In a highly anticipated decision, the U.S. Supreme Court has finally weighed in on the issue of FEHBA subrogation and federal preemption of state laws in Coventry Health Care of Missouri, Inc. v. Nevils, 137 S.Ct. 1190 (April 18, 2017) (Coventry II). The verdict is that state law must yield to FEHBA contracts’ subrogation provisions. This comes nearly a year after the Missouri Supreme Court’s latest (but probably not last) rejection of FEHBA subrogation rights, even in the face of express federal regulations to the contrary. Nevils v. Group Health Plan, Inc., 492 S.W.3d 918 (Mo. 2016) (Nevils II). The Missouri court reasoned that the FEHBA is ambiguous as to preemption, the presumption against preemption resolves the ambiguity in favor of state law, the Office of Personnel Management (“OPM”) is not entitled to deference with regard to the new regulation, and more or less implied that federal interests are subordinate to the interests of the State of Missouri. See Id. at 925. Furthermore, in a concurring opinion, Justice Wilson of the Missouri high court opined that the FEHBA’s preemption provision is not valid under the U.S. Constitution’s Supremacy Clause. Id. at 925.
The U.S. Supreme Court heartily disagreed. In a unanimous 8-0 decision, the Supreme Court reversed and remanded the case back to the Missouri Supreme Court, holding that the express preemption provision of FEHBA applies to state law regarding reimbursement and subrogation and that the provision does not exceed the powers of Congress under the Supremacy Clause.
Congress enacted the Federal Employees Health Benefit Act of 1959 (“FEHBA”), 5 U.S.C. §§ 8901-8914, as a means of establishing a comprehensive health insurance program for employees of the federal government. The statute authorizes the Office of Personnel Management (“OPM”) to make regulations necessary to carry out the program and provide for its operation, 5 U.S.C. § 8913(a), as well as enter into contracts with insurance carriers to provide health benefits. 5 U.S.C. § 8902(a), (d). In order to promote uniform administration of the program, the FEHBA contains an express preemption clause:
“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).
The OPM has promulgated numerous regulations with regard to subrogation and reimbursement issues. For instance, all FEHB contracts must contain a subrogation and reimbursement provision. 5 C.F.R. § 890.106(g). Most notably for purposes here is § 890.106(h), which went into effect on June 22, 2015 while Jodie Nevils’ case was pending in the U.S. Supreme Court for the first time. See Coventry Health Care of Missouri, Inc. v. Nevils, 135 S.Ct. 2886 (2015) (Coventry I). Section 890.106(h) provides:
“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 [FEHBA’s preemption provision]. 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.”
Jodie Nevils is a former federal employee and was, for a time, covered under a FEHBA health plan underwritten by Coventry Health Care of Missouri (formerly known as Group Health Plan, Inc.). During that time, Nevils sustained injuries in a car accident. In a textbook example of subrogation, Coventry paid his medical expenses and Nevils brought an action against the adverse driver, resulting in a settlement; when Coventry sought reimbursement from the settlement proceeds based on its contract provisions, Nevils paid the lien.
Thereafter, Nevils filed a class action against Coventry. He claimed that they wrongfully demanded reimbursement, based on Missouri law, which prohibits subrogation in connection with personal injury claims. Coventry argued that the terms of the contract preempt Missouri subrogation law by virtue of FEHBA’s express preemption clause, 5 U.S.C. § 8902(m)(1). The trial court granted summary judgment in favor of Coventry, which the Missouri Court of Appeals affirmed. Nevils v. Group Health Plan, Inc., No. 11SL-CC00535 (Cir. Ct., St. Louis Cty., Mo., May 21, 2012); Nevils v. Group Health Plan, Inc., 2012 WL 6689542, *5 (Dec. 26, 2012).
The Missouri Supreme Court, however, found that FEHBA’s express preemption provision is ambiguous (leaning heavily on excerpts from Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006), taken out of context), and applied a “presumption against preemption” to resolve the ambiguity in favor of preserving the State’s traditional police powers. Nevils v. Group Health Plan, Inc., 418 S.W.3d 451 (Mo. 2014) (Nevils I). On that basis, it held that the preemption provision did not encompass subrogation, and reversed the rulings of the trial court and the Court of Appeals.
Shortly thereafter, the U.S. Supreme Court granted certiorari on Coventry’s petition. See Coventry I, 135 S.Ct. 2886 (2015).
In Coventry I, the Court, in addition to the other parties’ materials, invited the U.S. to file a brief via the Solicitor General. Shortly thereafter, in January of 2015, the OPM proposed its new rule, § 890.106(h), which went into effect on June 22, 2015. Exactly one week later, the Supreme Court vacated the judgment and remanded the case to the Missouri Supreme Court “for further consideration in light of new regulations by [OPM].” Coventry I, 135 S.Ct. 2886 (2015).
The U.S. Supreme Court acted almost immediately in response to OPM’s new regulations and issued its opinion vacating the judgment and remanding the case a mere seven days later on June 29, 2015. One might assume that the OPM regulation solved the problem, given the Supreme Court’s swift remand. The Missouri Supreme Court, however, continued to disagree.
