Texas Prompt Pay Law Not Preempted; Enforceable Against Self-Insured Health Plan TPAs

EBIA Weekly

A federal district court has ruled that ERISA does not preempt the Texas Prompt Payment Act as it applies to TPAs of self-insured benefit plans. The state law generally requires “insurers” to pay benefit claims within 30 or 45 days (depending on the claim’s format), or face penalties. The TPA in this case received a demand letter from two health care providers alleging that the TPA owed them more than ten million dollars each in late-payment penalties. In response, the TPA filed suit seeking a declaratory judgment that the law does not apply to self-insured plans, or, if it does apply, that the law is preempted by ERISA. The court considered only the preemption issue, deferring to an earlier state court determination that the law applies to the TPA with respect to claims administered for self-insured plans.

As background, ERISA generally preempts state laws that “relate to” ERISA plans; certain state insurance laws are not preempted, but those laws generally do not directly apply to self-insured plans. The court focused its analysis on the “relates to” standard and explained that a law relates to an ERISA plan if it (1) addresses an area of exclusive federal concern, such as the right to receive plan benefits; and (2) directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries. The TPA argued that the Texas law addresses an area of exclusive federal concern because it undermines ERISA’s goal of achieving uniform regulation of ERISA plans. The court disagreed, finding that the imposition of late-payment penalties on a TPA does not affect the underlying plans. The court also rejected the TPA’s argument that the law affects the relationship among traditional ERISA entities, finding that the health care providers are not ERISA entities, nor are they “standing in the shoes” of plan beneficiaries. The court noted that the providers’ demands arose because of their contractual relationship with the TPA and emphasized that ERISA does not prohibit parties on the “periphery” of an ERISA plan from contracting with one another.

EBIA Comment: The court’s decision contrasts with a recent Eleventh Circuit ruling that ERISA preempts a similar prompt payment law in Georgia (see our article). The TPA in this case has filed an appeal with the Fifth Circuit, creating the possibility of a split between the federal appeals courts and eventual review by the U.S. Supreme Court. Self-insured plan sponsors and their TPAs and advisors should continue to monitor ERISA preemption developments as these and other cases make their way through the courts. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H (“Preemption Analysis Applied to Specific State Laws”); see also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”).

Contributing Editors: EBIA Staff.