For over a decade, state and federal courts throughout the nation have wrestled with the issue of whether FEHBA (Federal Employees Health Benefit Act of 1959) preempts state subrogation laws. 5 U.S.C. §§ 8901-8914. Both Missouri and Arizona are well-known anti-subrogation states. See Wayne v. Bankers Multiple Line Ins. Co., 796 S.W.2d 660 (Mo. Ct. App. 1990); Piano v. Hunter, 840 P.2d 1037, 1039 (Ariz. Ct. App. 1992). Yet millions of federal employees, retirees, and beneficiaries receive their health benefits through government-sponsored health plans pursuant to FEHBA, which provides:
“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.” 5 U.S.C. § 8902(m)(1).
A number of courts have recognized the primacy of FEHBA over state subrogation law. See NALC Health Ben. Plan v. Lunsford, 879 F. Supp. 760, 763 (E.D. Mich. 1995); Helfrich v. Blue Cross and Blue Shield Ass’n, 804 F.3d 1090 (10th Cir. 2015). Conversely, some jurisdictions have resisted federal preemption and denied the subrogation rights of FEHBA plans. Missouri and Arizona have been prominent examples, particularly in the cases of Nevils v. Group Health Plan, Inc., 418 S.W.3d 451 (Mo., en banc, 2014) and Kobold v. Aetna Life Ins. Co., 309 P.3d 924 (Ariz. Ct. App. 2013). Both courts ruled that FEHBA plans’ subrogation and reimbursement provisions fell outside the scope of the preemption provision, and thus state law barred their claims. The holdings relied heavily on dicta from Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677 (2006), where the United States Supreme Court indicated that the provision was subject to more than one plausible construction.
In June 2015, the Office of Personnel Management (OPM) promulgated a new regulation interpreting FEHBA’s preemption provision. It provides, in part, that,
“A carrier’s rights and responsibilities pertaining to subrogation and reimbursement under any FEHB contract relate to the nature, provision, and extent of coverage or benefits (including payments with respect to benefits) within the meaning of 5 U.S.C. 8902(m)(1). These rights and responsibilities are therefore effective notwithstanding any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.” 5 C.F.R. § 890.106(h).
This was a clear interpretation of FEHBA’s preemption provision by the OPM to include subrogation and reimbursement claims. Within a week, the United States Supreme Court granted certiorari in Nevils and Kobold, vacated the judgments, and remanded them for further consideration in light of the new regulations. Group Health Plan, Inc. v. Nevils, 135 S. Ct. 2886 (2015); Aetna Life Ins. Co. v. Kobold, 135 S. Ct. 2886 (2015). The common history of the cases ends there.
In spite of the OPM’s clear interpretation embodied in the new regulation, promulgated in accordance with all rulemaking procedures and pursuant to its congressionally delegated powers, the Missouri Supreme Court again refused to recognize FEHBA preemption on remand. Nevils v. Group Health Plan, Inc., Missouri Supreme Court Case No. SC93134. In its opinion handed down May 3, 2016, the court reasoned that there is a presumption against preemption which can only be overcome by Congress’ clear and manifest intent. The OPM regulation does not overcome the presumption and, therefore, it does not establish that FEHBA preempts Missouri law prohibiting subrogation of personal injury claims. The court declined to afford deference to the OPM’s interpretation because “the United States Supreme Court has never held expressly that Chevron deference applies to resolve ambiguities in a preemption clause” (referring to Chevron U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984)).
The court again pointed to the issue of alternate interpretations, stating that the ambiguity “implicates the presumption against preemption and counsels that preemption is warranted only if Congress expressed its clear and manifest intent that the purposes of FEHBA require the preemption of state anti-subrogation laws.” Not surprisingly, the court found no such intent.
Further, in discussing the interests of federalism, which can overcome the negative presumption, the court stated, “There is no doubt that there is strong federal interest in regulating the provision of health insurance benefits for federal employees. However, it is also true that Missouri has an interest in the uniform enforcement of its anti-subrogation law for all of its citizens.” If anyone’s intent is clear, it is that of the Missouri judiciary. They will fight tooth and nail to bar subrogation, regardless of national interests and clear federal policy.
The Arizona Court of Appeals, on the other hand, has had a change of heart. On remand, the court reversed its earlier decision in Kobold v. Aetna Life Ins. Co., Arizona Court of Appeals Case No. 1 CA-CV12-0315. Contrary to the Nevils decision, the Kobold court held that the statutory interpretation embodied in the new federal regulations is entitled to deference in accordance with Chevron. The court reasoned that implementation of a statutory provision qualifies for deference when it appears that Congress delegated authority generally, and that the agency interpretation was promulgated in exercise of that authority, both of which requirements were met. Further, if a statute is silent or ambiguous with respect to a specific issue, the question is whether the agency’s interpretation is reasonable. “The connection between issuing benefit payments and seeking subrogation and reimbursement is not so attenuated as to make the regulations’ interpretation unreasonable.” The regulation was also found to promote uniform treatment of federal employees under FEHBA plans nationwide, and that one of the goals of FEHBA is to assure uniformity of benefits and rates – something that Missouri apparently cannot be bothered with.
Unless and until either Congress or the United States Supreme Court directly spell it out verbatim that FEHBA preempts state anti-subrogation laws, some courts will inevitably be inclined to find in favor of their home state’s policies. The good news is that with the passage of time come more decisions, both state and federal, and more federal action in support of FEHBA preemption. Gradually, the outliers become fewer, and their stubbornness becomes more untenable. Missouri may still be holding out, but if even Arizona can see the light of reason, things are looking up for FEHBA plans.
If you have any questions regarding this article or health insurance subrogation in general, please contact Tim Mentkowski at [email protected].