISDICTIONAL ISSUES
Before we can assess the district court’s grant of a preliminary injunction,
we must consider the issues about our jurisdiction. In a motion to dismiss, the
Commissioner challenged the district court’s jurisdiction. Specifically, and
relevant to this appeal, the Commissioner argued that AHIP lacks standing to
challenge the IDEA provisions, and that the Tax Injunction Act bars the suit. The
district court found that AHIP did have standing to bring the suit and that the Tax
Injunction Act did not preclude the action.
6
The district court also denied the Commissioner’s motion to dismiss, which argued, inter alia,
that AHIP lacks standing and that the Tax Injunction Act, 28 U.S.C. § 1341, deprives the court of
jurisdiction.
8
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We review jurisdictional issues de novo and factual findings of jurisdictional
facts for clear error. Underwriters at Lloyd’s, London v. Osting-Schwinn, 613 F.3d
1079, 1085 (11th Cir. 2010) (citing Amos v. Glynn Cnty. Bd. of Tax Assessors, 347
F.3d 1249, 1255 (11th Cir. 2003)).
A. Standing
The Commissioner appeals the district court’s determination of standing on
two grounds. First, the Commissioner argues that AHIP failed to demonstrate
injuries to AHIP or its members. Second, the Commissioner argues that the district
court erred by not allowing the Commissioner to conduct discovery on the issue of
AHIP’s standing.
In order to have standing under Article III of the Constitution, AHIP has the
burden of showing: “(1) an injury in fact, meaning an injury that is concrete and
particularized, and actual or imminent, (2) a causal connection between the injury
and the causal conduct, and (3) a likelihood that the injury will be redressed by a
favorable decision.” CAMP Legal Def. Fund, Inc. v. City of Atlanta, 451 F.3d
1257, 1269 (11th Cir. 2006) (quotations omitted). The injury prong of standing is
met when the injury is “imminent—not abstract, hypothetical, or conjectural,”
Alabama-Tombigbee Rivers Coalition v. Norton, 338 F.3d 1244, 1253 (11th Cir.
2003), or when application of the challenged statute is likely, or there is a credible
threat of application. See Ga. Latino Alliance for Human Rights v. Governor of
9
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Ga., 691 F.3d 1250, 1257-58 (11th Cir. 2012). An association, such as AHIP in
this case, has standing to sue on behalf of its members when: “(a) its members
would otherwise have standing to sue in their own right; (b) the interests it seeks to
protect are germane to the organization’s purpose; and (c) neither the claim
asserted nor the relief requested requires the participation of individual members in
the lawsuit.” Doe v. Stincer, 175 F.3d 879, 882 (11th Cir. 1999) (quoting Hunt v.
Wash. State Apple Adver. Comm’n, 432 U.S. 333, 343, 97 S. Ct. 2434, 2441
(1977)). The Commissioner only challenges whether AHIP made a sufficient
showing of an injury in fact to one of its members, and we see no reason to disturb
the district court’s findings as to the second and third prongs of the CAMP
analysis.
The district court found that when IDEA takes effect, “AHIP’s members will
be faced with the choice of complying with its requirements, which impose direct
and indirect costs, or ignoring it, which will expose them to penalties imposed by
the Commissioner.” AHIP, 915 F. Supp. 2d at 1352. The court also noted the
Commissioner’s public announcement of his intention to enforce the prompt-pay
requirements of IDEA, and found that “application of the statute to AHIP’s
members ‘is likely.’” Id. (quoting Ga. Latino Alliance for Human Rights, 691 F.3d
at 1257-58). 7 The Commissioner asserts that the district court erred in its finding
7
In addition, the district court acknowledged that the parties did not dispute that the challenged
10
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because the only evidence AHIP provided in support of its standing was the
Declaration of Mary Beth Donahue, AHIP’s Executive Vice President.
“[W]hen standing becomes an issue on a motion to dismiss, general factual
allegations of injury resulting from the defendant’s conduct may be sufficient to
show standing.” Bischoff v. Osceola Cnty., Fla., 222 F.3d 874, 878 (11th Cir.
2000). Here, we find that the allegations in the Complaint and assertions in Ms.
Donahue’s declaration, 8 along with the Commissioner’s stated intent to enforce the
new prompt-pay statutes, were sufficient to support the district court’s finding that
injury to AHIP’s members was imminent.
