This article has been published in "The Advocate", a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, December 2006 issue, @2006 by Steven J. Bruzonsky, Esq.
New U.S. Supreme Court decision restricts FEHBA Liens
On June 15, 2006, the U.S. Supreme Court issued a landmark decision, Empire Healthchoice Assurance, Inc. v. McVeigh (6-15-06, No. 05-2006) which in effect prohibits FEHBA healthplan liens for Arizona personal injury claims.
FACTS: Blue Cross Blue Shield Association (BCBSA) contracts with the Federal Office of Personal Management (OPM) to provide a nationwide fee-for-service health plan administered by local companies. Petitioner Empire Health Assurance administers the Plan as it applies to Federal employees in New York state. The Plan obligates the carrier to make "a reasonable effort" to recoup amounts paid for medical care, and the statement of benefits the carrier distributes alerts enrollees that recoveries they receive must be used to reimburse the Plan for benefits paid. Petitioner filed this suit in federal court invoking 28 U. S. C. §1331, which authorizes jurisdiction over "civil actions arising under the â€¦ laws â€¦ of the United States." Empire sought reimbursement of the $157,309 it had paid under the Plan for the Decedent's medical care, with no offset for McVeigh's attorney's fees or other litigation costs in the state-court tort action. The District Court dismissed for lack of subject-matter jurisdiction. The Second Circuit affirmed, holding that Empire's claim arose under state law.
HELD: The U.S. Supreme Court affirmed the Second Circuit and District Court dismissals for lack of federal subject matter jurisdiction, stating that any such lien claim is controlled by state law and that FEHBA does not preempt state anti-subrogation case law.
(1) FEHBA statutory scheme: The Court discusses the statutory scheme of the Federal Employees Health Benefits Act of 1959 (FEHBA) (5 U.S.C. §§ 8901-8914) FEHBA: The Office of Personnel Management (OPM) negotiates and regulates health-benefits plans for federal employees. FEHBA provides for Government payment of about 75% of health-plan premiums, and for enrollee payment of the rest. Premiums thus shared are deposited in a special Treasury Fund, from which carriers draw to pay for covered benefits. The FEHBA has a preemption provision which provides: "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 â€¦ which relates to health insurance or plans." 5 U.S.C. § 8902(m)(1). The FEHBA contains no provision addressing carriers' subrogation or reimbursement rights. The FEHBA's sole jurisdictional provision vests federal district courts with "original jurisdiction â€¦ of a civil action or claim against the United States." 5 U.S.C. § 8912. While an OPM regulation (5 C.F.R. § 890.107) channels disputes over coverage or benefits into federal court by designating OPM the sole defendant, no law opens federal courts to carriers seeking reimbursement.
(2) No federal common law to create federal jurisdiction: The Court dismissed the argument that federal common law governed Empire's claim as courts may create federal common law only when state law would significantly conflict with uniquely federal interests. The appeals court noted that Empire had not identified specific ways in which the operation of state law would conflict materially with the policies underlying the FEHBA in the circumstances presented. The Court further stated that the reimbursement and subrogation provisions in the OPM-BCBSA contract are linked together and depend upon a recovery from a third party under terms and conditions ordinarily governed by state law; and until a showing is made of a significant conflict between an identifiable federal interest and the operation of state law, there is no cause to displace state law, much less to lodge this case in federal court.
(3) Contract reimbursement claim doesn't state a federal claim: The Court also dismissed the argument that under Jackson Transit Authority v. Transit Union, 457 U. S. 15, Empire's reimbursement claim, arising under the OPM-BCBSA contract, states a federal claim because Congress intended all rights and duties stemming from that contract to be federal in nature. The Court noted that the critical factor is the congressional intent behind the particular provision at issue. The Court stated that Empire's contract-derived reimbursement claim is not a creature of federal law. "Had Congress found it necessary or proper to extend federal jurisdiction to contract-derived reimbursement claims between carriers and insured workers, it would have been easy enough to say so."
(4) FEHBA preemption provision doesn't confer federal jurisdiction and reimbursement right governed by state law: The Court also rejected the argument that the FEHBA's preemption provision independently conferred Federal jurisdiction in this case. As the preemption provision is unusual, rendering preemptive contract terms in health insurance plans instead of provisions enacted by Congress, and declaring no federal law preemptive, the provision should be read modestly. Furthermore, the reimbursement right here is plainly governed by state law. The Court is not prepared to say that under the preemption provision, an OPM-BCBSA contact term would displace every condition state law places on the recovery. The Court further states that "Empire's subrogation right allows it, once it has paid an insured's medical expenses, to recover directly from a third party responsible for the insured's injury or illness. Had Empire taken that course, no access to a federal forum could have been predicated on the OPM-BCBSA contract right. The tortfeasors' liability, whether to the insured or the insurer, would be governed not by an agreement to which the tortfeasors are strangers, but by state law, and §8902(m)(1) would have no sway." (§8902(m)(1) is the FEHBA preemption provision.)
(5) 28 U. S. C. §1331 doesn't confer federal jurisdiction: The Court dismissed the claim that Empire's reimbursement claim arises under federal law, for purposes of 28 U. S. C. §1331 (which authorizes jurisdiction over "civil actions arising under the â€¦ laws â€¦ of the United States"), because federal law is a necessary element of the carrier's claim for relief. Here, the reimbursement claim was trigger not by a federal agency's action, but by settlement of a personal injury claim in state court, and the Court indicates that Empire's reimbursement claim is not one of the "Government's important interests".
Suits in Arizona or Federal Court Claiming Contract Reimbursement Rights
Its clear that such suits in federal court are barred for lack of federal jurisdiction, and that such suits can't be successful in state court in consideration of A.R.S. §20-1072. Although the U.S. Supreme Court in Empire Healthchoice Assurance, supra, held that FEHBA doesn't preempt state anti-subrogation case law, FEHBA healthplans may at some point bring suit in Arizona court claiming that FEHBA preempts A.R.S. §20-1072, or FEHBA healthplans may even bring suit in federal court claiming that there is federal court jurisdiction over the contract reimbursement claim. There are no Arizona or federal cases invalidating A.R.S. §20-1072. The U.S. Supreme Court states in Empire Healthchoice Assurance, supra, stated that if Empire had exercised its subrogation right to recover directly from the responsible third party, the tortfeasor's liability would be governed not by the OMP-BCBSA agreement, but by state law. The bottom line is that Congress could have enacted a more comprehensive FEHBA scheme which included lien/subrogation and contract reimbursement rights for payment of accident-related medical expenses, as it did for Medicare, but Congress chose not to do so.
Reduction or Termination of Healthplan Benefits for Failure to Reimburse
Does your client's FEHBA healthplan contain provisions that the plan may terminate or reduce future benefits for failure to reimburse the plan? Does the OPM-FEHBA Healthplan contract also provide for this? Has the FEHBA heatlhplan threatened such action? Perhaps your client will no longer be employed by the federal government and will not be concerned about this.
Can the FEHBA healthplan's reduction or termination of benefits can be even raised in Arizona courts? The Ninth Circuit held that a FEHBA healthplan's failure to comply with state law in paying a doctor was preempted by FEHBA. Botsford v. Blue Cross & Blue Shield of Montana, Inc., 314 F.3d 390 (9th Cir. 2002). The opinion was amended only by the addition of a footnote in the denial of a motion for rehearing at 319 F.3d 1078 (9th Cir. 2003). Of course, that case was prior to Empire Healthchoice Assurance, supra.