ERISA


Employee Retirement Income Security Act of 1974

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

 

 

 


TCJL Brief in Response to RQ-0539-KP

AG 0539-KP - TCJL brief 5-22-24

 


Senator Schwertner AG Opinion Request RQ-0539-KP

RQ-0539-KP

 


Logo Letter to House Insurance March 27,2023

HB2021 Letterv3 (2) (31)

As you may recall from our prior analysis, HB 2021 would require a health benefit plan issuer or pharmacy benefit manager (PBM) contracted to administer a self-funded, employer-sponsored employee benefit plan governed by the Employer Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.) to comply with certain state statutes and regulations found in Chapter 1369, Insurance Code. Our analysis attempted to break the bill down into pieces and look at which individual provisions in Chapter 1369, as applied to ERISA plans, might survive a pre-emption challenge and which might not.

This afternoon at House Insurance Committee’s hearing on HB 2021, a proposed committee substitute was offered that substantially narrows the scope of the bill. Instead of bringing ERISA plans wholly under Chapter 1369, as the introduced version of the bill does, the substitute limits state regulation of ERISA plans to two subchapters. We discussed these, as well as the others, in our initial analysis, but since the bill now focuses on them, let’s take another look.

Our analysis will appear confusing because, as we noted previously, Chapter 1369 has two Subchapter Ls with the same section numbering. As luck would have it, CSHB 2021 targets these two, so we bear with us as we try to distinguish them without creating more confusion than already exists.

The first Subchapter L was added in 2021 by HB 1763. It governs the contractual relationship between plan issuers or PBMs and pharmacies or pharmacists and:

  • prohibits an issuer or PBM from reducing the amount of a claim payment to a pharmacist or pharmacy after adjudication of the claim through the use of an aggregated effective rate, quality assurance program, or other direct or indirect remuneration fee except in accordance with an audit (§ 1369.553);
  • bars a PBM from paying an affiliated pharmacist or pharmacy a reimbursement amount that is more than the amount the PBM pays a nonaffiliated pharmacist or pharmacy for the same service (§ 1369.555);
  • prohibits an issuer or PBM from, as a condition of a contract, barring a pharmacy or pharmacist from sending an enrollee’s drugs by mail under certain circumstances (§ 1369.557);
  • prohibits an issuer or PBM from requiring a pharmacy or pharmacist to meet accreditation or recertification standards more stringent than or inconsistent with federal and state requirements or blocking the dispensing of drugs that may be dispensed under the pharmacy’s or pharmacist’s license (§ 1369.558); and
  • and prohibits retaliation against a pharmacy or pharmacist (§ 1369.559).

The second Subchapter L was likewise added in 2019 by HB 1919. This subchapter:

  • blocks a plan issuer or PBM from transferring to or receiving from the issuer’s or PBM’s affiliated provider a record containing patient- or prescriber-identifiable information for a commercial purpose (§ 1369.553);
  • steering or directing a patient to use an affiliated provider through online messaging regarding the provider or other advertising, marketing, or promotion of the provider (§ 1369.554); and
  • prohibits an issuer or PBM from requiring a patient to use an affiliated provider to receive the maximum benefit or reduced cost-sharing and from soliciting a patient or prescriber to transfer a patient’s prescription to an affiliated provider (§ 1369.555).

The first question we ask is whether these provisions resemble those at issue in Rutledge v. Pharmaceutical Care Management Association, 141 S.Ct. 474 (2020), in which SCOTUS upheld an Arkansas statute over an ERISA pre-emption challenge brought by the Pharmaceutical Care Management Association (PCMA) on the basis that the statute merely established a floor for the cost of benefits that a plan may choose to provide, which may indirectly increase the cost of pharmacy benefits but does nothing to interfere with plan design or administration. The Court thus drew a clear line between legislation that deals with contracts between PBMs and in-network pharmacies and legislation that crosses the line into direct regulation of plan benefits or how the employer chooses to structure those benefits. As we noted in our prior analysis, Chapter 1369 contains provisions that in some ways parallel the Arkansas statute, but they are located primarily in Subchapter H, which deals with the use of formularies, maximum allowable cost lists, and pharmacy appeals of MAC prices. Consequently, it appears to us that the targeted subchapters in CSHB 2021 are notthe same as those allowed through the pre-emption portal in Rutledge.