Further, we are not persuaded by the Commissioner’s secondary argument –
that the district court erred by granting the injunction without allowing the
Commissioner an opportunity to conduct discovery on the issue of standing. The
Commissioner did not serve any discovery on the issue of standing, nor did he ask
the district court for an opportunity to conduct discovery in any of the underlying
proceedings.
IDEA provisions apply to AHIP’s members, and that AHIP alleged that its members already
incurred costs and will incur future costs to meet the new prompt-pay requirements.
8
The Commissioner cites to Doe v. Stincer, 175 F.3d 879 (11th Cir. 1999), in support of his
argument that AHIP did not establish standing. Stincer involved an affidavit submitted in
support of an associational plaintiff’s standing. The Stincer affidavit contained two paragraphs
pertinent to the plaintiff’s standing, but omitted any allegation that the plaintiff’s constituents
suffered a concrete injury in connection with the challenged state statute, or that a favorable
decision would redress any purported injury. Id. at 887. We therefore found the Stincer affidavit
to be insufficient to establish the plaintiff’s associational standing. In the instant case, the
Donahue declaration adequately sets forth that IDEA will cause specific harm or injury to
AHIP’s members as a result of enactment. Thus, Stincer is distinguishable.
11
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Accordingly, we find that AHIP has standing to challenge Sections 4, 5, and
6 of IDEA.
B. The Tax Injunction Act
In his second jurisdictional attack, the Commissioner argues that AHIP’s
lawsuit is barred by the Tax Injunction Act. The Tax Injunction Act prohibits
district courts from “enjoin[ing], suspend[ing] or restrain[ing] the assessment, levy
or collection of any tax under State law where a plain, speedy and efficient remedy
may be had in the courts of such State.” 28 U.S.C. § 1341. This Act’s
“overarching purpose [is] to impede federal court interference with state tax
systems . . . .” Miami Herald Publ’g Co. v. City of Hallandale, 734 F.2d 666, 670
(11th Cir. 1984).
The Commissioner argues that the fees, fines, and assessments collected
pursuant to IDEA should be considered “taxes” under the Tax Injunction Act.
According to the Commissioner, any fees and fines (1) would “inure to the public
at large and not merely defray the cost of regulation or benefit regulated entities,”
and (2) “can be contested [by a regulated party] via administrative hearing and by
judicial review.” (Appellant Br. at 22).
The Commissioner’s argument fails because IDEA is regulatory in nature; it
is not intended to raise revenues. See Miami Herald, 734 F.2d at 670 (“to the
extent the statute challenged is regulatory rather than revenue raising in purpose,
12
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the measure does not constitute a tax, and the district court retains jurisdiction”).
Here, it is apparent that the challenged provisions’ primary purpose is to regulate
the timeliness and manner of payment to health care providers. In fact, the
Commissioner stated in his district court briefs that the purpose of IDEA is “to
address the growing problem of [TPAs] of health benefit plans not paying medical
claims in a timely manner.” 9 Further, the fact that a regulatory agency (the
Commissioner) is responsible for administering and collecting IDEA’s statutory
penalties weighs against a finding that IDEA’s purpose is to raise revenue. See
Collins Holding Corp. v. Jasper Cnty., 123 F.3d 797, 800 (4th Cir. 1997) (“An
assessment imposed directly by a legislature is more likely to be a tax than one
imposed by an administrative agency.”); San Juan Cellular Tel. Co. v. Pub. Serv.
Comm’n, 967 F.2d 683, 685, 686 (1st Cir. 1992). Thus, any fees, fines, or
assessments collected under IDEA cannot be said to be a “tax,” and we therefore
find that the Tax Injunction Act does not apply to bar this suit.
III. PRELIMINARY INJUNCTION
Having addressed the jurisdictional issues, we now turn our focus to the
district court’s entry of a preliminary injunction and, more specifically, whether the
9
The Commissioner does not argue – nor can he – that IDEA’s “purpose” is to raise revenue.
Rather, he claims that the fees, fines, and assessments collected under IDEA are “taxes” under
the Act, since they are subsequently contributed to Georgia’s general fund. This position ignores
two important components of IDEA: (1) these “taxes” (as defined by the Commissioner) are only
imposed for noncompliance with the prompt-pay deadlines; and (2) the twelve-percent interest
penalties imposed on claims paid after the prompt-pay deadlines are to be paid directly to the
person or health care provider claiming payments.
13
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district court correctly found that Sections 4, 5, and 6 of IDEA are preempted by
ERISA.
