The ERISA Edit: Supreme Court Tackles Chevron Deference
Employee Benefits Alert
Supreme Court Hears Argument on Fate of Chevron's Deferential Review of Agency Interpretations
On January 17, 2024, the U.S. Supreme Court heard argument in two consolidated cases – Loper Bright Enterprises v. Raimondo, No. 22-451, and Relentless, Inc. v. Department of Commerce, No. 22-1219 – on whether it should overrule the 40-year-old doctrine of Chevron deference. Chevron v. Natural Resource Defense Council, 467 U.S. 837 (1984), instructed that a court reviewing a federal agency interpretation of an implementing statute should give deference to the agency where the statute is ambiguous. As we previewed a few weeks ago, overruling this doctrine will impact the way in which many agency interpretations – including interpretations of ERISA and other laws related to employee benefits – are handled in federal court.
The hours-long arguments underscored the import of the Court's decision for the administrative state. Here are our key takeaways.
Unsurprising Lines Drawn
The liberal-leaning justices – Justices Kagan, Sotomayor, and Jackson – were clearly unimpressed by petitioners' arguments in favor of overruling Chevron, while Justices Gorsuch, Alito, and Kavanaugh demonstrated deep concern over the doctrine. In particular, Justice Gorsuch evinced a desire to be rid of Chevron's restraints on the courts. Justice Roberts was quieter but seemed interested in a regime based on so-called "Skidmore deference," which derives from Skidmore v. Swift and Company, 323 U.S. 134 (1944), which would afford agency interpretations "weight" where they are persuasive. Justice Barrett voiced some concern over stare decisis issues and Justice Thomas focused on constitutional questions. It seems likely that at least two of these three conservative-leaning justices will form a majority with Justices Gorsuch, Alito, and Kavanaugh to refashion Chevron, at least to some extent.
Impact on Congress
The question of Chevron's impact on Congress loomed large. U.S. Solicitor General Elizabeth Prelogar focused on Congress' reliance on Chevron as a backdrop when it drafts legislation. She repeatedly pointed out that in 40 years, Congress has not made any moves to curtail the doctrine. On the other hand, attorney Paul Clement, who argued as counsel for Loper Bright, pushed hard on the argument that Chevron allowed Congress to be lazy and avoid the job of law-making. He posited that legislators currently see Chevron as security to foist hard political questions on the executive branch, saving legislators from having to make difficult choices that could affect them at the ballot box.
Solicitor General Prelogar strained to answer repeated questions from the conservative justices about how to define "ambiguity" in the context of Chevron. The justices demonstrated significant concern over "judicial abdication" in agency cases, given that courts are capable of resolving ambiguities in non-agency statutory interpretation cases. Solicitor General Prelogar seemed hesitant to acknowledge that judges address ambiguities differently in cases involving an agency. Eventually, however, she defined ambiguity as a situation in which the court is not able to say that Congress has resolved a given issue. She argued that in such situations the court is left with the decision of who should resolve the issue — the courts, who would do so when there is no agency involved, or the agency — and giving the decision to the agency better respects congressional intent. For their part, attorney Roman Martinez, who argued as counsel for Relentless, and Mr. Clement characterized the government's articulation of congressional intent as fictional.
Stability vs. Uniformity
There was a stark difference in the reliance interests on which the two sides focused. The petitioners, along with the conservative justices, repeatedly invoked an agency's ability to "flip flop" with the change of each administration, a problem that a regime based on Skidmore would be unlikely to countenance. This lack of stability formed the basis of petitioners' argument that Chevron is reliance-destroying. The government and the liberal justices, on the other hand, emphasized the uniformity that Chevron promoted across jurisdictions. In a world without Chevron, Solicitor General Prelogar warned, lower courts would come to different conclusions about ambiguous statutory provisions, leading to lack of uniformity in national regulations across jurisdictions based on ideological differences.