The question then becomes whether the provisions described above cross the pre-emption line because they interfere with the design or administration of an ERISA plan. The first Subchapter L clearly limits the ability of a health plan issuer or PBM to contract with pharmacies and pharmacists. It intervenes specifically, for example, in claims payment after an adjudication process, differential treatment of affiliated and nonaffiliated providers, and accreditation and recertification standards. These do not seem to be matters confined solely to a “floor for the cost of benefits that a plan may choose to provide,” as SCOTUS ruled in Rutledge. Instead, they establish what is permissible in a contract between a health plan and a provider or between a health plan and a third-party administrator. In our view, these provisions have a significant impact on both plan design and administration to the point of directly affecting prescription drug benefits, the specific terms under which they can be offered to enrollees, and the specific methods and procedures through which a health plan or administrator determine an whether claims have been paid appropriately. We think a very strong argument can be made that this part of CSHB 2021 is likely pre-empted.

The same goes with applying the second Subchapter L to ERISA plans, this time with regard to regulating the communications between the plans and their enrollees about their providers. In particular, among other things, it blocks a health plan from offering a plan design that: (1) confers a higher benefit if an enrollee uses the plan’s affiliated provider; (2) provides for reduced cost-sharing if an enrollee uses the plan’s affiliated provider; and (3) informs an enrollee of the enrollee’s option to transfer a prescription to an affiliated provider. These kinds of contractual arrangements would appear to go to the heart of plan design, since they determine the level of benefits, not just the cost of benefits, and the contractual relationship between the health plan issuer and the enrollee. To us, this is a bridge too far into pre-emption territory.

In an important sense, HB 2021 has little to do with pharmacies and pharmacists, and everything to do with the impingement of state regulation on ERISA plans more generally. If the changes proposed by the bill can be applied to ERISA prescription drug benefits, they can be applied to all benefits and all providers. And at that point, the primary benefit of ERISA—to promote private health insurance coverage by making it easier for employers to provide uniform coverage for employees wherever located—will be destroyed.

Recently introduced legislation would require a pharmacy benefit manager (PBM) contracted to administer a self-funded, employer-sponsored employee benefit plan governed by the Employer Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.) to comply with certain state statutes and regulations, The legislation, HB 2021, sets up a potential clash over whether it crosses the line into federal preemption territory. It is always treacherous to try to predict what a federal court might do if presented with a challenge to this or similar legislation, but there are at least two recent decisions that may indicate the current judicial thinking on ERISA and PBM regulation.

Before getting into the big question, however, let’s take a look at what HB 2021 purports to do. The bill adds a new section to Subchapter D, Chapter 4151, Insurance Code, which requires pharmacy benefit managers to issue identification cards to enrollees and prohibiting them from selling a list of patients that contains information through which the identity of an individual patient is disclosed. That subchapter further requires a PBM to maintain the confidentiality of patient information unless disclosure is authorized by law or by the patient. The new subsection, § 4151.155, states that a PBM “must comply with the provisions of Chapter 1369 with respect to each plan administered by the [PBM], regardless of whether a provision of that chapter is specifically made applicable to the plan” (italics added). As you might have guessed, the italicized language refers to ERISA plans that contract with PBMs for third-party administration of prescription drug benefits. The bill goes on to exempt a PBM from complying with a provision of Chapter 1369 “(1) with respect to a plan expressly excluded from the applicability of the provision; or (2) to the extent that the commissioner [of insurance] determines that the nature of third-party administrators renders the provision inapplicable to [PBMs].”

Chapter 1369, Insurance Code, broadly regulates a health benefit plan’s coverage of prescription drugs, devices, and related services. It applies to a health benefit plan that “provides benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness,” which includes individual and group policies. § 1369.002. The following section lists the types of health benefit plans not subject to Chapter 1369, but this list does not specifically exempt ERISA plans. We presume that, unless ERISA plans are exempted elsewhere in Chapter 1369, HB 2021 brings those plans under the general regulatory umbrella that applies to other employee health benefit plans provided by insurance carriers and other licensed issuers.