In Nevils II, 492 S.W.3d 918 (Mo. 2016), decided just over a year ago, the Missouri Supreme Court held fast to its previous ruling, unimpressed with the OPM’s new rule. Again, the Court pointed to the presumption against preemption which can only be overcome by the clear and manifest intent of Congress, which the Court found absent in FEHBA’s preemption provision. Id at 922. The Missouri Court also rejected Coventry’s argument that the OPM rule was entitled to Chevron deference, holding that deference does not apply to provisions that deal expressly with preemption. Nevils II at 923; Chevron U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837, 844 (“We have long recognized that considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations.”).
With regard to federal interests, the Court recognized that the federal government had strong interests in regulating health benefits for its employees, but countered sharply that Missouri has an interest in enforcing its anti-subrogation law. Nevils II, at 925. The Court was sure to note that it was not bound by, and declined to follow, the Tenth Circuit and the Arizona Court of Appeals. Id. Lastly, in a concurring opinion, Justice Wilson held that “to give preemptive effect to the provisions of a contract between the federal government and a private party is not a valid application of the Supremacy Clause” and so the FEHBA does not displace Missouri’s anti-subrogation law. Id. at 925.
In an effort to resolve conflicting interpretations of § 8902(m)(1), especially in light of argument over the new § 890.106(h), the U.S. Supreme Court granted certiorari a second time and, for a second time, reversed and remanded the case to the Missouri Supreme Court. Coventry Health Care of Missouri, Inc. v. Nevils, 137 S. Ct. 1190, 1197 (2017) (Coventry II).
In order for federal preemption to take place, § 809(m)(1) requires that 1) the terms of the contract must “relate to” the nature, provision, or extent of coverage or benefits (including payments related to benefits) and 2) the State law being preempted must “relate to” health insurance or plans. In this case, the parties agreed that Missouri’s law prohibiting reimbursement and subrogation in relation to personal injury claims does in fact relate to health insurance or plans. The issue, then, was whether the subrogation and reimbursement provisions in Coventry’s contract with OPM relate to coverage or benefits.
The Court agreed with Coventry’s position, which was supported by the amicus brief of the U.S., and noted in no uncertain terms that “contractual provisions for subrogation and reimbursement ‘relate to . . . payments with respect to benefits’ because subrogation and reimbursement rights yield just such payments.” Id. at 1197. When subrogation or reimbursement rights are exercised by a carrier, the end result is that it receives “payment” as reimbursement for the benefits, medical or otherwise, that it had previously paid to its insured. The Court further explained that the phrase “relate to” is subject to broad interpretation, with Congress “employ[ing] the phrase to reach any subject that has “a connection with, or reference to,” the topics the statute enumerates.” Morales, 504 U.S., at 384, 112 S.Ct. 2031; Id. at 1197. Nevils attempted to argue that the term “payments” excluded payments that occurred long after the carrier’s provision of benefits, an argument that was unconvincing to the Court given the broad “relation” interpretation.
The Court also underscored the importance of FEHBA to the federal government, noting that “[s]trong and “distinctly federal interests are involved,” McVeigh, 547 U.S., at 696, 126 S.Ct. 2121 in uniform administration of the program, free from state interference, particularly in regard to coverage, benefits, and payments.” Id. at 1197.
Nevils also argued that if § 8902(m)(1) indeed covers subrogation and reimbursement clauses in OPM contracts such as theirs with Coventry, that the statute itself would violate the Supremacy Clause. Nevils based his argument on a theory that preemptive effect would then be assigned to a contract, not to a law, in violation of the Supremacy Clause. Predictably, the Supreme Court also disagreed with this suggestion.
The Court held that, rather, it is the statute that allows a FEHBA contract to be enforced notwithstanding the state law relating to health insurance or plans. The contract itself has preemptive force “only as they ‘relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits),’ § 8902(m)(1)—i.e., when the contract terms fall within the statute’s preemptive scope.” Id. at 1198. The Court points to the Employee Health Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001, et seq. as an example of a federal statute preempting state law that leaves the context-specific scope of preemption to contractual terms.
Nevils tried one final time to argue his point, stating that because § 8902(m)(1) states that the “terms of any contract” between OPM and a carrier “shall supersede and preempt” state law, the contract terms are “preempting”, not the law. (The Supremacy Clause, U.S. Const. Art. VI, cl. 2, provides that only the “laws” of the U.S. are entitled to supremacy.) Remaining unconvinced, the Supreme Court noted that they “do not require Congress to employ a particular linguistic formulation when preempting state law.” Id. at 1200.
It remains to be seen how the Missouri Supreme Court will handle this case on remand. In light of the OPM regulations, the Supreme Court’s decision, and recent decisions in states formerly aligned with Missouri on this issue, including Arizona, Missouri may see a change in precedent sooner rather than later.
If you have any questions regarding this article, or health insurance subrogation in general, please contact Douglas Lehrer at [email protected] or Tim Mentkowski at [email protected].