Amicus Briefs Address Welfare and Benefits
Counsel on both sides of the arguments referenced a few of the dozens of amicus briefs filed by a wide variety of governmental entities, industry groups, and non-profit organizations. Though not explicitly mentioned during the arguments, a few of the amicus briefs on file address the potential impact of Loper Bright and Relentless on healthcare and benefit programs.
Three briefs of note argued in favor of getting rid of Chevron. An asset management company called Strive Asset Management argued in its brief that Chevron emboldened the Department of Labor (DOL) to interpret ERISA in ways outside the bounds of its congressional mandate, most recently when DOL enacted a rule allowing pension fund managers to consider environmental, social, and governance (ESG) factors when investing ERISA retirement funds. A coalition of states led by West Virginia argued in favor of overturning Chevron in part because the doctrine empowers agencies to "push states out" of cooperative federalism programs. And Governor Brian Kemp of Georgia filed a brief that included similar arguments, opining that Chevron undermines state power by, among other things, enforcing federal standards for state-licensed physicians through the reimbursement requirements of the Centers for Medicare and Medicaid Services (CMS).
On the other side were two briefs that focused on the importance of Chevron for maintaining the stability of federal healthcare programs. Another coalition of states, this time led by the District of Columbia, responded to the West Virginia brief, arguing that Chevron enables stability in cooperative federalism programs like Medicaid. A group of public health organizations led by the American Cancer Society filed a brief that reviewed federal court cases related to CMS rulemaking, arguing that Chevron works just fine to curb agency excesses while creating stability for complicated regulatory regimes like those comprising the American healthcare system.
It remains to be seen whether any of the arguments in these amicus briefs make their way into the Court's opinion, which is expected by summer. Either way, the decision will be a significant one for employers, employee benefit plans and their service providers, and entities involved in employee benefits regulation and litigation.
DOJ Abandons Co-Pay Accumulator Appeal
On January 16, 2024, the U.S. Department of Justice (DOJ) dismissed the federal government's appeal in HIV and Hepatitis Policy Institute v. HHS, No. 23-05284 (D.C. Cir.), which DOJ filed last November following a district court's September 29, 2023 order vacating in part a rule that permitted, but did not require, health insurance issuers and group health plans to decline to credit certain financial assistance provided by drug manufacturers when calculating cost-sharing obligations under the Affordable Care Act (ACA). The vacated provisions in the 2021 Notice of Benefit and Payment Parameters (NBPP) Final Rule were touted by regulators and payors as helping to rein in rising prescription drug costs, claiming manufacturer co-pay assistance exacerbates increasing costs by steering patients toward higher priced, brand-name drugs. The rule was disfavored by drug manufacturers and patient advocates who claim it harms participants and beneficiaries who rely on the co-pay coupons and other forms of financial assistance to lower overall out-of-pocket healthcare spending.
On December 20, 2023, 19 Senators from both parties sent a letter to Acting Secretary of Labor Julie Su, Health and Human Services (HHS) Secretary Xavier Becerra, and Treasury Secretary Janet Yellen conveying their support for the district court's vacatur decision as "an important step in the right direction for low-income and other eligible patients who rely on manufacturer and non-profit co-pay assistance programs to alleviate affordability and access challenges for their medicines." The letter also expressed disappointment in the government's decision to appeal the district court's ruling and "HHS's articulated intention to not take any enforcement action against health insurance issuers or health plans that fail to count copay assistance toward patient maximum annual limitations on cost-sharing." The Senators urged the three Departments to adopt the policies articulated in the prior 2020 NBPP, which required plans and issuers to count manufacturer co-pay assistance toward annual cost-sharing limits for drugs that do not have a medically appropriate genetic equivalent. The letter also stated that Congress is working on a "bipartisan, bicameral basis to advance legislation to ensure co-pay assistance counts toward the patient's maximum annual limitation on cost-sharing."
Until such time as legislation is enacted or further agency guidance or regulatory activity is announced, the 2020 NBPP requirements set forth above are in effect. What remains to be seen is whether the DOL or HHS will continue their non-enforcement stance or take enforcement action against plans and issuers for any failure to adhere to the 2020 NBPP while legislation is being considered.
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