High Court Upholds Illinois External Review Law

Justice David Souter argues in an opinion for the majority that the Illinois HMO Act can survive ERISA preemption because the act regulates insurance.

“Although an HMO provides healthcare in addition to insurance, nothing in the saving clause requires an either-or choice between healthcare and insurance,” Souter writes in the majority opinion. “Congress recognized, the year before passing ERISA, that HMOs are risk-bearing organizations subject to state insurance regulation?. The argument of Rush and its amici that [the Illinois act] sweeps beyond the insurance industry, capturing organizations that provide no insurance and regulating noninsurance activities of HMOs, is based on unsound assumptions.”

Moreover, Souter writes, the Illinois law meets standards for insurance laws spelled out in an earlier Supreme Court ruling, on Metropolitan Life Insurance Company vs. Massachusetts.

The Illinois law “regulates application of HMO contracts and provides for review of claim denials,” Souter writes. “Once it is established that HMO contracts are contracts for insurance, it is clear that [the Illinois law] does not apply to entities outside the insurance industry.”

Finally, Souter writes, the Illinois law focuses narrowly on interpretation of the phrase “medically necessary,” closely resembles a requirement that patients have access to second opinions, and appears to be significantly different from common arbitration.

Justices John Paul Stevens, Sandra Day O’Connor, Ruther Bader Ginsburg and Stephen Breyer joined Souter in the majority.

Justice Clarence Thomas wrote a dissenting opinion representing his views and those of Justices Antonin Scalia and Anthony Kennedy, and of Chief Justice William Rehnquist.

“Allowing disparate state laws that provide inconsistent external review requirements to govern a participant’s or beneficiary’s claim to benefits under an employee benefit plan is wholly destructive of Congress’ expressly stated goal of uniformity in this area,” Thomas writes. “The Court would do well to remember that no employer is required to provide any health benefit plan under ERISA, and that the entire advent of managed care, and the genesis of HMOs, stemmed from spiraling health costs.”

If the Illinois act and other state laws resembling it increase the likelihood that HMOs will have to subsidize beneficiaries’ treatment of choice, “they undermine the ability of HMOs to control costs, which, in turn, undermines the ability of employers to provide health care coverage for employees,” Thomas concludes.

A link to the majority opinion and the dissenting opinion is available on the Web at http://www.supremecourtus.gov/opinions/01slipopinion.html