Sixth Circuit ruling reinforces HR teams' authority over self-funded health plan networks
A federal court just told Tennessee it cannot control how employers build pharmacy networks inside their own self-funded health plans.
On April 7, 2026, the US Court of Appeals for the Sixth Circuit handed down a decision affirming that Tennessee's pharmacy benefit manager laws are preempted by the Employee Retirement Income Security Act. For HR professionals overseeing self-funded benefit plans, the ruling reinforces a critical principle: states cannot micromanage how employers design and administer prescription drug benefits for their workers.
McKee Foods, the Tennessee-based company behind Little Debbie and Drake's, employs nearly 7,000 people across the country, more than half outside Tennessee. The company sponsors a self-funded health plan and takes an active hand in shaping it, from setting copays and deductibles to selecting which pharmacies make the cut for its preferred network. In December 2022, McKee opened its own pharmacy near its Tennessee headquarters, offering plan participants lower copays as an incentive to fill prescriptions there.
The trouble started after McKee and its pharmacy benefit manager, MedImpact Healthcare Systems, removed a local pharmacy called Thrifty MedPlus from the plan's network following an audit that revealed billing issues. Thrifty Med pushed back and sought reinstatement. Around the same time, Tennessee passed a pair of laws tightening its grip on pharmacy benefit managers. One set of provisions required PBMs to accept any licensed pharmacy willing to meet network terms, effectively stripping employers and their PBMs of the ability to curate a selective network. Another set banned differential copays and financial incentives that steered participants toward certain pharmacies over others. Tennessee made clear these rules applied to ERISA-governed plans, and the state's insurance commissioner publicly stated he intended to enforce them.
McKee sued, arguing the state laws invaded territory that belongs exclusively to federal law under ERISA.
The Sixth Circuit agreed. The court found that Tennessee's laws crossed three of the four recognized lines for preemption. They forced employers into a particular plan structure by requiring open pharmacy networks. They seized control over a central piece of plan administration, namely, which pharmacies are in and which are out. And they disrupted the national uniformity that ERISA was designed to protect, potentially forcing multi-state employers to juggle different pharmacy rules in every state where they operate.
On the incentive restrictions, the court drew a distinction from the Supreme Court's 2020 decision in Rutledge v. PCMA, which had upheld an Arkansas law regulating pharmacy reimbursement rates as a routine cost measure. Tennessee's laws, the court found, went further. Banning differential copays across pharmacies does not merely nudge costs; it dictates the architecture of a plan's benefit design. That, the court concluded, is a line ERISA does not allow states to cross.
The court also shut the door on Tennessee's fallback argument that its laws should survive under ERISA's saving clause, which shields state insurance regulations from preemption. Because Tennessee had defined ERISA plans themselves as pharmacy benefit managers under its statute, the deemer clause kicked in, which prohibits treating self-funded plans as insurance companies under state law.
The practical takeaway for HR teams is straightforward. Employers sponsoring self-funded health plans retain broad authority to design pharmacy networks, set tiered copay structures, operate employer-owned pharmacies, and use financial incentives to steer participants toward cost-effective options. State legislatures may continue trying to regulate PBMs, but when those regulations reach into the structure of self-funded ERISA plans, federal law still holds the line.
