Washington, D.C., August 9, 2024 – The ERISA Industry Committee (“ERIC”) this week submitted comments to Assembly member Buffy Wicks (D-Oakland) and the California State Assembly Appropriations Committee regarding the applicability and enforceability of SB 966 to self-insured health benefit plans governed by the federal Employee Retirement Income Security Act of 1974 (“ERISA”). The bill aims to control the cost of prescription drugs by enacting new regulations on pharmacy benefit managers (PBMs). ERIC’s comments outline the critical importance of ERISA preemption and caution that the legislation could overstep state authority by directly impacting the design and administration of ERISA plans, which could lead to costly litigation.
“ERIC recognizes the need to regulate certain PBM practices and applauds efforts that improve the affordability of prescription drugs. However, we are deeply concerned that SB 966 may open the door for enforcement against self-funded employer plans, which would violate federal law, and could ultimately lead to the California law being struck down,” said Dillon Clair, Director of State Advocacy, ERIC.
In the 50 years since ERISA’s enactment, the U.S. Supreme Court has interpreted ERISA’s preemption clause very broadly to supersede state laws that either: 1) refer explicitly to ERISA plans; or 2) have a substantial financial or administrative impact on them, including regulating the provider networks that plans may use. Two specific cases have affirmed the limitation of states to regulate ERISA plans, including ERISA self-insured plans.
- In Rutledge v. PCMA, 141 S.Ct. 474 (2020), the Supreme Court held that states may regulate PBM payment calculations to pharmacies. However, that authority is narrowly limited to a “state law that merely increases costs.”[1] As drafted, SB 966 features provisions that have a broader impact on, and relation to, core elements of plan design and administration, which would trigger ERISA preemption.
- In 2023, the United States Court of Appeals for the Tenth Circuit applied the logic of Rutledge to the case of PCMA v. Mulready, No. 22-6074 (10th Cir. 2023). The Tenth Circuit upheld ERISA preemption, finding that the Oklahoma law overreached in controlling the design and administration of those plans. Provisions and requirements included in SB 966 mirror the Oklahoma law at issue in Mulready.
Clair added, “While the bill does not explicitly reference ERISA or self-insured employer plans, it also does not exempt or carve-out these federally protected plans. The Committee should clearly exempt these plans and, at the very least, clarify that these plans are not deemed to be engaged in the business of insurance.”
ERIC is a national advocacy organization exclusively representing the largest employers in the United States in their capacity as sponsors of employee benefit plans for their nationwide workforces. With member companies that are leaders in every economic sector, ERIC is the voice of large employer plan sponsors on federal, state, and local public policies impacting their ability to sponsor benefit plans. ERIC member companies offer benefits to tens of millions of employees and their families, located in every state and city across the country.
[1] See Rutledge v. PCMA, 141 S. Ct. 474 (2020)
Read ERIC’s comment letter here.