Supreme Court wrestles with non-ERISA state-law preemption

Members of the Supreme Court are using a health insurance subrogation case to look at the limits on how and when federal benefits laws can block state laws.

The justices talked often about limits on preemption last week, when they heard oral arguments on Coventry Health Care of Missouri v. Jodie Nevils (Case Number 16-149).

Coventry Health Care, a unit of Hartford, Connecticut-based Aetna Inc., says the Federal Employees Health Benefits Act, blocks a Missouri anti-subrogation law.

Jodie Nevils and other plan enrollees have argued that the Missouri ban on subrogation clauses should apply to their coverage.

The justices themselves asked about whether a FEHBA provision that preempts the effect of state benefits laws on Federal Employees Health Benefits program plans delegates preemption authority to a private health plan contract, and whether delegating preemption authority to a private entity is appropriate.

Chief Justice John Roberts brought up the idea of delegating preemption authority to private entities several times.

“Is it permissible for Congress to delegate the authority to decide what laws are preempted to a private entity?” Roberts asked at one point, according to a copy of the arguments transcript posted by the court.

The reasoning used in the case could come up when the court looks at other insurance and benefits disputes involving laws such as the Employee Retirement Income Security Act of 1974 that include preemptions provisions, or laws such as the Affordable Care Act that delegate some ability to regulate state government agencies to private entities.

In State of Texas et al. v. United States of America et al., a case filed in the U.S. District Court for the North District of Texas, six states have argued that one problem with the Affordable Care Act health insurance providers “fee” is that federal regulations have given a private group, the Actuarial Standards Board, the authority to make state Medicaid programs pay program administrators enough extra cash to cover the cost of the ACA provider fee.

FEHBA, a 1959 law, gave birth to the Federal Employees Health Benefits program. The program is a paper-based health insurance exchange for federal employees. Officials at the U.S. Office of Personnel Management can let any carriers that meet its standards offer coverage to federal workers.

ERISA includes a clause that preempts the effect of state benefits mandates on ERISA plans.

In 1978, four years after Congress passed ERISA, Congress added a state benefits law preemption clause to FEHBA. The FEHBA preemption clause states that the benefits provisions of any contract with a FEHB plan issuer shall supersede any state or local law that conflicts with the plan contract provisions.

A “subrogation” clause is a policy provision that gives an insurer the legal right to sue an individual or company that hurts the insured.

If, for example, Jane Doe has health coverage from ABC Insurance Company, and a truck from XYZ Trucking runs her over, ABC Insurance could use subrogation to sue XYZ Trucking in Jane Doe’s place. ABC Insurance could ask to XYZ Trucking to reimburse it for paying Jane Doe’s accident-related medical claims before sending Jane Doe any cash.

Missouri prohibits health plan subrogation clauses.

Not a body shop

In oral arguments last week, Matthew Wessler, a lawyer for Nevils, rejected the idea that Congress meant for FEHBA to preempt ordinary state insurance laws.

Congress was simply trying to keep states from adding acupuncture mandates and chiropractic mandates, Wessler said.

Congress “understood that the private carriers that were participating in this program should be governed by the same laws that would govern anybody in the private sector,” Wessler said.

Miguel Estrada, the lawyer representing Coventry Health Care, said Congress clearly meant for FEHBA to block laws like the Missouri anti-subrogation law, because that’s the kind of law that makes a health plan more complicated and expensive to run.

Estrada acknowledged that Congress sometimes passes unclear laws.

“I can well believe that you have seen many cases in which you feel that you are the body shop for the roller derby across the street,” Estrada said. “This is not one of them.”

Chief Justice John Roberts asked Estrada about his ideas for keeping a ruling in favor of Coventry Health Care from letting Congress give private entities too much authority over states.

“Suppose Congress passed a law that said, well, any professional responsibility rule adopted by the [American Bar Association] will preempt contrary state law,” Roberts said. “Is that okay under the [FEHBA] preemption doctrine?”

Justice Anthony Kennedy also talked to Estrada about a need for limits.

“It’s not really your obligation to… address a parade of horribles that isn’t in this case,” Kennedy said. “But are there some general limiting principles that we should keep in mind?”

Estrada said the best approach is to look to see whether Congress has exercised an appropriate level of federal power under the Constitution.