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To assure national uniformity of federal law, the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.S. § 1001 et seq., broadly preempts state law and assures that federal regulation will be exclusive. Section 514(a) provides that ERISA shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan as defined by ERISA. The courts interpret this clause broadly to carry out Congress' purpose of displacing any state effort to regulate ERISA plans. Thus, any law that "relates to" a plan is preempted by § 514(a), and the phrase "relates to" is given its common sense meaning, as having (1) connection with or (2) reference to such a plan.
Client First Brokerage Services, Incorporated, Maran, Incorporated, and Trio Metal Products Company, Incorporated, were Maryland employers sponsoring self-funded employee health benefit plans subject to Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. The Maryland employers purchased stop-loss insurance from United Wisconsin Life Insurance Company to cover their plans' benefit payments above an annual $ 25,000-per-employee level, known as the "attachment point." United Wisconsin Life was also agreeable to a lower attachment point, insuring a greater portion of the plans' payments, if requested to do so by the plans' sponsors. In 1994, the Maryland Insurance Agency disapproved United Wisconsin Life's stop-loss policies issued to the Maryland employers because the attachment point was set informally at $ 25,000 and could be reduced at the employer's request. Subsequently, the Maryland Insurance Commissioner dropped the minimum attachment point for stop-loss insurance to $ 10,000 of benefits paid to any single beneficiary annually. The Commissioner also imposed a minimum aggregate attachment point of 115% of total benefit payments expected to be paid to all plan beneficiaries. The Maryland employers and United Wisconsin Life filed suit, alleging that Maryland’s insurance regulations improperly sought to regulate employee benefit plans in violation of ERISA's preemption provision. The district court held that ERISA preempted Maryland’s regulations. The present appeal followed.
Did ERISA preempt Maryland’s insurance regulations?
Because the purpose and effect of the state regulation was to force state-mandated health benefits on self-funded ERISA plans when they purchased certain types of stop-loss insurance, the court held that § 514(a) of ERISA, 29 U.S.C.S. § 1144(a) preempted the regulation. The court found that, in seeking to require self-funded plans to offer coverage consistent with state insurance law, the state crossed the line of preemption. The court noted that the state's fear that plans would circumvent state regulation and offer citizens too few health benefits was understandable. However, because the state regulation impermissibly attempted to mandate the benefits that certain self-insured plans could offer, the court affirmed the judgment of the district court.