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Some states, including Missouri, are known as “anti-subrogation” states. Missouri’s public policy prohibits the assignment of a personal injury claim, whether it is called an assignment, subrogation interest, or agreement to reimburse. Hays v. Missouri Highways and Transp. Comm’n, 62 S.W.3d 538 (Mo. App. 2001). This means that in Missouri, a health insurance company who has paid accident-related medical bills is generally not entitled to be reimbursed out of the injured person’s settlement, unless an exception to that rule applies. Some argued that the preemption of Missouri’s anti-subrogation law by a federal law known as the Federal Employees Health Benefits Act of 1959 (FEHBA) was such an exception. 5 U.S.C. §§ 8901-8914. I suppose you can’t blame Missouri for vigorously protecting its laws, but after three decisions and two trips to the U.S. Supreme Court, the Missouri Supreme Court finally raised the white flag and agreed that the FEHBA preempts Missouri’s anti-subrogation law.
The FEHBA is a comprehensive statutory and regulatory scheme that establishes the Federal Health Benefits Program and governs a comprehensive program of health insurance for federal employees. In order to ensure uniformity in the administration of FEHBA Plan benefits, Congress amended FEHBA in 1998 to include, for the first time, a preemption clause. H.R. Rep. No. 282, at 4 (1977). The original clause read as follows:
(m) (1) The provisions of any contract under this chapter which relate to the nature 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 to the extent that such law or regulation is inconsistent with such contractual provisions. PL 95-368 (H.R. 2931), PL 95-368, Sept. 17, 1978, 92 Stat. § 606.
The original preemption clause stated that state and local laws and regulations were preempted only when they were “inconsistent with such contractual provisions” established under FEHBA. Some courts rejected FEHBA preemption when their state laws were found to be “consistent” with the FEHBA benefit contract provisions, and decisions on the extent and scope of FEHBA preemption varied from jurisdiction to jurisdiction resulting in a split of authority, and a number of states which tried to protect their anti-subrogation laws from FEHBA preemption. One such state was Missouri.
The Missouri story begins in 2006, when Jodie Nevils, who was a federal employee and insured through a FEHBA Plan, was injured in a car accident. Coventry/ACS paid her medical expenses and asserted a subrogation lien against the proceeds of her third-party personal injury settlement. Nevils reimbursed the FEHBA subrogation lien but filed a class action suit arguing Missouri’s anti-subrogation law did not permit subrogation or reimbursement of personal injury claims. Missouri law declares any insurance policy that attempts to allow subrogation invalid under state law. The Missouri state trial court granted summary judgment, holding that FEHBA preempts Missouri’s anti-subrogation law. Nevils appealed.
In 2014, the Missouri Supreme Court reversed the state court and held that FEHBA’s preemption clause does not preempt Missouri’s anti-subrogation law because an insurer’s subrogation rights do not relate to the nature, provision, or extent of coverage or benefits. Nevils v. Group Health Plan, Inc., 418 S.W.3d 451 (Mo. banc 2014) (Nevils I). In reaching this conclusion, the court noted the presumption that a state’s police powers are not preempted by federal statute unless such is the “clear and manifest purpose of Congress.” Cipollone v. Liggett Grp., Inc., 505 U.S. 504 (1992). Relying on a U.S. Supreme Court decision, the Missouri Supreme Court ruled the FEHBA preemption clause susceptible to plausible, alternate interpretations because it does not directly address an insurer’s subrogation or reimbursement rights. Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006). As a result, the Missouri Supreme Court in Nevils I concluded Congress did not manifest a clear intent to preempt state anti-subrogation laws when it enacted the FEHBA preemption clause. The case was appealed to the U.S. Supreme Court.
After Nevils I was decided, but before the U.S. Supreme Court granted certiorari, the federal Office of Personnel Management (OPM) promulgated new regulations providing that an insurer’s rights to subrogation and reimbursement under FEHB contracts “relate to the nature, provision, and extent of coverage or benefits” within the meaning of FEHBA’s preemption clause. 5 C.F.R. § 890.106(h). As a result of these new regulations, the U.S. Supreme Court granted certiorari in Coventry Health Care of Missouri, Inc. v. Nevils, vacated Nevils I, and remanded the case back to the Missouri Supreme Court to consider whether FEHBA preempts Missouri’s anti-subrogation law in light of the new rule. Coventry Health Care of Mo., Inc. v. Nevils, 135 S. Ct. 2886 (2015).
