De Buono v. NYSA-ILA Medical & Clinical Services Fund Ex Rel. Bowers

Background

Respondents are trustees of a multiemployer employee-benefit fund that runs three medical centers, two in New York. In 1990 New York created the Health Facility Assessment (HFA), a gross-receipts tax on patient services to raise revenue for Medicaid. The Fund paid $7,066 in HFA assessments for 1991, then stopped and sued state officials seeking a refund and an injunction, arguing the tax “relates to” the plan under ERISA and is therefore preempted. Lower courts split; the Second Circuit sided with the Fund, then the Supreme Court took the case.

Reasoning

The Court framed the question as whether ERISA’s broad preemption language bars New York from taxing hospitals run by ERISA plans. Applying the approach from Travelers, the Court started with the presumption that Congress did not intend to displace traditional state powers like health and safety regulation. It held the HFA is a generally applicable state tax, not the kind of law Congress meant to supersede. The Court rejected the idea that any cost impact on a plan automatically causes preemption, and said only state laws that force an ERISA plan to adopt a specific coverage scheme could be preempted. The practical winner was New York: it may collect the tax.

Real world impact

Hospitals operated by employee-benefit funds must pay the same gross-receipts tax as other hospitals in New York. ERISA plans that run medical centers cannot rely on broad preemption to avoid general state taxes. The decision leaves open the narrow possibility that an unusually coercive state law could still be preempted.

Dissents or concurrances

Justice Scalia dissented, arguing the Court should have first decided whether federal courts had jurisdiction under the Tax Injunction Act before reaching the ERISA preemption question.