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ERISA May Not Govern Converted Health Policies

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Converting employer-sponsored health coverage to individual policies may be riskier for health insurers than simply selling continuation coverage.

The 9th U.S. Circuit Court of Appeals has ruled that the federal Employer Retirement Income Security Act limits suits against carriers that sell continuation coverage, but not against carriers that sell converted policies.

“The contract under the converted policy is directly between the insurer and the insured,” Circuit Judge William Fletcher writes for a three-judge panel that heard an ERISA case, Barbara Waks vs. Empire Blue Cross/Blue Shield, in San Francisco.

“Whenever an individual has exercised her right to convert from a group policy under an ERISA plan to an individual policy, the new policy is no longer regulated by ERISA, and state-law claims under that policy are not preempted by ERISA,” Fletcher writes.

The plaintiff in the case, Barbara Waks, is suing Empire Blue Cross and Blue Shield, New York, over its refusal to cover a 1996 emergency room visit.

The 9th Circuit ruling deals only with ERISA. The court comes to no conclusions about the facts of the case.

The ruling reverses an earlier decision by a U.S. District Court in Nevada, which found that ERISA does protect issuers of converted policies as well as providers of continuation coverage.

Several appeals court cases deal with the connection between ERISA and the temporary health coverage continuation benefits available under the federal Consolidated Omnibus Budget Reconciliation Act.

But many states add to the federal COBRA requirements by requiring group health insurers to offer converted, individual policies to members of group plans that shut down. Some states also require group carriers to offer converted policies to plan members who use up their COBRA benefits.

Only two appellate rulings, from the 1st Circuit and the 8th Circuit, dealt with the relationship between ERISA and converted policies before the 9th Circuit addressed the issue, Fletcher writes.

The 8th Circuit, which handles North and South Dakota, Minnesota, Nebraska, Iowa, Missouri and Arkansas, says ERISA protects issuers of converted policies. The 1st Circuit, which handles Maine, Massachusetts, New Hampshire and Rhode Island, says state law applies, according to Fletcher.

Empire still has the right to ask all the judges on the 9th Circuit to hear the case, and to file an appeal with the U.S. Supreme Court. If the ruling stands, it will have the force of law in California, Oregon, Washington, Arizona, Montana, Idaho, Nevada, Alaska and Hawaii.

Representatives for Waks were not available for comment.

A spokesman for Empire had no comment on the 9th Circuits interpretation of ERISA, but he emphasized that the ruling dealt only with procedural issues. “We continue to litigate it on the facts,” the spokesman said.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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