The district court’s grant of a preliminary injunction is reviewed for abuse of
discretion. Osmose, Inc. v. Viance, LLC, 612 F.3d 1298, 1307 (11th Cir. 2010)
(citing N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1216 (11th
Cir. 2008)). Its findings of fact underlying the grant of an injunction are reviewed
for clear error, and its conclusions of law are reviewed de novo. Id.
A district court may grant a preliminary injunction only if the moving party
shows that: “(1) it has a substantial likelihood of success on the merits; (2)
irreparable injury will be suffered unless the injunction issues; (3) the threatened
injury to the movant outweighs whatever damage the proposed injunction may
cause the opposing party; and (4) if issued, the injunction would not be adverse to
the public interest.” Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000). This
Court has acknowledged that “[a] preliminary injunction is an extraordinary and
drastic remedy not to be granted unless the movant clearly established the ‘burden
of persuasion’” for each prong of the analysis. Id. (alteration in original) (quoting
McDonald’s Corp. v. Robertson, 147 F.3d 1301, 1306 (11th Cir. 1998)). The
Commissioner challenges the district court’s rulings on each of these elements, but
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focuses on the first element and whether the district court properly found that
Sections 4, 5, and 6 of IDEA are preempted by ERISA. 10
A. Likelihood of Success on the Merits
The United States Constitution gives Congress the power to preempt state
law, see U.S. Const. art. VI, cl. 2, and such power can be exhibited in several ways.
AHIP asserts two forms of preemption: express and conflict. Express preemption
“arises when the text of a federal statute explicitly manifests Congress’s intent to
displace state law.” United States v. Alabama, 691 F.3d 1269, 1281 (11th Cir.
2012) (citing Fla. State Conference of the NAACP v. Browning, 522 F.3d 1153,
1167 (11th Cir. 2008)). Conflict preemption occurs in one of two ways: (1) “when
it is physically impossible to comply with both the federal and the state laws,” or
(2) “when the state law stands as an obstacle to the objective of the federal law.”
Id. (quotations omitted).
At the district court, AHIP argued that the challenged provisions were
expressly preempted under Section 514 of ERISA. Alternatively, AHIP argued
that the challenged provisions were preempted by ERISA’s civil enforcement
provisions and claims-processing regulations under traditional principles of
conflict preemption. Because the district court concluded that the IDEA provisions
were “expressly” preempted by Section 514, it did not reach AHIP’s alternative
10
The district court found that AHIP was likely to succeed on the merits because, as a matter of
law, ERISA preempts the challenged provisions of IDEA.
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arguments for conflict preemption. As set forth below, we conclude that express
preemption under Section 514 applies. 11
In determining whether the district court erred, we turn to ERISA’s express
preemption provision, Section 514(a). Section 514 states that ERISA’s provisions
“shall supersede any and all State laws insofar as they may now or hereafter relate
to any [ERISA] employee benefit plan.” 29 U.S.C. § 1144(a). This broad statutory
preemption is restricted by the “Saving Clause,” which provides that “nothing in
this subchapter shall be construed to exempt or relieve any person from any law of
any State which regulates insurance, banking, or securities.” Id. § 1144(b)(2)(A).
The “Deemer Clause” then acts as an exception to the Saving Clause, providing
that an ERISA employee benefit plan “shall [not] be deemed to be an insurance
company or other insurer, . . . or to be engaged in the business of insurance . . . for
purposes of any law of any State purporting to regulate insurance companies [or]
insurance contracts.” Id. § 1144(b)(2)(B).
Thus, in determining whether a challenged law is expressly preempted under
Section 514 of ERISA, we first look to whether it “relates to” employee benefit
plans. If it does not, the law is not preempted. If it does “relate to” employee
benefit plans, we then turn to whether the law is “saved” by the Saving Clause. If
saved, we must determine whether the Deemer Clause applies. If the Deemer
11
Because Section 514 applies to preempt enforcement of Sections 4, 5, and 6 of IDEA, we need
not address AHIP’s arguments of traditional conflict preemption.
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Clause applies, then the Saving Clause does not serve to protect the law from
preemption. 12 Accordingly, this Court’s analysis begins with whether the
challenged IDEA provisions “relate to” ERISA plans.
1) “Relates to”
The first point to address is whether the IDEA provisions “relate to” self-
funded employee benefit plans. While ERISA’s express preemption is “clearly
expansive,” the “relates to” requirement “cannot be taken ‘to extend to the furthest
stretch of its indeterminacy,’ or else ‘for all practical purposes pre-emption would
never run its course.’” Egelhoff v. Egelhoff, 532 U.S. 141, 146, 121 S. Ct. 1322,
1327 (2001) (quoting N.Y. State Conference of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U.S. 645, 655, 115 S. Ct. 1671 (1995)).
