ERISA Preemption and the Latest Impact on State PBM Laws | Simplefill
The Employer Retirement Income Security Act (ERISA) is a federal law that, among other functions, sets minimum standards for employer-sponsored health plans. States have recently passed laws that attempt to regulate pharmacy benefit managers (PBMs), and ERISA has been used to preempt these, which has been a focus for all sponsors of group health plans and a worry for states.
What Is Oklahoma’s 2019 Patient’s Right to Pharmacy Choice Act?
Oklahoma passed the Patient’s Right to Pharmacy Choice Act in 2019 to address PBMs, but the Act was challenged in 2023. PBMs and the groups supporting them stated that ERISA preempted state law.
The 10th Circuit Court of Appeals agreed. Specifically, the Court found that the Act’s provisions regulated matters of plan administration that fell under the purview of ERISA.
For example, one of the provisions preempted under ERISA that is present in this Act involved restrictions that mandated access to brick-and-mortar pharmacies. This could mean that the pharmacy that a patient would have access to would be different from the group health plan’s applicable pharmacies.
Since this Oklahoma legislation, other states have filed their own laws to curb PBM behavior. Many of these directly impact group health plans.
How Have State PBM Laws Changed?
Some of the recent laws that states have enacted to control PBMs include prohibitions on spread pricing, which is the process of PBMs charging a health plan an amount that is greater than what the PBM pays the pharmacy.
There are also laws against the retroactive reduction of payments made to pharmacies unless there were errors or fraud identified by an audit. Additionally, contracts can’t prevent pharmacies from letting participants of the health plan know what they would pay for a drug if they set aside their plan and paid directly.
States have passed numerous other state PBM laws as a result of the legal uncertainty around exactly what ERISA can preempt.
Have There Been Supreme Court Rulings on ERISA Preemption?
The legal landscape shifted significantly with the Supreme Court’s unanimous 2020 decision in Rutledge v. PCMA. In that case, the Court narrowed the scope of ERISA preemption, ruling that simple “cost regulation” is not the same as “plan administration.”
The Court clarified that while states cannot mandate specific benefits or interfere with how a plan is governed, they can regulate the prices PBMs pay to pharmacies. The Court distinguishes between state laws that have “acute economic effects” (which might force a plan to change and thus be preempted) and those that merely increase costs (which generally are not preempted).
Consequently, states may legislate payment and compensation for prescription drugs—such as those for diabetes or cancer—but they generally cannot force ERISA-governed health plans to adopt specific network participation rules.
What Can Patients Expect in the Future?
For those relying on expensive medications, state PBM laws aim to provide transparency and lower costs. Whether these laws succeed depends on how future courts distinguish between “cost regulation” and “plan management.”
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Frequently Asked Questions
What Are Pharmacy Benefit Managers?
Pharmacy benefit managers are companies that function as middlemen throughout the prescription medication supply chain. They manage drug benefits for employers, insurers, and government plans, and they perform many jobs, including creating formularies, negotiating rebates with manufacturers, and processing claims.
Will the Supreme Court Take on Further Cases Related to ERISA Preemptions?
By declining the Mulready case in June 2025, the Supreme Court signaled that the current distinction—states can regulate prices, but not network structure—is the standard for now. However, as more states pass “transparency” laws, new challenges are likely.
Are States Still Challenging ERISA Preemptions for PBM Laws?
Yes, states are currently pursuing new laws to limit PBMs. ERISA preemptions will continue to be challenged, with the goal of helping patients have the utmost transparency related to all of their medication costs.