AG defends States’ Rights to Regulate Health Insurance

by | Apr 15, 2021 | Regional News

Attorney General Dana Nessel

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Thursday, April 15, 2021

AG Nessel Joins Coalition in Defending States’ Rights to Regulate Health Insurance and Protect Consumers

Coalition Argues that Expanding the Scope of ERISA Eviscerates Critical Protections and Undermines Federalism   

LANSING – Michigan Attorney General Dana Nessel joined a coalition of 22 attorneys general in urging the U.S. Court of Appeals for the Fifth Circuit to protect states’ historic power to regulate insurance and protect their residents from fraud, abuse, or substandard health coverage.

The coalition filed the brief in Data Marketing Partnership v. U.S. Department of Labor, a case that challenged  the Department of Labor’s conclusion that a scheme—under which users obtain health insurance in exchange for sharing data as they browse the internet—failed to qualify as an “employee benefit plan” under the Employee Retirement Income Security Act.

“The Department of Labor got it right. This type of scheme is not an employee benefit plan, and characterizing it as one allows bad actors to skirt state-level regulations that are vital to protecting residents from fraud and abuse in the healthcare industry,” Nessel said. “I join my colleagues in defending states’ rights to regulate health insurance and protect consumers.”

ERISA is a federal statute regulating employee welfare and benefit plans. Where applicable, ERISA preempts—that is, supersedes—state law, meaning that certain ERISA plans are immune from direct state regulation.  Because states heavily regulate the sale of insurance to protect consumers, opportunistic entities have historically tried to disguise health plans sold to consumers as certain ERISA-based employee health plans to avoid state insurance rules.

In this case, Plaintiff Data Marketing Partnership runs a “partnership” that provides health insurance to thousands of “limited partners” in exchange for allowing an entity to collect and sell any electronic data generated by the limited partners as they use their personal devices and surf the Internet. DOL concluded that based on the partnership’s own description, the plan failed to qualify under any of ERISA’s provisions, but a federal judge in Texas invalidated that decision and ordered DOL to treat the plan as a valid ERISA scheme.

In the amicus brief filed in the U.S. Court of Appeals for the Fifth Circuit, the coalition argues that treating this scheme as an employee benefit plan under ERISA encroaches on states’ historic authority to regulate insurance and protect consumers, upsets the guardrails the Supreme Court and Congress have placed on ERISA’s scope, and disregards the actual nature of the relationship between Data Marketing Partnership and its limited partners, which has none of the hallmarks of an employer-employee relationship.

In the amicus brief, the coalition argues that:

  • There are significant federalism concerns with treating these health plans as ERISA plans. As the Supreme Court has consistently reaffirmed, regulating insurance is fundamentally a state, rather than federal, concern. ERISA supersedes state laws but does not disturb this fundamental state authority. As its name suggests, the Employee Retirement Income Security Act is concerned with pension and welfare plan management in the traditional employer-employee context, not with the regulation of insurance more broadly. In light of this backdrop, courts must carefully consider whether a plan falls within ERISA’s ambit because that decision affects fundamental issues of state versus federal authority.
  • Congress, the Courts, and DOL have historically been sensitive to limiting ERISA to avoid usurping state authority. Precisely because ERISA risks intruding into sensitive areas of historic state regulation, all three branches of the federal government have vigilantly policed ERISA’s boundaries to ensure that ERISA does not crowd out states’ abilities to protect consumers.
  • The district court’s decision expanded the definition of an “employee benefit plan.” The district court concluded that Data Marketing Partnership’s benefits arrangement—whereby participants obtain health insurance in exchange for sharing data as they browse the internet—was an “employee benefit plan” under ERISA. That conclusion undermines the idea that ERISA is limited to plans in genuine employment contexts. In this case, there is no evidence that the limited partners of Data Marketing Partnership are meaningfully employed by the Partnership or perform any services on its behalf.  If unscrupulous insurance providers could avoid state regulation simply by marketing insurance to individual “users” who passively provide data through everyday use of personal devices, ERISA would swallow states’ historic power to protect consumers.

Joining Attorney General Nessel in filing this brief are the attorneys general of California, Colorado, Connecticut, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and Wisconsin.