By: Bryan M. Dunton, Esq.

In the recently decided case of BlueCross BlueShield of Tennessee v. Nicolopoulos, the Sixth Circuit delivered a clear message to insurers and third-party administrators (TPAs) who also act as ERISA fiduciaries: ERISA’s broad preemption clause does not always provide immunity from state-level regulation. This case underscores the enduring significance of ERISA’s “savings clause,” especially when state regulators act against insurers in their more traditional role.

BlueCross served as both the insurer and ERISA claims administrator for a Tennessee-based employer’s group health plan. The plan excluded coverage for fertility treatments. While Tennessee does not mandate such coverage, New Hampshire law does when it is deemed medically necessary. Here, a New Hampshire-based employee enrolled in the plan that submitted a claim for fertility benefits, which was denied pursuant to the plan’s existing exclusions.

At that point, the plan participant filed a complaint with the New Hampshire Insurance Commissioner. The Commissioner issued a show-cause order, demanding BlueCross explain the denial and threatened regulatory penalties, including a cease-and-desist order and $2,500 per day in fines, which totaled $52,000 over a 21-day period. BlueCross responded by filing a motion in federal court, arguing that the state’s enforcement action interfered with its fiduciary duties under ERISA. Both the district court and the Sixth Circuit disagreed. The Sixth Circuit held that the Commissioner’s action targeted BlueCross in its capacity as an insurer – not that of a fiduciary – falling squarely within the scope of state insurance regulation, which is preserved by ERISA’s “savings clause.”

For third-party administrators and insurers managing self-funded ERISA plans, this case reinforces a key point: if licensed to sell insurance or operate in multiple states, you can be subject to the insurance laws of each state that you conduct business in – even if you’re administering an ERISA plan. The distinction between fiduciary and insurer is not always clear-cut in practice, however. Many TPAs often assert that decisions about benefit denials, network design, and utilization management are made in a fiduciary capacity under ERISA. Often, that is a correct assertion. But Nicolopoulos confirms that when a state regulator enforces a law generally applicable to insurers, particularly those mandating coverage or regulating market conduct, the “savings clause” protects that action from being preempted under ERISA.

The Sixth Circuit relied on the Supreme Court’s precedent in UNUM Lif Ins. Co. v. Ward to bolster its conclusion, which held that laws “directed at” insurers fall outside ERISA’s preemptive reach. Relying on that precedent, the Sixth Circuit notes that state-imposed fines and cease-and-desist orders are classic tools of insurance oversight, not those of fiduciary oversight.

So, what’s the key takeaway for TPAs and insurers? While ERISA preemption for fiduciary duties still plays a dominant role in protecting self-funded plans, this case serves as a cautionary tale that ERISA is not to be equated with blanket immunity from state insurance regulation. Beyond its legal implications, Nicolopoulos reflects a deeper tension in our health care system – the gap that can exist between employer-sponsored health plans and the evolving mandates of coverage by many states. Cases like this one highlight the real-world consequences of that disconnect, resulting in someone being denied access to medically necessary care. As more states expand coverage mandates for fertility treatment, mental health, and gender-affirming care, this ruling reinforces the concept that ERISA preemption is indeed not absolute and there are likely to be more conflicts like those illustrated by this case. This case also highlights the need for understanding where the line is drawn with respect to performing fiduciary duties and ensuring accountability in plan design.

If you have questions about fiduciary duties, or your own group health plan in general, please contact The Phia Group!