Do employers that sponsor self-insured health plans need to worry about state laws?

Many employers sponsor self-insured health plans, relying on third party administrators (TPAs) to handle claims and other aspects of compliance, primarily compliance with the federal law known as ERISA. Lately, with increasing frequency, states have been getting into the act, passing laws that arguably complicate plan administration.

Many state laws should be inapplicable to self-insured plans because of ERISA “preemption” (federal law, ERISA, applies, not state law). However, a slew of state laws attempting to regulate pharmacy benefit managers may escape ERISA preemption and still apply (and even impose some administrative requirements on employers).

This week, the U.S. District Court for the Eastern District of Tennessee granted summary judgment to McKee Foods Corp., notching a victory for pharmacy benefit managers (PBMs) and employers in the ongoing conflict between PBMs and the states that have implemented legislation in attempts to restrict them.

The ruling in McKee Foods Corp. v. BFP Inc. d/b/a Thrifty Med Plus Pharmacy, et al. prevents Tennessee from enforcing portions of Public Chapter 569, a law passed in 2021 that had, in pertinent part, prohibited a PBM or covered entity from interfering with a patient’s right to choose its pharmacy provider (an “any willing provider” mandate). After ThriftyMed accused McKee of unlawfully excluding ThriftyMed from the provider network in its pharmacy plan in 2021, McKee sued.

Judge Atchley found that certain provisions of Public Chapter 569 – namely the “any willing provider” requirement – improperly regulate PBMs that administer benefits for ERISA-governed plans and are, thus, preempted by ERISA.

The decision marks a significant victory for PBMs and employers who argue that state-level regulations create an inconsistent patchwork of rules that undermine the efficiency of nationwide benefits administration under ERISA.

D+G continues to track similar conflicts between state regulators and PBMs in Arkansas, Oklahoma, and Texas, among others, and will monitor whether the McKee case proceeds on appeal.

Most health and welfare benefit plans use PBMs.  Join D+G at the Labor + Employment Seminar on the morning of Wednesday, April 9, to learn more about state regulation of the PBMs as well as other topics of critical importance to your company’s benefit plan administration.