The next step in the analysis is to determine which provisions of Chapter 1369, if applied to an ERISA plan, raise a preemption concern. The only part of Chapter 1369 that explicitly excludes “a self-funded health benefit plan as defined by [ERISA]” is Subchapter F, which regulates the manner in which a PBM may audit a pharmacy or pharmacist. As noted above, the rest of the chapter would presumably apply to an ERISA plan by virtue of HB 2021 unless pre-empted. As we have previously reported, a pair of recent federal court decisions address ERISA preemption of state regulations of PBMs. HB 2021 undoubtedly stems from these decisions at least in part, so it is important that we look closely at them in attempt to distinguish which provisions of Chapter 1369 might pass muster and which won’t.

The leading case is Rutledge v. Pharmaceutical Care Management Association, 141 S.Ct. 474 (2020), which arose from a 2015 Arkansas statute that required pharmacy benefit managers (PBMs) to reimburse pharmacies at or above the pharmacies’ cost to obtain a covered drug from a wholesaler. This law required PBMs to update their lists specifying the maximum allowable cost (MAC) for each drug each time the wholesale price changed, established an appeals process for pharmacies challenging the amount of reimbursement, and increased the reimbursement rate if a pharmacy could not obtain the drug at a lower price than the MAC list specified from its customary wholesaler. If a pharmacy could not get reimbursement from a PBM at the price of acquisition or above, the pharmacy could decline to sell the drug to a beneficiary of the plan. SCOTUS upheld the Arkansas statute over an ERISA pre-emption challenge brought by the Pharmaceutical Care Management Association (PCMA) on the basis that the statute merely established a floor for the cost of benefits that a plan may choose to provide, which may indirectly increase the cost of pharmacy benefits but does nothing to interfere with plan design or administration. The Court thus drew a clear line between legislation that deals with contracts between PBMs and in-network pharmacies and legislation that crosses the line into direct regulation of plan benefits or how the employer chooses to structure those benefits.

The Arkansas statute at issue in Rutledge has some parallels in Chapter 1369. These include:

  • 1369.354, which requires a plan issuer or PBM to use the FDA’s “Orange Book” to formulate MAC prices and to disclose to pharmacists and pharmacies the sources of the pricing data;
  • 1369.355, which requires a plan issuer or PBM to establish, maintain, and frequently update MAC price information for each drug;
  • 1369.356, which requires the issuer or PBM to provide ready access to the MAC list for pharmacists and pharmacies;
  • 1369.357, which establishes a process by which pharmacists and pharmacies may appeal a MAC price; and
  • 1369.402, which bars an issuer or PBM from directly or indirectly charging or holding a pharmacist or pharmacy responsible for any fee for any step or component related to a claims adjudication process.

It should be noted that legislation has also been filed to require a health benefit plan issuer to reduce an enrollee’s cost-sharing amount for prescription drugs by an amount equal to or greater than all rebates received or to be received from the enrollee’s PBM (HB 2180). If both this bill and HB 2021 make their way into law, this requirement will apply to ERISA plans as well.

As to HB 2021’s application of the above provisions to ERISA plans, what might the federal courts say? Like the Arkansas statute upheld in Rutledge, these provisions govern the relationship between PBMs and pharmacists and pharmacies, MAC prices, and the appeals process. So far, perhaps (we should never predict the courts), so good. But they also impose pricing requirements directly on plan issuers and, it seems to us, interfere with plan design and administration. Specifically, they require plan issuers to adopt certain pricing practices and regulate the relationship between issuers and enrollees. A very strong argument can thus be made that, at least as to the application of HB 2021 to this part of Chapter 1369, the bill is pre-empted.

Moreover, as we have described, HB 2021 draws ERISA plans into Chapter 1369 in other ways as well. We have noted that the only Subchapter F, Chapter 1369, which provides for audits of pharmacies and pharmacists, explicitly exempts ERISA plans. We have further discussed the effect of the bill on Subchapter H (MAC prices) and Subchapter I (pharmacy benefit claims adjudication). What about the rest of Chapter 1369? Let’s take it subchapter by subchapter.

