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Amendment to Georgia Prompt Pay Statute Held Preempted by ERISA

Amendment to Georgia Prompt Pay Statute Held Preempted by ERISA

America's Health Ins. Plans v. Hudgens, 742 F.3d 1319 (11th Cir. 2014)

ERISA and Life Insurance News
(May 30, 2014)

In May 2011, Georgia enacted the Insurance Delivery Enhancement Act of 2011 (“IDEA”), which amended certain portions of Georgia’s “prompt pay” laws.

Georgia’s prompt pay statute originally applied only to fully insured ERISA plans, not to self-funded plans. However, several sections of IDEA, if placed into effect, would extend prompt pay restrictions to self-funded health plans and their TPAs, something the original statute expressly excluded from its breadth.

America’s Health Insurance Plans (“AHIP”), a trade association, filed an action for declaratory judgment against the Georgia Insurance Commissioner, seeking to prevent enforcement of certain portions of IDEA.

Specifically, AHIP (1) sought a declaration that Sections 4, 5, and 6 of IDEA, as applied to self-funded health plans and their administrators, are preempted by ERISA, and (2) moved to preliminarily enjoin the Commissioner from enforcing the challenged sections.

On the eve of the amendments’ effective date, the district court granted AHIP’s motion and preliminarily enjoined the Commissioner from enforcing Sections 4, 5, and 6 of IDEA on the ground that each was preempted by Section 514 of ERISA. The Commissioner filed an interlocutory appeal, primarily arguing (1) that AHIP lacked standing, and (2) that the district court erred in granting the preliminary injunction.

The Eleventh Circuit first held that AHIP had standing to sue on behalf of its members because they could have sued in their own right. Specifically, the court found that the allegations of the complaint, along with the Commissioner’s stated intent to enforce the new prompt pay statute, were sufficient to support the district court’s finding that “AHIP’s members will be faced with the choice of complying with its requirements, which impose direct and indirect costs, or ignoring it, which will expose them to penalties imposed by the Commissioner.” The court found a sufficient threat of imminent injury to AHIP’s members to confer standing.

Next, the court upheld the preliminary injunction, finding that Sections 4, 5, and 6 of IDEA were expressly preempted by Section 514 of ERISA. The court first determined that the legislation “relates to” self-funded ERISA plans, because “the challenged provisions would require self-funded ERISA plans to process and pay provider claims, or notify claimants of claim denials, within fifteen or thirty days, depending on whether the claim is submitted electronically or conventionally.” Thus, “employers offering self-funded health benefit plans would be faced with different timeliness obligations in different states, thereby frustrating” ERISA’s intent to allow employers “to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits.”

The Eleventh Circuit agreed with the district court that ERISA’s saving clause applied, because the challenged sections of IDEA “regulate insurance.” However, the court also agreed with the district court that ERISA’s deemer clause, which exempts self-funded ERISA plans from state laws that “regulate insurance,” applied.

The court found that “Sections 4, 5, and 6 of IDEA regulate the timeliness of benefit payments under self-funded ERISA plans, and it is apparent that the purpose and effect of IDEA is to extend Georgia’s prompt pay laws to claims made under self-funded ERISA plans.” Thus, the court concluded that the deemer clause applied to preempt the challenged IDEA provisions.

Click here to view the full May 2014 Edition of the ERISA and Life Insurance News.

H. Sanders Carter
T (404) 962-1015
F (404) 962-1220
Kenton J. Coppage
T (404) 962-1065
F (404) 962-1256
Dorothy H. Cornwell
T (404) 962-1096
F (404) 962-1246

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