Guest Article

(From the May 2, 2005 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

DOL Advisory Opinion on ERISA Preemption of Medicaid Reimbursement Claims

Medicaid is the payer of last resort. If a State Medicaid program pays a claim that should have been paid by another plan, including a group health plan, the Medicaid program can recover those payments from that plan. But special issues may arise if the State Medicaid program is seeking reimbursement from an ERISA plan, as illustrated by a recent Department of Labor (DOL) advisory opinion. Advisory Opinion 2005-05A (March 23, 2005).

Background

The advisory opinion was requested by the Texas Attorney General's (AG) Civil Medicaid Fraud Section. According to the advisory opinion, the Texas AG is investigating a pharmacy benefit manager (PBM) for possible violations of the federal False Claims Act. Basically, the False Claims Act imposes significant civil penalties on anyone who submits a false or fraudulent claim for payment to the federal government. In the case of a violation, the government is entitled to treble damages plus a civil penalty of at least $5,500, but no more than $11,000, per claim.

Most of the PBM's clients are self-funded ERISA group health plans. The investigation stems from the PBM's refusal to reimburse the Texas Medicaid program for certain prescription drug payments that could have been covered by these plans. Apparently, the PBM rejected the State's claims either because:

Beyond the basic questions about the validity of the PBM's reasons for refusing to reimburse the Texas Medicaid program is the bigger issue of whether ERISA preempts any state law cause of action the Medicaid program initiates against the PBM to recover these payments.

ERISA Preemption and Other Relevant Provisions

Generally, ERISA preempts "any and all State laws insofar as they ... relate to any employee benefit plan" subject to ERISA. ERISA § 514(a). But there are several exceptions to this broad preemption provision, including one that specifically addresses this type of situation. According to ERISA § 514(b)(8), ERISA does not preempt "any State cause of action-- (A) with respect to which the State exercises its acquired rights under section 609(b)(3) with respect to a group health plan ... , or (B) for recoupment of payment with respect to items or services pursuant to a State plan for medical assistance approved under Title XIX of the Social Security Act which would not have been payable if such acquired rights had been executed before payment with respect to such items or services by the group health plan." (Title XIX is the Medicaid program.)

ERISA § 609(b)(3) states, "A group health plan shall provide that, to the extent that payment has been made under a State plan for medical assistance approved under title XIX of the Social Security Act in any case in which a group health plan has a legal liability to make payment for items or services constituting such assistance, payment for benefits under the plan will be made in accordance with any State law which provides that the State has acquired the rights with respect to a participant to such payment for such items or services."

Congress enacted ERISA §§ 514(b)(8) and 609(b)(3) as part of the Omnibus Budget Reconciliation Act (OBRA) of 1993 (P.L. 103-66). At the same time, Congress added ERISA §§ 609(b)(1) (requiring group health plans to honor assignments of benefit rights to Medicaid) and 609(b)(2) (requiring group health plans to enroll participants or beneficiaries and determine and pay benefits without regard to any individual's eligibility for Medicaid benefits). These ERISA changes correspond to changes to Medicaid requiring states to enact laws (1) prohibiting insurers and group health plans from taking Medicaid eligibility into account in enrollment or in making benefit payments, and (2) to recoup Medicaid payments from liable third parties, including self-funded ERISA plans.

DOL Analysis

According to the advisory opinion, ERISA § 609(b)(3) "plainly requires an ERISA plan to pay for covered benefits as required by a State law under which the State, having made Medicaid payments, acquires the rights of a plan participant to receive plan benefits relating to such payments." As a result, the PBM's "point-of-sale" argument is without merit. ERISA plans must provide for reimbursing State Medicaid plans in these circumstances in order to comply with ERISA § 609(b)(3).

As for the PBM's claim that the State submitted its claims too late, the advisory opinion asserts the State cannot "compel the plan to reimburse it for items or services for which the participant was not entitled to payment from the plan for procedural reasons." If the plan had already properly rejected the participant's benefit claim on procedural grounds before the participant filed the Medicaid claim, the DOL does not believe the plan would be obligated to reimburse the State Medicaid program.

However, according to the advisory opinion, a plan should reimburse Medicaid if the participant could have filed a valid claim for benefits under the plan at the time he or she submitted the Medicaid claim. In other words, it doesn't matter when Medicaid asks the plan for reimbursement so long as the participant could have filed a valid claim for benefits with the plan when he or she filed a claim with Medicaid.

Based on these conclusions, it appears safe to assume the DOL believes the PBM should have honored at least some of the claims filed by the Texas Medicaid program. But the question then becomes whether ERISA preempts the Texas Medicaid program's ability to sue the PBM for reimbursement. (The law giving the Texas Medicaid program the authority to sue is a State law. If it were a federal law, ERISA preemption would not be an issue.) Relying on ERISA § 514(b)(8), the advisory opinion concludes--

Significantly, the advisory opinion asserts ERISA would preempt any State law "requiring a group health plan to pay the State for items or services that the plan does not cover." Also, a State could not compel a plan "to pay the full amount of the State's payment for a drug if the amount that the plan would have paid under its terms was less."

Effect on Employer Health Plans

This DOL Advisory opinion's bottom line effect on employer plans will be that some employer plans could be receiving claims from state Medicaid offices years after the original service was rendered or the drug supplied. For those employers with a significant number of Medicaid-enrolled employees or dependents (and some employers have such populations), both accounting for the plan trust and the actuarial projections for planning and reporting on those plans could be very different in the future.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Bart Massey 202.220.2104, Elizabeth Drigotas 202.879.4985, Diane McGowan 202.220.2077, Taina Edlund 202.879.4956, Martha Priddy Patterson 202.879.5634, Laura Edwards 202.879.4981, Tom Pevarnik 202.879.5314, Mike Haberman 202.879.4963, Tom Veal 312.946.2595, Stephen LaGarde 202.879.5608, Deborah Walker 202.879.4955, J.D. Lutz 202.879.5366 Copyright 2005, Deloitte.