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April 8, 2021

ATTORNEY GENERAL RAOUL DEFENDS STATES’ RIGHTS TO REGULATE HEALTH INSURANCE AND PROTECT CONSUMERS

Raoul, Coalition Argue that Expanding the Scope of ERISA Eviscerates Critical Protections and Undermines Federalism

Chicago  — Attorney General Kwame Raoul, as part of a coalition of 22 attorneys general, today urged the U.S. Court of Appeals for the 5th Circuit to protect states’ historic power to regulate insurance and protect their residents from fraud, abuse or substandard health coverage.

The coalition filed a brief in U.S. Department of Labor v. Data Marketing Partnership, a case that centers on the Department of Labor’s (DOL) conclusion that a scheme – through which users obtain health insurance in exchange for sharing data as they browse the internet – failed to qualify as an “employee benefit plan” under the Employee Retirement Income Security Act of 1974 (ERISA).

“This health insurance scheme opens the door for companies to circumvent vital state-level regulations that have been put in place to protect residents,” Raoul said. “States must retain the ability to protect people from fraud and abuse in the health insurance industry, and I am committed to preventing bad actors from taking advantage of individuals who seek quality, affordable health coverage.”

ERISA is a federal statute regulating employee welfare and benefit plans. When applicable, ERISA supersedes state law and renders employee welfare and benefit plans exempt from direct state regulation. Because states heavily regulate insurance sales to protect consumers, opportunistic entities historically have tried to avoid state insurance rules by disguising health plans sold to consumers as certain ERISA-based employee health plans.

In this case, Data Marketing Partnership runs a “partnership” that provides health insurance to thousands of “limited partners” in exchange for allowing an entity to collect and sell any electronic data generated by the limited partners as they use their personal devices and surf the internet. The DOL concluded that based on the partnership’s own description, the plan failed to qualify under any of ERISA’s provisions, but a federal judge in Texas invalidated that decision and ordered the DOL to treat the plan as a valid ERISA employee benefit plan.

In the amicus brief, Raoul and the coalition argue that treating this scheme as an employee benefit plan under ERISA encroaches on states’ historic authority to regulate insurance and protect consumers, upsets the guardrails the Supreme Court and Congress have placed on ERISA’s scope, and disregards the actual nature of the relationship between Data Marketing Partnership and its limited partners, which has none of the hallmarks of an employer-employee relationship.

In the amicus brief, the coalition argues that:

  • There are significant federalism concerns with treating these health plans as ERISA plans. As the Supreme Court has consistently reaffirmed, regulating insurance is fundamentally a state, rather than federal, concern. ERISA supersedes state laws but does not disturb this fundamental state authority. ERISA is concerned with pension and welfare plan management in the traditional employer-employee context, not with the regulation of insurance more broadly. In light of this backdrop, courts must carefully consider whether a plan falls within ERISA’s ambit because that decision affects fundamental issues of state versus federal authority.

  • Congress, the courts, and the DOL have historically been sensitive to limiting ERISA to avoid usurping state authority. Because of ERISA’s potential to intrude on sensitive areas of historic state regulation, all three branches of the federal government have vigilantly policed ERISA’s boundaries to ensure that ERISA does not crowd out states’ abilities to protect consumers.

  • The district court’s decision expanded the definition of an “employee benefit plan.” The district court concluded that Data Marketing Partnership’s benefits arrangement was an “employee benefit plan” under ERISA. That conclusion undermines the idea that ERISA is limited to plans in genuine employment contexts. In this case, there is no evidence that the limited partners of Data Marketing Partnership are meaningfully employed by the partnership or perform any services on its behalf. If unscrupulous insurance providers could avoid state regulation simply by marketing insurance to individual “users” who passively provide data through everyday use of personal devices, ERISA would swallow states’ historic power to protect consumers.

Joining Raoul in filing the brief are the attorneys general of California, Colorado, Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and Wisconsin.

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