The opinion of the court was delivered by: LOUIS J. FREEH
These consolidated actions involve a challenge by plaintiffs The Travelers Insurance Company ("Travelers") and The Health Insurance Association of America ("HIAA"), among others, to a number of New York statutes imposing surcharges on the hospital rates for certain categories of payors (the "Surcharges"). Travelers also challenges a Department of Insurance letter interpreting some of those provisions (the "Actuarial Letter").
In their complaints, plaintiffs claim that the Surcharges and Actuarial Letter are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA") and the Federal Employee Health Benefit Act ("FEHBA"). Plaintiffs now move for summary judgment. The New York State Health Maintenance Organization Conference (the "HMOs") has intervened and filed briefs in support of that motion. The United States has also filed an amicus curiae brief in support of plaintiffs' FEHBA claims.
Defendants oppose plaintiffs' motion and cross-move for summary judgment on all of plaintiffs' claims. The New York State Conference of Blue Cross and Blue Shield Plans, Empire Blue Cross and Blue Shield (collectively, the "Blues") and the Hospital Association of New York State ("HANYS") have intervened and filed briefs in support of defendants' position.
For the reasons stated below, plaintiffs' motion for summary judgment is granted in part and denied in part. Defendants' cross-motion is denied. In sum, the Court finds that (1) the Tax Injunction Act does not preclude an injunction against the 9% and 11% Surcharges; (2) the three statutory provisions at issue are all preempted by ERISA; (3) plaintiffs' claims as to the 13% Surcharge are not barred by the doctrine of laches; (4) both the 11% and 13% Surcharges are preempted by FEHBA; and (5) Items 1, 2, 3 and 5 of the Actuarial Letter are also preempted by ERISA.
As stated in the Court's prior orders dated November 10 and December 17, 1992, this case involves New York's comprehensive statutory scheme for the regulation of in-patient hospital rates. As a general rule, a patient's hospital rate is determined by the patient's diagnosis, which governs the particular category, or Diagnosis Related Group ("DRG"), to which the case is assigned. The hospital charges patients the rate applicable to their assigned DRG, subject to certain adjustments reflecting costs specific to that hospital.
Section 2807-c(1)(b) of New York's Public Health Law provides that the DRG rate for inpatient services is increased by 13% for all patients covered by any form of health insurance other than Blue Cross and Blue Shield, a health maintenance organization ("HMO") or a government plan such as Medicare (the "13% Surcharge"). Thus, patients who have hospital coverage through commercial insurers or self-insured employee benefit plans pay 113% of the applicable DRG rate, while patients who have hospital coverage through the Blues, an HMO or a government plan pay the basic DRG rate. The 13% surcharge is paid directly to the hospital.
In addition to the 11% Surcharge, the 1992 Act imposes a surcharge of up to 9% on the hospitalization cost of patients covered by HMOs (the "9% Surcharge"). While HMOs may reduce the 9% Surcharge by enrolling a specified number of Medicaid patients, HMOs which do not or cannot meet the statutory requirements must pay the full amount. Unlike the 11% Surcharge, the 9% Surcharge is not paid to the state through the hospital. Rather, each HMO must pay the surcharge funds directly into a statewide pool established by the Commissioner for Social Services. Like the 11% Surcharge, however, the 9% Surcharge is ultimately deposited into the State's General Fund.
Plaintiffs filed this action, claiming that the statutory surcharges and the Actuarial Letter are preempted under ERISA and FEHBA. Defendants disagree, and argue that the statutes at issue constitute a legitimate exercise of the State's power to regulate hospital rates and/or insurance.
1. The Tax Injunction Act
As an initial matter, the Court must determine whether the Tax Injunction Act (the "TIA"), 28 U.S.C. § 1341, bars plaintiffs' claims as to the 9% and 11% Surcharges. The TIA provides that:
The district courts shall not enjoin, suspend or restrain 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.
Thus, to determine whether a particular action falls within the scope of the TIA, a federal district court must determine (1) whether the charge at issue is a "tax," and (2) whether the State provides a "plain, speedy and efficient remedy."
The State, presumably the party with the greatest interest in such matters, has not relied upon the TIA in their papers before this Court. The Blues argue, however, that the TIA applies here because the 9% and 11% Surcharges constitute a state tax which could be challenged in New York state court.
The Court disagrees. Even assuming that the Surcharges are "taxes" within the meaning of the TIA,
an action to enjoin such taxes as violations of ERISA falls within a judicially-created exception to the TIA. See National Carriers' Conference Committee v. Heffernan, 440 F. Supp. 1280 (D. Ct. 1977).
In Heffernan, then District Judge Newman denied a motion to dismiss an ERISA plan's challenge to a Connecticut state tax on benefits paid out under the plan. 440 F. Supp. at 1281. In making that ruling, Judge Newman specifically found that because the United States could have brought the action at issue and because "the very terms of ERISA indicate that Congress intended private plaintiffs' access to the federal courts to be no less than that of the Secretary of Labor's," the plaintiff came within the "federal instrumentalities" exception to the TIA. Id. at 1284.
