In Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. — (2003), the Supreme Court held that two Kentucky “any willing provider” (AWP) statutes were not preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The Court reasoned that even though the AWP statutes related to ERISA plans, they were saved from preemption as state laws regulating insurance.

ERISA section 514 sets up a three-part analysis for determining whether a state law is preempted. The first part of this test generally provides that a state law that “relates to” an ERISA plan is preempted. ERISA ¤514(a). The second part creates an exception to the general rule, saving state laws that regulate insurance from preemption. ERISA ¤514(b)(2)(A) (the savings clause). The third part of the test provides that, for purposes of the savings clause, an ERISA plan may not be deemed to be an insurance company or to be engaged in the business of insurance. ERISA ¤514(b)(2)(B) (the deemer clause).

In deciding Kentucky Association of Health Plans, the Supreme Court threw out the old test[1] for determining whether state laws fell within the savings clause and replaced it with the following test:

  • The state law at issue must be specifically directed towards entities engaged in insurance; and
  • The state law must substantially affect the “risk pooling arrangement” between the insurer and the insured.

Regarding the first prong, the Supreme Court explained that entities engaged in insurance included both self-insured plans and insurers, whether they provided insurance or administrative services only to ERISA plans. The Court also commented that if self-funded plans were not viewed as being entities engaged in insurance, the deemer clause would be superfluous. Applying the law to the case at hand, the Court found that the Kentucky AWP laws satisfied this prong because it was directed at HMOs in their capacities as both insurers and administrative service providers.

Regarding the second prong, the Supreme Court explained that the state law merely had to substantially affect the risk pooling arrangement; in contrast to the old savings clause test, there was no need that the law actually spread risk. The court also rejected the notion that the actual terms of insurance policies had to be altered or controlled by the state law in order for the savings clause to apply. The Court found that this prong was satisfied because the Kentucky AWP statutes substantially affected the bargain between insurers and insureds by expanding the number of providers from whom the insureds could seek medical services.

The Kentucky Association of Health Plans decision is important for several reasons. First, the new test appears to provide a looser standard for the savings clause, meaning more state laws are likely to be saved from preemption.

Second, courts have long held that states can indirectly regulate insured ERISA plans by regulating the insurance policies purchased by those plans, notwithstanding the deemer clause. Now that the Supreme Court has clarified that the savings clause broadly applies to “entities engaged in insurance,” presumably states can indirectly regulate self-insured plans by regulating the entities that provide administrative services to those plans. Whether the deemer clause would operate to prevent this indirect regulation of self-insured plans is an open question. Some courts have construed the deemer clause to prevent such indirect regulation, see American Medical Security, Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997), but it is unclear whether courts will reach that decision following Kentucky Association of Health Plans.

Third, in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987), the Supreme Court held that a participant’s state law bad faith cause of action was not saved from preemption under ERISA section 514. Applying the old savings clause framework, the Supreme Court determined that the statute was not limited to insurers and did not spread risk. The Court also stated that a saved insurance law remedy would nonetheless be preempted since it conflicts with the exclusive remedy scheme of ERISA section 502. The Department of Labor has since argued that if a state insurance law remedy falls within the savings clause, it will be saved from preemption notwithstanding section 502. In Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002), the majority characterized Pilot Life’s discussion of section 502 preemption as dicta, but nevertheless seemed to have reaffirmed that state insurance law remedies will be preempted if they supplement the remedies provided by section 502. In addition, the dissenting justices in Moran stated the same point in a more direct fashion. We expect continued pressure on the courts to find that state insurance law remedies are saved from preemption. However, at this point the Supreme Court appears to be holding to its position that section 502 creates the exclusive remedy for benefit claims.

On a related issue, complete preemption must exist in order for a claim against an employee benefit plan to be removable from state court. Some circuits have interpreted this to require that a state law claim must be preempted under both sections 502 and 514 before removal is permitted. Thus, to the extent that the Supreme Court has loosened the savings clause test, it will be more difficult for defendant to remove cases in those circuits. Defendants would be forced to argue section 502 preemption in state court.

[1] The old text began with an inquiry into whether the state law satisfied a common sense understanding of insurance regulation. UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 367 (1999). Next, the test required consideration of the three McCarran-Ferguson factors, which included whether the state law (1) had the effect of spreading the policyholder’s risk, (2) was an integral part of the policy relationship between the insurer and the insured, and (3) was limited to entities within the insurance industry. Id.


Latest Resources


April 20, 2023

Groom Event


March 23, 2023

George Washington University Law School