ERISA Industry Committee Sues Minnesota Over PBM Law

The Employee Retirement Income Security Act (ERISA) Industry Committee (ERIC) filed a complaint against the Minnesota Department of Commerce regarding the Minnesota Act, a new law that ERIC wages illegally interfere with employer-sponsored health benefit plans.¹

“ERIC and its member companies are keenly aware that action is necessary to bring down the cost of prescription drugs. Unfortunately, the Minnesota law is a step in the wrong direction,” said Tom Christina, executive director of the ERIC Legal Center, in a statement.²

The Minnesota Pharmacy Benefit Manager (PBM) Licensure and Regulation Act of January 2020 established licensing, transparency, and consumer protections for PBMs, with wide-reaching implications for employer-sponsored plans beyond Minnesota due to its broad regulatory scope. | Image credit: andreykr - stock.adobe.com

What is the Minnesota Act?

The Minnesota Pharmacy Benefit Manager (PBM) Licensure and Regulation Act, also called the Minnesota Act, went into effect in January 2020, creating Chapter 62W, which established annual licensing and transparency reporting requirements for PBMs.³ It also introduced consumer and pharmacy protections. The law went into effect on January 1, 2020, and was followed by an extensive rulemaking process that concluded in December 2021.

Key provisions of the law included:

• PBMs had to be licensed in Minnesota before serving Minnesota-based plan sponsors or residents
• PBMs must submit annual transparency reports to the commissioner
• PBMs must meet specific requirements for access to in-network pharmacies, prompt filling of specialty medications, and synchronization of multiple medication refills
• Pharmacies may appeal PBM reimbursements that were below acquisition costs
• PBMs are prohibited from using contracts to limit information on acquisition costs, alternatives, and reimbursements

The law also required PBMs to submit transparency reports by June 1 every year, including aggregate data and claims-level details. If no data were reportable, PBMs had to submit zero reports with justification. Complaints regarding PBM violations could be filed with the Department of Commerce, although limitations existed for federal law cases such as Medicare Part D.

PBMs also had to renew their licenses annually and adhere to reporting standards, with penalties for unlicensed activity.

However, Christina noted that while the law is intended to just impact Minnesotans, the broadness of the laws policing PBMs means that employer-sponsored plans from around the country were affected.²

“To compound the problem our lawsuit seeks to remedy, the Minnesota Act interferes with the design of prescription drug benefit plans that operate exclusively outside Minnesota if the plan sponsor contracts with a PBM licensed to operate within Minnesota. Casting such a wide net catches practically all PBMs, allowing Minnesota to govern plan designs everywhere in the United States.”

Details of ERIC’s Legal Complaint

In the complaint, the plaintiffs argued that Minnesota's regulations, specifically Section 62W.07, negatively impact prescription-drug benefit plans in several key ways. First, they contend that the regulation restricts plan design choices by prohibiting certain benefit-plan options, depriving employers and labor unions of their federally protected right to control the design of their plans. This limitation hampers their ability to tailor benefits to meet the specific needs of their employees.

Additionally, the enforcement of Section 62W.07 was contended to increase the costs of providing prescription-drug benefits, leading to higher drug costs for plan participants, which significantly impacts the overall expenses associated with employee benefits. The regulation is also said to interfere with how PBMs structure their pharmacy networks, particularly by preventing plans from designing mail-order and specialty pharmacy networks to include only pharmacies affiliated with the PBM. This open-network requirement complicates the management of pharmacy benefits and undermines cost-containment measures that employers typically rely on.

The plaintiffs also pointed out the inconsistency in regulations across states, noting that many states have adopted different rules regarding PBMs and prescription-drug benefits, creating conflicting regulatory obligations for multistate plan sponsors. This inconsistency makes it difficult for employers to maintain uniform plan design and administration across state lines.

Lastly, the plaintiffs argued that the Department of Commerce is enforcing Section 62W.07 in a way that regulates out-of-state commerce, impacting plans and insurers that operate primarily outside of Minnesota. This extraterritorial enforcement is claimed to violate constitutional provisions and further complicates compliance for employers. Overall, the plaintiffs assert that Minnesota's regulations create significant barriers to effective plan management, increase costs, and hinder employers’ ability to provide competitive and tailored prescription-drug benefits to their employees.

Potential Implications

The case could have significant implications for employers and employees regarding prescription-drug benefits. A ruling in favor of the plaintiffs could clarify state authority over PBM regulations under ERISA, creating a uniform regulatory framework and reducing confusion for multi-state employers.

Such a ruling could also lower costs by allowing employers to implement more flexible and cost-effective drug benefit plans. Employers could regain the ability to tailor plans to employees' needs without restrictions imposed by Section 62W.07. Additionally, the case could reshape PBM operations and regulations, influencing their services to employers.

The outcome may set a legal precedent on state limits in regulating employee benefits under ERISA, shaping future regulatory and legal actions across states.

Christina concluded, “Employers that provide prescription drug coverage governed by ERISA work hard to design benefit plans that best serve the needs of their employees and the employees’ families. But the Minnesota Act prohibits employers from adopting plan designs that help their employees afford needed prescription drugs. Thankfully, Congress had the foresight to include a preemption provision when it enacted ERISA more than 50 years ago. The preemption provision gives the federal courts what they need to protect the system from a patchwork of different state laws that work against affordability.”

References

1. Complaint for injunctive and declaratory relief. ERISA Industry Committee. 2024. CASE 0:24-cv-04639. Accessed January 2, 2025. https://www.eric.org/wp-content/uploads/2024/12/1-MN-ERISA-preemption.pdf

2. ERIC sues Minnesota over law that illegally interferes with employer-sponsored health benefit plans. Press release. ERIC; December 27, 2024. Accessed January 2, 2024. https://www.eric.org/press_release/eric-sues-minnesota-over-law-that-illegally-interferes-with-employer-sponsored-health-benefit-plans/#:~:text=ERIC%20member%20companies%20sponsor%20health,Act%20because%20ERISA%20preempts%20it

3. Pharmacy benefit managers. Minnesota Commerce Department. Accessed January 2, 2024. https://mn.gov/commerce/insurance/industry/pbm/#:~:text=The%20Minnesota%20Pharmacy%20Benefit%20Manager,for%20PBM%20regulation%20in%20Minnesota