The Supreme Court has found that a state law relates to an ERISA plan “if it
has a connection with or reference to such plan,” id. at 147 (quoting Shaw v. Delta
Air Lines, Inc., 463 U.S. 85, 97, 103 S. Ct. 2890, 2900 (1983)), but “cautioned
against an ‘uncritical literalism’ that would make pre-emption turn on ‘infinite
12
As quoted by the district court, the Supreme Court has described the workings of Section 514
as follows:
If a state law “relate[s] to . . . employee benefit plan[s],” it is pre-empted.
§ 514(a). The saving clause excepts from the pre-emption clause laws that
“regulat[e] insurance.” § 514(b)(2)(A). The deemer clause makes clear that a state
law that “purport[s] to regulate insurance” cannot deem an employee benefit plan
to be an insurance company. § 514(b)(2)(B).
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 107 S. Ct. 1549, 1552 (1987) (alterations in
original).
17
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connections.’” Id. (quoting Travelers, 514 U.S. at 656, 115 S. Ct. at 1677). “[T]o
determine whether a state law has the forbidden connection, we look both to ‘the
objectives of the ERISA statute as a guide to the scope of the state law that
Congress understood would survive,’ as well as to the nature of the effect of the
state law on ERISA plans.” Id. (quoting Cal. Div. of Labor Standards
Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325, 117 S. Ct. 832,
838 (1997)).
In applying the relevant Supreme Court precedent, we agree with AHIP that
Sections 4, 5, and 6 of IDEA impermissibly “relate to” ERISA plans. Specifically,
the challenged provisions would require self-funded ERISA plans to process and
pay provider claims, or notify claimants of claim denials, within fifteen or thirty
days, depending on whether the claim is submitted electronically or
conventionally. These timeliness requirements fly in the face of one of ERISA’s
main goals: to allow employers “to establish a uniform administrative scheme,
which provides a set of standard procedures to guide processing of claims and
disbursement of benefits.” Id. (quoting Fort Halifax Packing Co., Inc. v. Coyne,
482 U.S. 1, 9, 107 S. Ct. 2211, 2216 (1987)). If these provisions were to go into
effect, employers offering self-funded health benefit plans would be faced with
different timeliness obligations in different states, thereby frustrating Congress’s
intent.
18
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The Commissioner argues that only those state statutes that regulate or
conflict with substantive aspects or coverage determinations of ERISA plans have
been found to “relate to” such plans. According to the Commissioner, IDEA’s
prompt-pay or notice requirements are procedural, and therefore cannot “relate to”
ERISA plans. We are not persuaded by this argument. As the Egelhoff Court
stated, “[o]ne of the principal goals of ERISA is to enable employers to establish a
uniform administrative scheme, which provides a set of standard procedures to
guide processing of claims and disbursement of benefits.” 532 U.S. at 148, 121 S.
Ct. at 1328 (quotations omitted). The Commissioner’s position runs contrary to
this Supreme Court precedent. Additionally, as correctly noted by the district
court, IDEA’s requirements will not necessarily directly alter the coverage
decision-making process, but they will compel certain action (prompt benefit
determinations and payments) by plans and their administrators. The statutes will
also impact the amount paid to beneficiaries in the case of late payment or notice.
Further, the Commissioner argues that there can be no “connection with”
ERISA because IDEA’s focus is on the regulation of non-fiduciary TPAs and
medical providers, which he purports are not “ERISA entities.” This argument
holds no water, as we have held that ERISA’s overarching purpose of uniform
regulation of plan benefits overshadows this distinction. See Jones v. LMR Int’l,
Inc., 457 F.3d 1174, 1180 (11th Cir. 2006). In Jones, we held that state law claims
19
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against Defendant LMR International were preempted because the claims “clearly
relate[d] to the [employee benefit] plan and [were] thus preempted.” Id. Notably,
however, the claims against defendant Lilli Thomas, an agent of LMR in
administering the plan, were also held to be preempted, “even if she [was] not
herself an ERISA entity.” Id. Going even further, we noted the irrelevancy of
whether one of the defendants was an “ERISA entity,” stating that state law claims
that would “affect relations among principal ERISA entities” give rise to
preemption. Id.; accord Morstein v. Nat’l Ins. Servs., Inc., 93 F.3d 715, 722 (11th
Cir. 1996) (“when a state law claim brought against a non-ERISA entity does not
affect relations among principal ERISA entities as such, then it is not preempted by
ERISA”). 13 Additionally, IDEA is not limited to TPAs, but rather applies to self-
funded health plans without regard to the specific entity addressing the claim.