In any event, the Court finds that these plaintiffs do not have a "plain, speedy and efficient" remedy in New York state court. Because ERISA generally confers exclusive jurisdiction on the federal courts, a New York state court "might well feel compelled to dismiss [a state court action] on the grounds that its jurisdiction has been preempted . . . [Thus,] at a minimum the availability of a state court remedy is not 'plain.'" Heffernan, 440 F. Supp. at 1283.
It is also unclear whether plaintiffs have any remedy in state court at all. Plaintiffs are suing here in their capacity as fiduciaries for ERISA plans. However, the New York statute is structured so that ERISA plans do not themselves pay the Surcharges. As a result, plaintiffs are not "taxpayers," and could not file a declaratory judgment action in state court to enjoin enforcement of the taxes at issue. (Blues Brief at 43). Compare Morgan Guaranty Trust Company of New York v. Tax Appeals Tribunal, 80 N.Y.2d 44, 587 N.Y.S.2d 252, 599 N.E.2d 656 (1992)(ERISA plan itself paid challenged tax on capital gains from real estate transfer).
Plaintiffs are also precluded from seeking reimbursement in the New York Court of Claims. Again, although plaintiffs could sue on their own behalf to recover monies improperly paid to the State, plaintiffs could not sue on behalf of ERISA plans, because those plans do not pay the Surcharges. Accordingly, the parties on whose behalf plaintiffs are acting -- the plans themselves -- have no plain and efficient remedy in New York state courts.
a. General Principles of Preemption
In determining whether a federal statute preempts a state law, Congress' intent controls. FMC Corp. v. Holliday, 498 U.S. 52, 111 S. Ct. 403, 407, 112 L. Ed. 2d 356 (1990). "If the intent of Congress is clear, that is the end of the matter; for the court . . . must give effect to the unambiguously express intent of Congress." Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 2781, 81 L. Ed. 2d 694 (1984). See also Cipollone v. Liggett Group, Inc., 120 L. Ed. 2d 407, 112 S. Ct. 2608, 2617 (1992)(congressional intent "'is the ultimate touchstone' of preemption analysis") (quoting Malone v. White Motor Corp., 435 U.S. 497, 98 S. Ct. 1185, 1189, 55 L. Ed. 2d 443 (1978)). At the same time, a court must presume that Congress did not intend to preempt "areas of traditional state regulation." Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S. Ct. 2380, 2389, 85 L. Ed. 2d 728 (1985).
The Supreme Court has held that a law "relates to" an employee benefit plan "in the normal sense of the phrase, if it has a connection with or reference to such a plan." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct. 478, 483, 112 L. Ed. 2d 474 (1990). See also Shaw v. Delta Air Lines Inc., 463 U.S. 85, 103 S. Ct. 2890, 2900, 77 L. Ed. 2d 490 (1983). Thus, preemption is not precluded merely because a law is not specifically designed to effect employee benefit plans, or because it does not deal exclusively with subjects covered by ERISA. FMC Corp., 111 S. Ct. at 408. To the contrary, a state law may be preempted even if it is consistent with ERISA's substantive requirements. Metropolitan Life, 105 S. Ct. at 2389. Moreover, as the Second Circuit recently noted, even "a state law of general application, with only an indirect effect on a pension plan, may nevertheless be considered to 'relate to' that plan for preemption purposes." Smith v. Dunham-Bush, Inc., 959 F.2d 6, 9 (2d Cir. 1992); Ingersoll-Rand, 111 S. Ct. at 483 (state law may relate to a benefit plan and be preempted even if effect on that plan is only indirect).
As other courts have noted, the legislative history of ERISA also supports a broad reading of the preemption clause. See McCoy v. Massachusetts Institute of Technology, 950 F.2d 13, 17 (1st Cir. 1991) (legislative history "counsels against a crabbed interpretation of the statute"), cert. denied, 118 L. Ed. 2d 545, 112 S. Ct. 1939 (1992). The bill that became the ERISA statute originally contained a much narrower preemption provision. Shaw, 103 S. Ct. at 2901. However, the Conference Committee rejected that more restrictive language, and substituted the current provision. Id. at 2900.
Although expansive, ERISA's preemption clause does have certain well-established limits. For example, the Supreme Court has expressly acknowledged that "some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, 463 U.S. at 100 n.21. See, e.g., Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 108 S. Ct. 2182, 2186-91, 100 L. Ed. 2d 836 (1988) (generally applicable garnishment law not preempted); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S. Ct. 2211, 2215, 96 L. Ed. 2d 1 (1987) (one-time severance payment not preempted).
In addition, ERISA itself contains a "savings clause" which states that "except as provided . . . 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." 29 U.S.C. 1144(b)(2)(A). Thus, to the extent that the New York laws at issue here have only a peripheral impact on ERISA plans, or regulate insurance within the meaning of the ...