Texas Laws Limiting Abortion Services Affect Employer-Sponsored Medical Plans

September 27, 2021

Two Texas Laws Affect Coverage for Abortion Services

On May 19, 2021, Texas Governor Abbott signed Texas Senate Bill 8 into law. This law generally prohibits the performance of abortions on or after September 1, 2021, if the treating physician performs a required test and can detect a fetal heartbeat. As written, employers (as plan sponsors) and insurance carriers are liable for prohibited abortions covered through their medical plans, but we will address how ERISA should significantly narrow this risk later in this alert.

A thorough discussion of the new law’s potential effect on employer-sponsored medical plans in Texas requires us to discuss two laws:

  1. Existing Texas Insurance Code Chapter 1218 (“TIC Chapter 1218”); and
  2. New Subchapter H to the Texas Health and Safety Code Chapter 171 (the “Texas Heartbeat Law”), added by Senate Bill 8.

Legal Challenge to the Texas Heartbeat Law

The U.S. Supreme Court rejected requests to delay the effective date of the Texas Heartbeat Law pending litigation. The U.S. Department of Justice (DOJ) sued the State of Texas in federal court (U.S. District Court, Western District of Texas) on September 9, 2021, and requested a temporary injunction on the 14th to delay the enforcement of this law. An injunction hearing is set for October 1, 2021. If denied, we assume the DOJ will quickly request an injunction from the U.S. Court of Appeals for the Fifth Circuit.

If the federal courts do not grant an injunction, we expect the Texas Heartbeat Law will be in effect for at least a number of months pending the outcome of litigation. The result will likely affect whether similar laws appear in other states. TIC Chapter 1218 will remain if courts overturn the Texas Heartbeat Law.

Note: The DOJ’s legal challenge focuses on whether the Texas Heartbeat Law is an unconstitutional limitation of the protections and standards described in Roe v. Wade and subsequent Supreme Court decisions. We will not address the merits of the Texas Heartbeat Law or the legal challenge in this alert.

TIC Chapter 1218

Existing TIC Chapter 1218 became effective for health plans with plan years beginning on or after April 1, 2018. It effectively prohibits the core group health plan from providing coverage for abortions except in cases of medical emergency.[1] A plan may provide coverage for abortions as supplemental coverage, described in more detail below.

Medical plan coverage for abortion services is relatively uncommon in Texas due to TIC Chapter 1218, meaning many employers do not actually have medical plan exposure to the Texas Heartbeat Law. Does your medical plan actually provide coverage for abortion services in Texas?

Self-Insured ERISA Plans

A self-insured ERISA plan can claim ERISA pre-emption and choose to ignore TIC Chapter 1218. For this reason, existing medical plans providing coverage for abortion services in Texas are likely to be self-insured ERISA plans.

Medical Plans Subject to Texas Insurance Law

Fully insured plans and self-insured, non-ERISA plans covering participants in Texas are subject to TIC Chapter 1218. TIC Chapter 1218 allows medical plans to offer abortion services through an optional rider as supplemental coverage (the “Rider Approach”) if both of the following are true:

  1. Participants must separately elect the rider; and
  2. The rider’s premium is independent of the underlying medical plan.

This puts participants in the position of having to anticipate their potential abortion needs. Third party surveys suggest the Rider Approach is uncommon, meaning many plans subject to TIC Chapter 1218 do not actually offer coverage for abortion services. It appears fully insured plans sitused in other states where coverage for abortion services is more common are more likely to use the Rider Approach for plan consistency purposes.

No Relief for Fully Insured Medical Plans Sitused in Other States

In general, Texas will not apply its insurance benefit mandates to an employer’s fully insured medical plan sitused in another state so long as:

  1. The majority of the employees are employed outside Texas; and
  2. If no single other state contains the majority of the employer’s employees, Texas is not its principal place of business.

However, this relief does not apply to TIC Chapter 1218. An employer offering fully insured medical coverage to employees working in Texas must still use the Rider Approach in order for its medical plan to provide coverage for abortion services.

Example

ABC Company’s headquarters and primary operations are in New York. ABC Company also has an office in Texas. ABC Company offers the same fully insured medical plan option to its New York and Texas employees. The policy is sitused in New York, and the core medical plan provides coverage for abortion services to the New York employees. The plan must use the Rider Approach to offer abortion coverage to the Texas employees.

Texas Heartbeat Law

The Texas Heartbeat Law requires health care providers to perform testing to detect a fetal heartbeat before performing an abortion and prohibits the abortion if detected.[2] Instead of criminal or civil enforcement by the state or local governments, private persons[3] enforce the law by bringing lawsuits against alleged violators. A violator includes the health care provider who performs the abortion and any party that knowingly aids or abets the violation. If the lawsuit is successful, the court will award the plaintiff their costs and attorney’s fees for bringing the lawsuit and damages of not less than $10,000.