Thus, our decision is not influenced by whether the IDEA provisions affect ERISA
entities, or whether the TPAs are fiduciaries of the plan, since the enactment of
IDEA would affect self-funded plans and the relations amongst principal ERISA
entities.
2) The Saving and Deemer Clause
13
Morstein dealt with state law claims brought against an independent insurance agent accused
of fraudulently inducing the plaintiff to change benefit plans. This Court held that state law
claims against an independent insurance agent and his agency were not preempted by ERISA. In
doing so, we explained that the agent and his agency “had no control over the payment of
benefits or a determination of [the plaintiff’s] rights under the plan.” Id. at 723.
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Having found that the challenged IDEA provisions “relate to” ERISA self-
funded plans, we consider whether an exception applies, or whether an exception
to the exception applies. The district court found that the challenged IDEA
provisions fall within the Saving Clause, but that the Deemer Clause applies to
prohibit Georgia’s timeliness regulations.
As noted above, the Saving Clause exempts a state law from Section 514(a)
preemption if the state law “regulates insurance.” 29 U.S.C. § 1144(b)(2)(A). For
the Saving Clause to apply, the state law must satisfy two requirements: (1) it
“must be specifically directed toward entities engaged in insurance,” and (2) it
“must substantially affect the risk pooling arrangement between the insurer and the
insured.” Ky. Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 341-42, 123 S.
Ct. 1471, 1479 (2003). Applying this standard, the district court found that the
Saving Clause applies to save the challenged IDEA provisions from preemption.
Specifically, as to the second prong of the test, the district court found that the risk
pooling arrangement between the insurer and the insured was substantially affected
“because the Act . . . imposes a timeliness requirement onto the agreement between
the insurer, or plan, and the insured, or beneficiary.” AHIP, 915 F. Supp. 2d at
1361.
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AHIP does not dispute that IDEA is “directed toward entities engaged in
insurance”; rather, it focuses its argument on the second prong – whether the
timeliness amendments “substantially affect the risk pooling arrangement.”
While the Supreme Court has refined the analytical framework for
determining when a state law regulates insurance, application here is less than
certain. Justice Scalia, writing for a unanimous Court in Miller, offers some
guidance. First, the Court explains that a state law merely “aimed at insurance
companies” – like one that mandates the rate at which insurance companies must
pay their janitors – does not fall under the Saving Clause because such a law does
not substantially affect the risk pooling arrangement. Miller, 538 U.S. at 338, 123
S. Ct. at 1477. Second, the Court states that its test “requires only that the state law
substantially affect the risk pooling arrangement between the insurer and insured; it
does not require that the state law actually spread risk.” Id. at 339 n.3 (emphasis in
original). Third, the Court notes that the actual terms of the insurance policies
need not be altered or controlled by the state law in order for the Saving Clause to
apply; rather, “it suffices that [the state laws] affect the risk pooling arrangement
between insurer and insured.” Id. at 338. The Supreme Court also provides
several examples in which state laws “regulate insurance” since they “alter the
scope of permissible bargains between insurers and insureds.” Id. at 338-39.
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These examples include mandated-benefits laws (Metropolitan Life), 14 the notice-
prejudice rule (UNUM Life),15 and independent-review provisions (Rush
Prudential).16
AHIP argues that the IDEA amendments do not alter the scope of
permissible bargains under Miller. AHIP relies on the Fifth Circuit’s decision in
Ellis v. Liberty Life Assurance Co. of Boston, 394 F.3d 262 (5th Cir. 2004), for the
notion that the IDEA provisions are remedial, and, therefore, do not affect the risk
pooling arrangement. 17 The district court distinguished Ellis on the ground that
“IDEA does not simply afford remedies for insurer ‘bad faith’ but imposes specific
requirements on insurers and administrators in processing insureds’ and
beneficiaries’ claims.” AHIP, 915 F. Supp. 2d at 1361 n.28. The district court also
noted that all health insurance policies must expressly include the terms of
Georgia’s timeliness provisions. Id. (citing O.C.G.A. § 33-29-3(b)(8) (2005)).
On the issue of whether the IDEA amendments affect risk pooling, we note
that the mandated inclusion of IDEA’s timeliness requirements in self-funded
14
Mandated-benefits laws require a policy to cover certain risks mandated by statute.