  • Subchapter A requires a health benefit plan that covers prescription drugs to cover any drug prescribed to treat an enrollee for a chronic, disabling, or life-threatening illness covered under the plan if the drug has FDA approval and or is otherwise validated by the commissioner peer-reviewed medical literature. It further prohibits from denying coverage based on “medical necessity” unless the reason for the denial is unrelated to the legal status of the drug use. § 1369.004. Finally, the subchapter caps the amount that a plan issuer may require an enrollee to pay for a prescription drug at the point of sale and requires the plan to allow refills of prescription eye drops under certain circumstances. § 1369.0041.
  • Subchapter B: prescribes requirements for plan issuers regarding notices to enrollees of drug formularies (§ 1369.054); limits the time and manner of modifications of drug coverage under a plan (§ 1369.0541); imposes guidelines that a plan issuer must follow when requiring a step therapy protocol (§ 1369.0545); mandates that an issuer establish a process under which a provider may request an exception to a step-therapy protocol, and deems such a request as granted under certain circumstances (§ 1369.0546); requires an issuer to offer an enrollee continuing coverage of a drug removed from the formulary until the plan renewal date (§ 1369.055); and makes the refusal of an issuer to provide coverage for a prescription drug not included in a formulary and determined by the enrollee’s physician to be medically necessary as an adverse determination (§ 1369.056).
  • Subchapter C prohibits a plan from excluding or limiting benefits for an FDA-approved prescription contraceptive drug or device (§ 1369.104) or imposing a cost-sharing requirement for such drugs or devices or an outpatient contraceptive service more than the amount required for other benefits (§ 1369,105). It further limits waiting periods for contraceptive drugs, devices, or outpatient services (§ 1369.106) and prohibits a plan from discriminating against an enrollee because of the enrollee’s use of a contraceptive drug, device, or outpatient service (§ 1369. 107).
  • Subchapter D prescribes required content for enrollee identification cards (§ 1369.153).
  • Subchapter E mandates coverage for a prescribed, orally administered anticancer medication and limits cost-sharing to the same basis as chemotherapy treatment. It further bars an issuer from reclassifying anticancer medications or increasing cost-sharing requirements without also applying the same increases to the majority of comparable medical or pharmaceutical benefits under the plan (§ 1369.204).
  • Subchapter E-1 prohibits an issuer that covers stage-four advanced, metastatic cancer and associated conditions from requiring an enrollee to fail to respond to a different drug prior to covering a prescribed drug (§ 1369.213).
  • Subchapter G directs the commissioner to prescribe a single, standard form for prior authorization of prescription drug benefits, requires issuers to use the form and to make it available on various websites, and penalizes issuers for failing to accept the form (§ 1369.304).
  • Subchapter J requires a plan to prorate any cost-sharing amount charged for a partial supply of a prescription drug used to treat a chronic illness based on the necessity of synchronizing the dates that the pharmacy dispenses the enrollee’s prescription (§ 1369.454), bars the issuer from prorating a fee paid to the pharmacy for dispensing a drug for which cost-sharing was prorated (§ 1369.455), and mandates that the plan establish a process through which the plan, the enrollee, the enrollee’s provider, and the pharmacist may jointly approve a medication synchronization plan, which must include certain circumstances under which the pharmacist may override the plan (§ 1369.456).
  • Subchapter K requires PBMs to file annual reports with the commissioner stating the aggregated rebates, fees, price protection payments, and any other payments collected from pharmaceutical drug manufacturers and the amount of those payments passed on to health benefit plan issuers or enrollees at the point of sale of the drug (§ 1369.502). It further requires the issuer to submit the names of the 25 most frequently prescribed drugs across all plans, the percent increase in annual net spending and premiums for drugs across all plans, the percent of specialty drugs with utilization management requirements across all plans, and the premium reductions attributable to specialty drug utilization management (§ 1369.503).
  • Subchapter L governs the relationship between plan issuers or PBMs and pharmacies or pharmacists. It prohibits an issuer or PBM reducing the amount of a claim payment to a pharmacist or pharmacy after adjudication of the claim through the use of an aggregated effective rate, quality assurance program, or other direct or indirect remuneration fee except in accordance with an audit (§ 1369.553). It further bars a PBM from paying an affiliated pharmacist or pharmacy a reimbursement amount that is more than the amount the PBM pays a nonaffiliated pharmacist or pharmacy for the same service (§ 1369.555); prohibits an issuer or PBM from, as a condition of a contract, barring a pharmacy or pharmacist from sending an enrollee’s drugs by mail under certain circumstances (§ 1369.557), prohibits an issuer or PBM from requiring a pharmacy or pharmacist to meet accreditation or recertification standards more stringent than or inconsistent with federal and state requirements or blocking the dispensing of drugs that may be dispensed under the pharmacy’s or pharmacist’s license (§ 1369.558), and prohibits retaliation against a pharmacy or pharmacist (§ 1369.559).
  • Subchapter L (yes, there are two subchapter Ls with the same section numbers) blocks a plan issuer or PBM from transferring to or receiving from the issuer’s or PBM’s affiliated provider a record containing patient- or prescriber-identifiable information for a commercial purpose (§ 1369.553) or steering or directing a patient to use an affiliated provider through online messaging regarding the provider or other advertising, marketing, or promotion of the provider (§ 1369.554). Finally, an issuer or PBM may not require a patient to use an affiliated provider to receive the maximum benefit or reduced cost-sharing, nor to solicit a patient or prescriber to transfer a patient’s prescription to an affiliated provider (§ 1369.555).

