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. Like it’s counterpart in the private market, ERISA, the FEHBA 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 FEHBA has a broad preemption clause which is similar to the one found in the ERISA statute. It reads as follows:
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.
Accordingly, in order to be preempted, a state law must relate to “the nature, provision, or extent of coverage or benefits.” Calingo v. Meridian Resources Co., LLC, 2011 WL 3611319 (S.D. N.Y. 2011). In the landmark U.S. Supreme Court decision of Empire Health Choice Assur., Inc. v. McVeigh, 547 U.S. 677, 686 (2006), aff’d 396 F.3d 136 (2nd Cir. 2005), aff’d 2003 U.S. Dist. LEXIS 16276 (S.D. N.Y. 2003), the Supreme Court commented on the above section:
State law – whether consistent or inconsistent with the federal Plan provisions – is displaced on matters of coverage or benefits.
The Court also stated that the terms of a federal insurance contract supersede state law. However, despite this ruling and the preemption language of the statute, federal employees who are dissatisfied with the federal preemption of their rights are increasingly trying to avoid preemption in order to take advantage of more liberal state anti-subrogation laws in order to increase their tort recoveries.
The FEHBA preemption clause is very similar to the ERISA preemption clause, so courts often look to the latter to interpret the former. Botsford v. Blue Cross and Blue Shield of Montana, Inc., 314 F.3d 390 (9th Cir. 2002); Hayes v. Prudential Ins. Co. of America, 819 F.2d 921 (9th Cir. 1987). It would follow that where ERISA is held to preempt state anti-subrogation law, the FEHBA would do the same. Unfortunately, that is no longer the case in Missouri.
In Nevils v. Group Health Plan, Inc., 2014 WL 440015 (Mo. 2014), Group Health Plan, Inc. (GHP) was attempting to enforce a subrogation lien against Nevils’ settlement of a personal injury claim. Pursuant to existing Missouri law which held that the FEHBA preempted that state’s anti-subrogation law, the trial court entered a summary judgment in favor of GHP, and Nevils appealed that summary judgment and filed a class action lawsuit against GHP, arguing that Missouri law does not allow the subrogation of personal injury claims. Buatte v. Gencare Health Sys., Inc., 939 S.W.2d 440 (Mo. App. 1996). Missouri law generally prohibits subrogation in personal injury cases by barring insurers from obtaining reimbursement from its insured’s third-party personal injury recoveries, which it says is “against public policy.” Benton House, LLC v. Cook & Younts Ins., Inc., 249 S.W.3d 878 (Mo. App. 2008).
As with ERISA, the recovery rights of FEHBA health Plans are primarily governed by the specific language contained in the Plan. In fact, the preemption clause in the FEHBA so closely resembles its counterpart in ERISA, federal appellate courts have said:
…the new provision closely resembles ERISA’s express preemption provision, and precedent interpreting the ERISA provision thus provides authority for cases involving the FEHBA provision.” Botsford v. Blue Cross & Blue Shield of Mont., Inc., 314 F.3d 390 (9th Cir. 2002), amended by, 319 F.3d 1078 (9th Cir. 2003); see also Corp. Health Ins., Inc. v. Tex. Dep’t of Ins., 215 F.3d 526 (5th Cir. 2000), vacated on other grounds, 536 U.S. 935 (2002).
On February 4, 2014, the Missouri Supreme Court decided Nevils, which involved a FEHBA Plan that contained the following language:
If a covered person is injured through the act or omission of another, the Plan requires that it be reimbursed for the benefits provided, in an amount not to exceed the amount of the recovery or that it be subrogated to the person’s rights to the extent of the benefits received under this Plan, including the right to bring suit in a person’s name. Nevils, supra.
The Court noted that, as a matter of public policy, Missouri does not allow an insurer to acquire part of the insured’s rights against the tortfeasor through the payment of medical expenses, either by assignment or subrogation. Waye v. Bankers Multiple Lines Ins. Co., 796 S.W.2d 660 (Mo. App. 1990). Missouri law declares any insurance policy that attempts to do this is invalid under state law. In Nevils, the Supreme Court held for the first time that, despite the fact that it “closely resembles” the ERISA preemption clause, the FEHBA preemption clause does not preempt Missouri’s anti-subrogation law and prevented the Plan from subrogating. Nevils, supra.
What makes the decision surprising is that the almost identical preemption clause contained in ERISA now has the opposite preemption effect. Missouri’s anti-subrogation law is clearly preempted by ERISA. Baxter By & Through Baxter v. Lynn, 886 F.2d 182 (8th Cir. 1989).
ERISA has a preemption provision similar to that of the FEHBA and courts have repeatedly observed that the scope and purposes of each are coextensive. Blue Cross & Blue Shield of Fla. v. Dep’t of Banking & Financing, 791 F.2d 1501 (11th Cir.), reh’g denied, 797 F.2d 982 (11th Cir. 1986) (there is “no meaningful difference on the face of the statute between congress’ use of ‘relates to’ in ERISA and its use of the same words in § 8902(m) of FEHBA”). The three clauses that constitute the mumbo-jumbo at the root of so much confusion with regard to ERISA preemption are the following:
Preemption Clause – 29 U.S.C. § 1144(a) (1988). All state law is preempted insofar as it “relates to employee benefit Plans.”
Except as provided in subsection (b) of this section, the provisions of this subchapter III of this chapter shall supersede any and all State laws in so far as they may now or hereafter relate to any employee benefit Plan…
Saving Clause – 29 U.S.C. § 1144(b)(2)(A) (2000). “Saves” from preemption those state laws which regulate insurance.
Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.
Deemer Clause – 29 U.S.C. § 1144(b)(2)(B) (2000). Prevents states from “opting out” of Federal preemption of employee benefit law by “deeming” Plans to be the subject of the saving clause. States may not deem self-funded employee benefit Plans to be insurance companies or engaged in business of insurance for purposes of direct state regulation.
Neither an employee benefit Plan described in § 1003(a) of this title, which is not exempt under § 1003(b) of this title, (other than a Plan established primarily for the purpose of providing death benefits), nor any trust established under such a Plan, shall be deemed to be an insurance company or other insurer…or to be engaged in the business of insurance…for purposes of any law of any state purporting to regulate insurance companies, [or] insurance contracts.
In order for a state law to be considered a “law which regulates insurance” and for it to be saved from preemption under ERISA, that law must be specifically directed toward entities engaged in insurance and it must substantially affect the risk pooling arrangement between an insurer and it’s insured. Kentucky Ass’n of Health Plans, Inc. v. Miller, 123 S. Ct. 1471 (2003). The 8th Circuit, interpreting Missouri’s anti-subrogation law in relation to ERISA subrogation, has pointed out that the law of subrogation, while generally applicable to insurance contracts, is not specifically directed toward the insurance industry. While laws regulating subrogation rights apply in part to holders of insurance, they do not regulate the insurance industry directly. Baxter By & Through Baxter, supra. Application of differing state subrogation laws to Plan providers throughout the U.S. would frustrate ERISA’s uniform treatment of benefit Plans. Thus, a common sense reading of the insurance saving clause indicates that common law rules on subrogation are not the type of state insurance regulations intended to survive the broad scope of ERISA preemption. Not so, any more, with FEHBA subrogation.
The Nevils decision is surprising, and suggests the need for the U.S. Supreme Court to rule on the issue so that we are not saddled with inconsistent preemption standards from state to state which will frustrate the uniform treatment of both ERISA and FEHBA Benefit Plans. For information on ERISA, FEHBA, and health insurance subrogation across North America, contact Ryan Woody at firstname.lastname@example.org.