On remand, the Missouri Supreme Court stubbornly held to its original position. It ruled that the OPM rule did not alter “the fact that the FEHBA preemption clause does not express Congress’ clear and manifest intent to preempt Missouri’s anti-subrogation law.” Nevils v. Group Health Plan, Inc., 492 S.W.3d 918 (Mo. banc 2016) (Nevils II). A majority of the Missouri Supreme Court also held that § 8902(m)(1) violates the Supremacy Clause. The Missouri Supreme Court again reversed the trial court’s judgment in favor of Coventry and ACS. Its decision conflicted with the 8th Circuit decision of Jacks v. Meridian Resource Co., LLC, 701 F.3d 1224 (8th Cir. 2012), which stated that Missouri’s anti-subrogation law is preempted by FEHBA’s express preemption provision found in § 8902(m)(1). The case was again appealed to the U.S. Supreme Court.
The U.S. Supreme Court again granted certiorari and, on March 1, 2017, held that an insurer’s subrogation and reimbursement rights “relate to…payments with respect to benefits” because it is the insurance carrier’s provision of benefits that triggers its right to payment from either the beneficiary or a third party after a judgment against a tortfeasor is entered or settlement is reached. Coventry Health Care of Mo., Inc. v. Nevils, 137 S. Ct. 1190 (2017). The U.S. Supreme Court began with the statute’s use of the phrase “relate to,” which “expresses a broad preemptive purpose” in a preemption clause and, therefore, “weighs against” the narrow construction of § 8902(m)(1) urged by Nevils and employed by this Court in Nevils I and Nevils II. It further supported its holding by citing the strong federal interest “in uniform administration” of FEHBA Plans, “free from state interference, particularly in regard to coverage, benefits, and payments,” and noting that the federal government has a strong financial stake in ensuring insurance carriers with federal contracts are reimbursed.
The U.S. Supreme Court further held that § 8902(m)(1) “strips state law of its force,” not the language of FEHB contracts. It rejected the argument that the language of the preemption clause – which provides the “terms of any contract” between the federal government and an insurance carrier “shall supersede and preempt” local and state laws – violates the Supremacy Clause “by assigning preemptive effect to the terms of a contract.” Concluding that this argument “elevates semantics over substance,” the U.S. Supreme Court ruled that the FEHBA preemption clause “manifests the same intent to preempt state law” as other federal preemption statutes despite the different “linguistic formulation” of § 8902(m)(1). The U.S. Supreme Court again vacated the decision in Nevils II and remanded the case back to the stubborn Missouri Supreme Court.
In Coventry II, the U.S. Supreme Court held that because contractual subrogation and reimbursement rights plainly “relate to” payments with respect to benefits, under § 8902(m), they override state law barring subrogation and reimbursement. FEHBA subrogation and reimbursement rights do relate to the “nature, provision or extent of coverage of benefits” under FEHBA and, therefore, preempt Missouri’s anti-subrogation law. Coventry Health Care of Missouri, Inc. v. Nevils, 137 S.Ct. 1190 (2017). The case was remanded a second time back to the Missouri Supreme Court for further proceedings consistent with the U.S. Supreme Court’s decision.
On July 11, 2017, the Missouri Supreme Court finally got the message. It ruled that FEHBA’s preemption provision applies to Missouri’s anti-subrogation and anti-reimbursement laws for insurance and its express preemption provision do not exceed the powers of Congress under the Supremacy Clause. Nevils v. Group Health Plan, Inc., 2017 WL 2962971 (Mo. Banc 2017) (Nevils III). It ruled that “contractual provisions for subrogation and reimbursement relate to payments with respect to benefits” within the meaning of FEHBA’s preemption clause and that the FEHBA complies with the Supremacy Clause because it is the language of § 8902(m)(1) that “strips state law of its force,” not the terms of any contract, despite the unusual phrasing of the preemption clause. Applying these clear directives from the U.S. Supreme Court, the Missouri Supreme Court affirmed the trial court’s summary judgment in favor of Coventry and ACS because the FEHBA preempts Missouri’s anti-subrogation law.
If you have any questions regarding health insurance subrogation involving ERISA, FEHBA, and Medicare Advantage Plans, please contact Ryan Woody at [email protected].