In effect, the Texas Heartbeat Law effectively operates as a sort of whistle-blower statute and deputizes the public to enforce it.[4]

Race to the Courthouse: A defendant is only liable for one judgment per prohibited abortion, although the law appears to allow a separate judgment against each violator. This means an abortion clinic is only liable for one set of damages per prohibited abortion, but claimants may also be able to recover separate judgments against an insurance carrier and/or employer sponsoring a medical plan for the same occurrence. An employer (as plan sponsor) is also only liable for one set of damages per prohibited abortion.

Risk to Employer-Sponsored Medical Plans

While the law focuses on health care providers, merely offering a medical plan that provides coverage for abortions should be enough to put an employer at risk for aiding and abetting a prohibited abortion covered by the plan.5 This includes offering coverage using the Rider Approach (but see ERISA Plans below).

The law also defines aiding and abetting to include paying for or reimbursing for the cost of prohibited abortion services through insurance or otherwise. An employer (as plan sponsor) pays for or reimburses the cost of claims out of its own assets in a self-insured plan. An employer subsidizing all or a portion of the cost of insurance premiums may also qualify as paying for the cost of prohibited abortion services and be liable under the law. Insurance carriers are obviously at risk for fully insured coverage providing coverage for abortions. By contrast, merely processing claims should not put a third party administrator at risk.

ERISA Plans

An ERISA plan may generally claim pre-emption from any state law that relates to it (i.e. affects it), such as a law requiring or prohibiting coverage for a particular service or treatment. However, ERISA does not pre-empt state laws regulating insurance [for fully insured coverage], banking, or securities. This is why state insurance law mandates or restrictions, such as TIC Chapter 1218, apply to fully insured coverage while self-insured ERISA plans can choose to ignore them.

The Texas Heartbeat Law is vulnerable to ERISA pre-emption claims by both self-insured and – in an unusual twist – fully insured ERISA plans. A Texas law punishing an ERISA plan for providing abortion coverage should fit within

ERISA’s pre-emption protection as relating to an ERISA plan. In theory, a fully insured ERISA plan can also claim ERISA pre-emption, because the Texas Heartbeat Law is part of the Texas Health and Safety Code and is not an insurance, banking, or security law.

While we believe ERISA pre-emption is a strong defense, it may require one or more ERISA plans to survive a legal challenge in court to establish this (i.e., take one for the team).

Non-ERISA Plans

Non-ERISA plans cannot claim ERISA pre-emption and must generally rely on the DOJ’s legal challenge that the law is unconstitutional. These include state and local governmental plans (including public schools/districts) and church plans, although we expect few church plans provide coverage for abortion services except under limited circumstances.

No Relief for Fully Insured Medical Plans Sitused in Other States

There is no relief from the Texas Heartbeat Law for a fully insured plan sitused in another state.

Employer Considerations and Next Steps

Employers should determine their situation and discuss their available options with legal counsel. An injunction would give employers some welcome breathing room.

  1. Does your medical plan provide coverage for abortion services in Texas? If the answer is no, the Texas Heartbeat Law does not affect your plan.

  2. If the answer to #1 is yes, are you the plan sponsor of:

    • Self-Insured ERISA Coverage? – You should have a strong ERISA pre-emption defense without regard to whether the law is constitutional, but you need to decide if you are willing to fight or revise your plan to eliminate coverage for abortion services while the DOJ’s legal challenge proceeds.

    • Fully Insured ERISA Coverage? – You and your insurance carrier should have a good ERISA pre- emption defense without regard to whether the law is constitutional. If the insurance carrier decides to revise the plan to eliminate coverage for abortion services in Texas, your options are to remain or seek other coverage. If the insurance carrier decides to fight, you need to decide if you are willing to fight with them or seek other coverage.

    • Non-ERISA Coverage? – You are relying on the DOJ’s legal challenge that the Texas Heartbeat Law is unconstitutional. Unless the courts grant an injunction, we expect many of these plans will remove coverage for abortion services pending the litigation’s outcome.

[1] There is no exception for rape or incest, and these do not qualify as medical emergencies.

[2] Fetal heartbeats are generally detectable at six weeks, which is why the media frequently refers to this law as prohibiting abortions after six weeks of pregnancy.

[3] “Persons” appears to include private citizens and other legal entities considered “persons” under Texas law. This means a third-party organization or church could sue to enforce the law.

[4] It appears the Texas Heartbeat Law relies on private enforcement in an attempt to avoid prior Supreme Court decisions restricting state and/or local government intrusion.

[5] This includes fully insured and self-insured medical plans and should include participation in a multiple employer welfare arrangement or multiple employer plan.