Interestingly, the companion bills SB 1221 and HB 826 make several changes to Subchapter B, Chapter 1369, which include new notice requirements for health benefit plan issuers if they increase an enrollee’s prescription drug costs and a prohibition of modifying, on renewal of a policy, an enrollee’s contracted benefit level for a previously covered prescription drug for a medical condition or mental illness that the prescribing physician determines is the most appropriate course of treatment. Contrary to HB 2021, these bills specify that ERISA plans are excluded from Subchapter B, undoubtedly because they directly “interfere with plan design or administration.”

Regarding the remaining subchapters, it seems reasonably clear that A, C, E, and E-1 mandate that health benefit plans provide benefits for specified conditions. Applying these requirements to ERISA plans, in our view, would likely be pre-empted because they go to the heart of plan design and would compel ERISA plans to offer benefits in Texas that might not be available in other states (though nothing prevents ERISA plans from offering the mandated benefits). Subchapter B broadly regulates drug formularies and would appear to breach ERISA pre-emption by imposing non-uniform plan administration requirements. Subchapter D, requiring uniform pharmacy benefit cards, may or may not implicate ERISA pre-emption to the extent it requires Texas enrollees to have different cards than enrollees in other states (we’re not sure how significant an impact on plan administration this might be). We have already seen that Subchapter F explicitly exempts ERISA plans and would not be affected by HB 2021, but Subchapter G, which requires standard forms for requesting prior authorization forms, would be. We are certainly not in the business of administering ERISA plans, but it seems to us that using a different form for this purpose in Texas than in other states could produce a significant administrative and compliance headache. The same goes for Subchapter I, which directly infringes plan administration by imposing specific limitation on the administration of the claims adjudication process. We think Subchapter J would most likely fail the pre-emption test because it micromanages the costs and medication synchronization plans, hitting both plan design and administration. The first Subchapter L would seem to present a better case for avoiding pre-emption, as it simply requires an annual report, but the same might not be true for the second Subchapter L. That one goes directly to plan design and administration in its regulation of the plan’s contracts with affiliated providers, levels of payment to affiliated and nonaffiliated providers, and communications with prescribers and enrollees.

To summarize this long, frequently tedious, but nevertheless necessary analysis, we have a high level of confidence that HB 2021 has very significant ERISA pre-emption implications. If enacted, there is no question that litigation would ensue, with a reasonable probability that the bill’s attempt to apply Subchapters A, C, E, E-1, G, I, J, and the second L to ERISA plans would fail. Again, we will leave it to the real experts on ERISA pre-emption to tell us if they agree or disagree with us, and—as always—we both stand to be corrected and never purport to predict what a court will do.

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