## Facts

- New York implemented a hospital rate-setting program requiring hospitals to apply different surcharges depending on the payer category.
- Patients covered by commercial insurers were assessed surcharges that Blue Cross/Blue Shield subscribers did not pay.
- Certain HMOs were subject to surcharges that varied with the number of Medicaid recipients enrolled.
- Some payers paid only the basic Diagnostic Related Group (DRG) rate; others paid the DRG rate plus a surcharge that could exceed 24% of the DRG amount.
- Commercial insurers and related associations claimed the surcharges increased the cost of coverage often purchased by ERISA-covered employee benefit plans, influencing plan choices among insurers.

## Issues

1. Whether New York’s hospital surcharge provisions are preempted by ERISA § 514(a) as state laws that “relate to” ERISA-covered employee benefit plans because they indirectly affect plan costs and insurer selection.

## Decision

- The Supreme Court reversed the Second Circuit and remanded.
- The Court held that the surcharge provisions were not preempted by ERISA § 514(a).
- The Court concluded the law neither made “reference to” ERISA plans nor had a forbidden “connection with” ERISA plans merely because it affected the relative prices of insurance options.

## Legal Principles

- A state law “relates to” an ERISA plan, and is preempted, if it has an impermissible “reference to” or “connection with” such a plan, assessed in light of ERISA’s objectives rather than a purely literal reading.
- No “reference to” exists where a law does not act immediately and exclusively upon ERISA plans and does not depend on ERISA-plan status for its operation.
- “Connection with” analysis focuses on whether the law effectively regulates core ERISA concerns, including by mandating benefit structures or plan administration, or by creating alternative enforcement mechanisms to ERISA’s remedial scheme.
- State laws that operate in traditional areas of state regulation, such as hospital rate-setting and health care financing, are less likely to be preempted absent clear congressional intent to displace that authority.
- Indirect economic effects on ERISA plans, including influences on relative costs among insurers, generally do not trigger preemption unless so acute that they effectively force a plan’s coverage design or materially restrict insurer choice.

## Conclusion

New York’s hospital surcharge scheme, though it altered the relative cost of certain insurers that ERISA plans might select, operated on payer categories without targeting ERISA plans and did not dictate plan benefits or administration; therefore ERISA § 514(a) did not preempt it.


N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995)