Court Recognizes Importance of Subrogation In Reducing Premiums: Calingo v. Meridian Resource Co., LLC, 2013 WL 1250448 (S.D.N.Y. 2013).
The U.S. government sponsors more than 350 different health Plans covering more than nine million federal employees, retirees, and beneficiaries through the Federal Employees Health Benefit Act of 1959 (FEHBA). 5 U.S.C. §§ 8901-8914. These health Plans are administered by the Office of Personnel Management (OPM). CPAs and private subrogation professionals frequently get involved in subrogation of FEHBA Plans. The FEHBA itself does not mention or provide for rights of reimbursement or subrogation. Any such rights must be spelled out and/or provided for in the terms of the Plan or contract involved.
The U.S. Supreme Court has declared that § 1331 does not give a FEHBA Plan seeking reimbursement from a Plan beneficiary federal jurisdiction. Empire HealthChoice Assur., Inc. v. McVeigh, 126 S. Ct. 2121 (2006). In McVeigh, the U.S. Supreme Court held that the subrogation and reimbursement provisions in a FEHBA Plan are linked together and depend upon a recovery from a third party under terms and conditions ordinarily governed by state law. The Court noted that the preemption clause of the FEHBA, found at 5 U.S.C. § 8902(m)(1), displaces state law on issues relating to “coverage or benefits” afforded by health care Plans. Section 8902(m)(1) states:
The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or Plans.
A 2011 New York federal district court memorandum decision threatened the viability of FEHBA subrogation in many states. Calingo v. Meridian Resources Co., LLC, 2011 WL 3611319 (S.D. N.Y. 2011). Calingo involved a class action lawsuit against Meridian, which administers FEHBA benefits for the U.S. government in the State of New York. The plaintiffs claimed that Meridian couldn’t subrogate because of New York’s anti-subrogation provision, § 5-335, which precludes subrogation except where there is a statutory right of reimbursement, which FEHBA does not have. Meridian, however, argued that § 5-335 was preempted by FEHBA, while the plaintiffs argued that it was not, because it does not relate to “the nature, provision, or extent of coverage or benefits” as stated in FEHBA’s preemption provision. Prior to McVeigh, courts routinely held that the Master Contract preempted state law subrogation principles because the state subrogation laws related to coverage and benefits. However, the district court in Calingo noted that the FEHBA subrogation landscape changed after McVeigh. Hawaii Disability Rights Ctr. v. Cheung, 513 F.Supp.2d 1185 (D. Haw. 2007); Southerland v. Liberty Mutual Fire Ins. Co., 152 P.3d 260 (Okla. Ct. App. 2006). The Court held that while § 5-335 is directed at health insurance Plans, subrogation and reimbursement pursuant to such a Plan does not relate to the coverage and benefits under such a policy and FEHBA does not preempt it. The Court said that there was no preemption because the reimbursement claim pursuant to the health insurance policy does not relate to the coverage and benefits under the policy, and also because defendants’ right to reimbursement stems from the OPM-BCBSA contract and thus does not involve a “statutory right of reimbursement.” Calingo, supra. In short, this New York decision declares that there is no federal preemption for the subrogation and reimbursement provisions in a FEHBA contract because subrogation does not relate to benefits. However, this decision was short-lived.
In 2013, the same New York federal district court did an about-face after the U.S. Office of Personnel Management (OPM) issued an “FEHB Program Carrier Letter,” dated June 18, 2012 (the “OPM Letter”), which was sent to BCBSA and all other insurance carriers administering Plans under FEHBA. In Calingo v. Meridian Res. Co., LLC, 2013 WL 1250448 (S.D.N.Y. 2013) (Calingo II), the Court was persuaded by the OPM Letter in which the OPM expressed its official position that FEHBA preempts state laws on issues of subrogation and reimbursement, and instructed carriers such as BCBSA to “utilize this correspondence as needed in your recovery efforts.” The OPM explained its reasoning as follows:
FEHB Program contracts … require enrollees to reimburse the plan in the event of a third party recovery. Carriers are required to seek reimbursement and/or subrogation recoveries in accordance with the contract. The funds received by [carriers] from these recoveries are required to be credited to [a fund] established by 5 U.S.C. § 8909, held by the Treasury of the United States, and … subrogation and reimbursement recoveries serve to lower subscription charges for individuals enrolled in the Federal Employees Health Benefits Program. The carrier’s right to subrogation and/or reimbursement recovery is both a condition of, and a limitation on, the payments that enrollees are eligible to receive for benefits; the carrier’s contractual obligation to obtain them necessarily relates to the enrollee’s coverage or benefits (including payments with respect to benefits) under the FEHB program. These recoveries therefore fall within the purview of the FEHBA’s preemption clause, and supersede state laws that relate to health insurance or health plans.
The OPM Letter then cites the U.S. Supreme Court’s decision in Empire Healthchoice Assurance, Inc. v. McVeigh for the proposition that OPM’s interpretation is plausible, and cites several lower court decisions finding that state laws similar to § 5-335 “relate to” health Plans for purposes of triggering FEHBA’s preemption provisions. The federal court was convinced, giving deference to the OPM Letter and noting that reimbursement and subrogation play an integral role in the overall administration of the Federal Employees Health Benefits Program (FEHBP), and thus “relate to” the coverage and benefits of those insured under the program. Specifically, the Court noted that the OPM Letter explains that “subrogation and reimbursement recoveries serve to lower subscription charges for individuals enrolled in” the FEHBP, because monies recovered under contractual subrogation and reimbursement provisions are returned to the government and used to lower the subscription charges of all FEHBP enrollees. Therefore, the Court acknowledged that subrogation and reimbursement provisions in FEHBP benefits Plans directly reduce the amount of money enrollees pay for their health insurance, and presumably affect the benefits they receive. The Court granted the defendant’s motion on the pleadings and dismissed the case.
Not only is this a victory for FEHBA subrogation in the subrogation minefield of New York, but the OPM letter – written by a federal agency – acknowledge the importance of subrogation in holding down premiums and helping keep the costs of health insurance low. This letter should be used as ammunition in all areas of subrogation, but especially health insurance subrogation.
If you should have any questions regarding FEHBA subrogation or subrogation in general, contact Gary L. Wickert at firstname.lastname@example.org.