Advisory Opinion 1975-22

Dear :

This is in response to your letter of January 9, 1975, which raises the question of whether                                   Prepaid Health Care Act [statute] has been preempted by the Employee Retirement Income Security Act of 1974 (ERISA) and, if so, the extent of such preemption.

It is our opinion that the [State] Act has been entirely superseded by ERISA with respect to employers engaged in interstate commerce or in an industry or activity affecting such commerce.

Section 514 of ERISA states the general rules that with certain exceptions, "the provisions of this title and Title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) and not exempt under section 4(b)." The exceptions to preemption given in section 514(b) relate to prior causes of action, insurance, banking, securities, and generally applicable criminal laws, none of which appear to be pertinent to the [State] Act.

The plans covered by section 4(a) are pension or welfare plans (including prepaid comprehensive health care plans) established or maintained by an employer, employee organization or both when either the employer or the employee organization is engaged in commerce or in an industry or activity affecting commerce. Given the broad definition of "industry or activity affecting commerce" in section 3(12) of ERISA and the Supreme Court's interpretation of this concept over the last three decades, it is unlikely that plans of many employers in [State] would fail to be covered by ERISA.

The exceptions from coverage in section 4(b) of ERISA would not appear to operate to preserve the [State] Act. In your letter you noted the exception of section 4(b)(3) for plans "maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws." State laws requiring plans for any of the enumerated purposes would not be within the scope of preemption since the exception from coverage discloses an explicit federal policy of leaving those laws intact. However, we believe that the provision of basic health care is fundamentally different and distinguishable from the three listed purposes, each of which provides at least partially for income replacement rather than the prevention and treatment of illness. The three statutory purposes are to provide income replacement in the event of disability, unemployment or job-related injuries. Basic health care might be made available to disabled, unemployed or injured workers, but the nature of the service provided would still be unrelated to income replacement. Workmen's compensation may provide medical reimbursement in addition to income replacement, but it will do so only for job-related injuries. Indeed, [State] has recognized the basic distinction through section 45 of Regulation XLII, providing that if a health care contractor pays a workmen's compensation claim where a workmen's compensation liability is established, the health care contractor shall be reimbursed by the workmen's compensation carrier.

The reasons for broad exemption of State laws under ERISA were succinctly stated by Senator Williams, a major sponsor and floor manager of the bill, during final consideration.

Both House and Senate bills provided for preemption of State law, but -- with one major exception appearing in the House bill -- defined the perimeters of preemption in relation to the the areas regulated by the bill. Such a formulation raised the possibility of endless litigation over the validity of State action that might impinge on Federal regulation, as well as opening the door to multiple and potentially conflicting State laws hastily contrived to deal with some particular aspect of private welfare or pension plans not clearly connected to the Federal regulatory scheme.

 Although the desirability of further regulation -- at either the State or Federal level -- undoubtedly warrants further attention, on balance, the emergence of a comprehensive and pervasive Federal interest and the interests of uniformity with respect to interstate plans required -- but for certain exceptions -- the displacement of State action in the field of private employee benefit programs. 120 Cong. Rec. S15751 (daily ed. Aug. 22, 1974).

The major reasons for broad preemption disclosed in these remarks are (1) the need to prevent conflicting regulation over interstate plans, (2) the desire to avoid the litigation that would result from piecemeal preemption, (3) the emergence of a pervasive Federal interest in employee benefit plans, and (4) the existence of a comprehensive federal program for future study (see section 3022, ERISA).

Provisions of the type that gave rise to these concerns are the essence of the [State] Act. They include, but are not limited to, minimum benefit coverage (section 393-7), minimum proportion of employer contributions (section 393-13), participation by certain employees (section 393-14), and continuation of coverage during sickness (section 393-21). Also, these detailed provisions are explicitly applied to interstate plans by section 393-20, raising the spectre of conflicting regulation by various states.

Because these provisions are so important to the system of health care established by the [State] Act, there appears to be no way that it could be interpreted in a manner that would avoid the preemptive effect of ERISA.

For these reasons, it is our opinion that the [State] Act is entirely superseded by ERISA to the extent that it relates to employee welfare benefit plans established or maintained by an employer engaged in commerce or in an industry or activity affecting commerce.