Supreme Court Gives Green Light to Hospital Surcharges

In a major victory for state regulation of health care, the U.S. Supreme Court has upheld New York’s law imposing surcharges on hospital bills reimbursed by certain commercial insurers and health maintenance organizations (HMOs). The decision by a unanimous court gives states broad powers to set hospital rates and will generate hundreds of mil­lions of dollars in state revenue.

The dispute arose from a series of hospital rate surcharges (presently 13 percent) imposed by New York on hospital bills paid by reimbursers other than Medicaid, Blue Cross, and HMOs.

The surcharges are remitted to the hospitals to help defray the cost of caring for Medicaid and indigent patients. Nonexempt commercial Insurers have objected to their com­petitive disadvantage and have asserted that their policyholders are being forced to subsidize Blue Cross/Blue Shield.

In 1993. several commercial insur­ers and their trade associations filed actions against New York officials, claiming that the Employee Retirement Income Security Act of 1974 (ERISA) preempts the sum charges on bills of patients whose commercial insurance is purchased by an ERISA-qualified plan, and on HMOs if their membership fees are paid by such a plan. The District Court agreed with the plaintiffs and granted them summary judgment. The Second Circuit Court of Appeals affirmed, holding that the surcharges imposed an economic burden on the commercial insurers and an impermissible impact on ERISA plans.

Opinion by Justice Souter. In reversing the Second Circuit, the Supreme Court determined that the purpose of the ERISA preemption clause was to prevent multiplicity of regulation affecting the nationally uniform administration of employee benefit plans, and that “cost-uniformity was almost certainly not an object of preemption.” The Court held that New York’s surcharge did not mandate employee benefit structures or administration and that the principal reason for the sur­charge differential was to compensate the Blues for covering subscribers the commercial insurers would reject. To hold otherwise, the Court rea­soned, would bar any state regulation of hospital costs on the theory that all laws with indirect economic effects on ERISA plans are preempted. (New York Blue Cross & Blue Shield Plans v. Travelers Ins. Co. (USSC No. 93-1408. April 26. 1995)

Daniel Steven 2001

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© 2002, Daniel N. Steven