15
Notice-prejudice rules provide whether an insurer must cover claims submitted late.
16
Independent-review laws require insurers to offer beneficiaries an independent review of
certain health benefit denials.
17
Ellis dealt with two Texas statutes that were “remedial in nature—they provide[d] remedies to
which the insured may turn when injured by the bad faith of the insurer.” Id. at 277 (internal
quotation marks omitted). In finding the statutes to be “remedial,” and applying the Miller test,
the Fifth Circuit held that the challenged laws “cannot possibly affect the bargain that an insurer
makes with its insured ab initio.” Id. (emphasis in original). The statutes provided only that “the
insured may recover additional damages if thereafter the insurer acts in bad faith or unfairly,”
notwithstanding the bargain that was struck between insurer and insured. Id.
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policies is not dispositive. Miller, 538 U.S. at 338. Further, the timeliness
requirements seem to be largely directed toward the needs of medical providers,
and, as in Ellis, the challenged provisions appear to be remedial. Nor are
Georgia’s timeliness requirements identical to the notice-prejudice rules cited in
Miller, since those rules “govern[ed] whether or not an insurance company must
cover claims submitted late.” Id. at 339 n.3. Nevertheless, we acknowledge the
similarities between Georgia’s prompt pay requirements, mandated-benefits laws,
notice-prejudice rules, and independent review laws in that they all affect the rights
and duties of the parties under the terms of a policy.
But we save this determination for another day, as we agree with the district
court’s application of the Deemer Clause, which exempts self-funded ERISA plans
from state laws that “regulate insurance.” See FMC Corp., 498 U.S. at 64, 111 S.
Ct. at 411 (“Our interpretation of the deemer clause makes clear that if a plan is
insured, a State may regulate it indirectly through regulation of its insurer and its
insurer’s insurance contracts; if the plan is uninsured [or self-funded], the State
may not regulate it.”). 18 Sections 4, 5, and 6 of IDEA regulate the timeliness of
benefit payments under self-funded ERISA plans, and it is apparent that the
purpose and effect of IDEA is to extend Georgia’s prompt pay laws to claims made
18
We are not persuaded by the argument that the challenged IDEA provisions are not preempted
to the extent that they only apply to TPAs, as this position ignores the fact that TPAs would be
acting pursuant to the underlying self-funded ERISA plans. Whether direct or indirect, state
insurance regulation of self-insured ERISA is not allowed by operation of the Deemer Clause.
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under self-funded ERISA plans. Thus, the Deemer Clause applies to preempt the
challenged IDEA provisions.
For these reasons, the challenged IDEA provisions are preempted by ERISA
Section 514. Therefore, we do not disturb the district court’s determination that
AHIP is likely to succeed on the merits of its claim.
B. Equitable Factors
The Commissioner argues that the district court erred and abused its
discretion in concluding that AHIP met its burden to show the final three
preliminary injunction requirements. The district court held that AHIP’s members
will suffer irreparable injury if Sections 4, 5, and 6 of IDEA were implemented,
specifically finding that “[t]o comply with the law, AHIP’s members will be
required to incur the costs and burdens, including increased employee time, of
modifying their claims processing systems, of monitoring compliance, and of
preparing quarterly reports to Georgia regulators.” AHIP, 915 F. Supp. 2d at 1364.
The court, also noting the Commissioner’s public announcement of his intent to
enforce IDEA, found that “[a]bsent an injunction, AHIP’s members will be forced
either to incur the costs of compliance with a preempted state law or face the
possibility of penalties.” Id. The district court also concluded that “neither harm
to the Commissioner nor the public interest weighs against a preliminary
injunction.” Id.
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Reviewing these issues, we find that the district court did not abuse its
discretion in concluding that AHIP met its burden to show irreparable injury and
that the balance of equities weighed in favor of a preliminary injunction. 19
IV. CONCLUSION
The result of Sections 4, 5, and 6 of IDEA is an impermissible encroachment
upon federal law. When, as here, a state law relates to certain areas that Congress
has explicitly determined are off limits, we must recognize that federal law
prevails. Based on the conclusions set forth above, we affirm the district court’s
order preliminarily enjoining enforcement of Sections 4, 5, and 6 of IDEA.
AFFIRMED.
19
As to the latter, we have said that “[f]rustration of federal statutes and prerogatives are not in
the public interest,” and no harm arises from a state’s nonenforcement of invalid legislation.
Alabama, 691 F.3d at 1301.
26