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State bills threaten affordable care for employer plans
July 13, 2021
With the Supreme Court of the United States ruling for the plaintiff in Rutledge vs. Pharmaceutical Care Management Association (PCMA), a new assault has begun in state legislatures on Employee Retirement Income Security Act of 1974 (ERISA) pre-emption for employer-sponsored health care coverage.
At issue in the case is an Arkansas law (Act 900) that, among other things, mandates how pharmacies are reimbursed for the prescriptions they fill. The Court found that specific provisions of Act 900 were “cost regulation” and do not have an impermissible connection with or reference to ERISA. Therefore, this type of “cost regulation” is not pre-empted by ERISA.
While we disagree with the decision and believe it will raise prescription drug costs in Arkansas, we have applied Act 900’s cost regulation to our self-funded ERISA plan client business. We also remind plan sponsors that the narrow ruling neither dictates employers’ plan design choices nor limits the long-standing and far-reaching ERISA pre-emption of state laws surrounding benefit plan designs.
Since the Court’s ruling in the Rutledge case, several states moved forward with bills that similarly seek to override ERISA pre-emption of pharmacy benefit plans. These types of laws generally require PBMs to pay pharmacies higher reimbursements, which leads to a whole host of consequences, primarily increasing costs to plan sponsors, consumers and the health system in general. Moreover, these inconsistent and often conflicting state-level laws often overreach the cost regulation ruling in Rutledge and attempt to limit our ability to effectively implement and manage plan designs selected by our clients, especially for plan sponsors who have employees across the nation or in many states. These policies do nothing to reduce health care costs or to limit out-of-pocket costs for plan members and their dependents.
This type of legislation increasingly attempts to limit employers’ ability to design the benefit plans that work best for them and their employees, including eliminating the use of preferred – and lower-cost – networks, lower copays and mail order pharmacy. Some of these bills even threaten employers’ ability to communicate to employees about where to access lower-cost prescriptions. And, not only will the cost of providing pharmacy benefits increase, but payors will have to navigate a growing patchwork of individual state regulations and requirements. To combat these continued threats, we are actively engaged with legislators and lawmakers to allow our clients to continue to offer affordable and accessible pharmacy benefits.
For example, California Senate Bill 524 would limit employers’ ability to use lower-cost pharmacy benefit options. According to our analysis of a representative sample of our PBM clients in California, SB 524 would burden California payors – including health plans offered through Covered California – with an approximately 13 percent increase in mail order pharmacy costs and a 4.5 percent increase in specialty pharmacy costs.
In Oklahoma, we recently helped to sustain the governor’s veto of Senate Bill 821 (SB 821) from a possible statehouse override. The measure contained provisions affecting mail service for prescribed drugs, specialty pharmacies and preferred pharmacy networks, all of which would have created higher costs for employers and their members. This is because the Oklahoma legislature was emboldened by the Rutledge ruling into thinking that they could impose these laws on to ERISA plans.
Following the introduction of the bill, the CVS Health team immediately began engaging employers – both clients and non-clients – who would be negatively impacted. The level of engagement among those employers was unprecedented. Thanks to the pressure those employers were able to put on Governor Kevin Stitt, he vetoed the bill – and thanks to continued pressure both inside the statehouse and in the press, the legislature chose to let the veto stand.
In Maryland, legislators introduced legislation that would have taken a very broad interpretation of the Rutledge decision, applying it to a wide variety of pharmacy benefits. Working with PCMA, America’s Health Insurance Plans (AHIP) and other stakeholders, we were able to significantly mitigate the bill from its original form to apply only to rate issues. The bill also included a provision calling for the Maryland Insurance Administration to further study the scope of the Rutledge decision and report back to the General Assembly in advance of its 2022 session. CVS Health will continue to work with PCMA, AHIP and others to advocate a narrow interpretation of Rutledge.
We will continue to advocate for policies that allow our employer clients to provide their employees with affordable quality coverage. We’re committed to protecting employers and other payors from harmful restrictions that threaten their ability to provide affordable health care for their members – and to protecting those members from harmful restrictions that threaten their ability to access affordable care. However, as we’ve seen in Oklahoma and other states across the country, we are far more successful in our efforts when employer voices join us in a strong, diverse chorus calling on legislators to stop the misguided regulation of PBMs.
Your active engagement remains critical, and we welcome the opportunity to work with you to preserve affordable pharmacy care access. I know your Sales and Account Services team would welcome a conversation with you.
July 13, 2021
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