ERISA’s Preemption Clause: Progress Towards A More Equitable Preemption of State Laws

Health care expenditures consume a substantial portion of the gross national product of the United States. In the 1980s, to curb escalating health care costs, both public and private purchasers of health care turned to managed care organizations for the arrangement and financing of health care. These organizations used several managed care procedures to reduce health care costs, including prospective utilization review to evaluate the medical necessity of treatments and financial incentives to control physicians’ treatment decisions. Presently, approximately seventy-five percent of Americans who have health care protection from their employers obtain their benefits through managed care organizations. Managed care has been successful in reducing health care costs. However, many consumers have joined in a backlash protest against managed care organizations and their cost cutting procedures. This debate has centered around the fear that, in an effort to cut health care costs, managed care organizations use procedures and strategies that either cause or have the potential of causing a reduction in the quality of health care. In response to such concerns, states have passed approximately one thousand different laws to protect consumers from managed care’s perceived abuses, including “any willing provider” laws, anti-gag clause laws, “maternity length-of-stay bills,” “direct access” to emergency and specialist care laws, and laws regulating the deselection of physicians from preferred list of providers. Similarly, the federal government has enacted several laws, including one allowing mothers to remain in the hospital at least forty-eight hours after child birth. However, special interest groups have prevented the federal government from passing comprehensive national legislation to regulate managed care organizations and managed care strategies. Although states have more proactively regulated managed care organizations, the Employment Retirement Income Security Act (ERISA) has been a substantial limitation on states’ abilities to protect their citizen employees. This limitation is primarily effectuated through managed care organizations’ use of ERISA’s preemption clause to preempt state laws that attempt regulation of managed care organizations. For example, substantial uncertainty exists over whether, as a part of its protection of citizens from negligent medical decisions, a state like Texas can regulate the quality of medical decisions that a managed care organization makes during its utilization review process of granting or denying medical treatment. The answer to this question, and other related questions regarding the types of state laws that are acceptable regulations of managed care organizations, primarily depends on federal courts’ interpretations of ERISA’s preemption clause. Issues surrounding ERISA’s preemption of state health care laws are important because, in light of the federal government’s special interest-induced paralysis, state governments appear to be the only real protectors of consumers against managed care abuses. Fortunately, recent Supreme Court and lower-level federal court decisions have, through their construction of ERISA’s preemption clause, given more protection to state law regulation of managed care organizations and their cost-cutting strategies.