U.S. Supreme Court Ruling on ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) sets minimum standards for most private health plans and preempts states from enforcing coverage mandates on these plans. Since its passage, there have been many challenges to ERISA. The U.S. Supreme Court has consistently held firm on the power of ERISA in limiting a state’s authority over the health plans of private industry. With a unanimous (8-0) decision in Rutledge v. Arkansas, the U.S. Supreme Court has opened the door for state action that can increase costs for private health plans.
Like several states, legislation was proposed and signed into law in the state of Arkansas to regulate Pharmacy Benefit Managers (PBMs). Among several dynamics, the statute regulates what PBMs must pay pharmacies for generic medications. It also allows pharmacies to decline to fill the medication if the reimbursement from the PBM would be at a loss. The industry and contract dynamics that result in this occurring are intricacies consistent with our complex health care marketplace.
PBMs develop contracts that benefit health plans. Challenges to the Arkansas law were presented on the grounds ERISA preempted the state of Arkansas from enforcing this law. In both lower court challenges, the courts ruled in favor of ERISA preemption and struck down the law.
Impact of Rutledge v. Arkansas Decision
In October 2020, the U.S. Supreme Court heard the Rutledge v. Arkansas case. On December 10, the U.S. Supreme Court came out with a unanimous decision that the Arkansas law regulating PBMs was not preempted by ERISA. The U.S. Supreme Court opined that the Arkansas law was not preempted by ERISA because the law is not directly tied to ERISA plan administration. They determined the law is PBM specific and only impacts ERISA plans if the PBM passes along the higher costs. Although a likely dynamic, state regulation that increases costs alone are not preempted by ERISA.
The impact of this decision and how it will be applied to future laws will not be known for several years. Limited federal action to address the cost of prescription drugs has resulted in widespread, often inconsistent, state action. To date, private health plans protected by ERISA have not seen much impact from these state actions. With pressure from Pharma, pharmacies and consumers, states are likely to test this newfound power. How this decision is applied to future legislation likely depends on how aggressive states become in passing laws that regulate PBMs and impact plan dynamics of private health plans. A telling sign of future regulation, 47 states filed briefs in support of the Arkansas legislation.
Federal and state level proposals sold as PBM regulation often have sections that result in added costs for plan sponsors. This decision expands the number of proposals private health plans need to be concerned about. An example of a popular proposal unlikely to impact private employers is the copay cap on insulin. It seems clear this is a change to plan design and would still be preempted by ERISA.
To Coupon or Not to Coupon?
Another popular topic for states, accumulator programs run by PBMs, may not be as safe. A ban on an accumulator program:
- is a ban on a PBM program
- does not change plan design
- results in increased cost for plans
Without an accumulator program, patients with access to coupons provided by Pharma can get their cost share reduced, sometimes to $0, and have this coupon apply to their deductible and out-of-pocket maximum amounts. There are instances where the coupon value is enough for the patient to use a coupon that covers his or her entire deductible and out-of-pocket maximum. In these instances, the patient never pays any true out-of-pocket cost.
Why do plan sponsors care about coupons? Setting aside cost share fairness dynamics, Pharma gets its revenue from payors. Although sold as providing greater access to medications, coupons are available for many wasteful medications to remove plan designs to incent the patient to use a lower cost, often higher value, medication. When a coupon is used without an accumulator program, the plan is paying for a wasteful medication and misses out on patient cost share used to keep the plan solvent. While the federal government bans the use of coupons in federal health care programs, five states have passed laws limiting accumulator programs, and several others are considering similar legislation.
Future of PBM Regulation
These are just two among several proposals, often taking various forms, that have been proposed, debated and/or passed in states. While not all PBM battles are of concern to private health plans, PBMs also have other battles as legislation is negotiated and amended. Left to fight alone, PBMs may abandon issues important to private health plans if proposals over their business model are being debated.
As the future unfolds, there is reason for private health plans to be more aware and engaged on state action to regulate PBMs. Where proposals of the past may not have driven costs higher, the future is not as certain. Offering perspective to elected officials and making sure the business lobby is engaged are two ways to make sure the employer voice is heard. National CooperativeRx is willing to offer the perspective of our member groups, independent of the PBMs’ best interests, when legislation in your state is proposed.
Josh Bindl is the Chief Executive Officer at National CooperativeRx, a pharmacy benefits purchasing solution to hundreds of self-funded member groups throughout the United States. A member-owned coalition, National CooperativeRx uses its industry expertise to provide patients and plan sponsors with solutions that lower costs and increase value.
