Cheerless Clarity

The Federal Employees Health Benefits Act’s express preemption prescription overriding state law prohibiting subrogation and reimbursement

BY SHAWN OWEN AND WESLEY STARRETT

The Federal Employees Health Benefits Act of 1959 (FEHBA), 5 U.S.C. § 8901 ., authorizes the Office of Personnel Management (OPM) to contract with private carriers for federal employees’ health insurance. Additionally, FEHBA contains a provision expressly preempting state law.

Jodie Nevils was insured under a FEHBA plan offered by Coventry Health Care of Missouri. Nevils was injured in a car wreck and Coventry paid his medical expenses. Coventry then filed a lien against Nevils’ recovery from the at-fault driver. Nevils satisfied the lien, then filed a class action in Missouri alleging Coventry unlawfully obtained reimbursement as Missouri law prohibits subrogation and reimbursement in this context.The Supreme Court addressed the following questions:

1.Does FEHBA’s express preemption prescription override state law prohibiting subrogation and reimbursement?

2.If so, is the statutory prescription consistent with the Supremacy Clause?

In an 8-0 decision, the Court answered yes to both questions. The Court reasoned FEHBA’s preemption prescription overrides state insurance law because the very language of FEHBA provides the “terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits () shall supersede and preempt any State or local law… which relates to health insurance or plans.”The Court found this to be in line with FEHBA’s “text, context, and purpose. Contractual provisions for subrogation and reimbursement ‘relate to… payments with respect to benefits’ because subrogation and reimbursement rights yield just such payments.” Put another way, “the carrier’s very provision of benefits triggers the right to payment.”

The Court acknowledged the Federal Government’s “significant financial stake in subrogation and reimbursement” given the fact that FEHBA concerns benefits from a federal health insurance plan for federal employees that arise from a federal law.The Court further found this regime consistent with the Supremacy Clause because the “statute itself, not a contract, strips state law of its force.”Previously, an insurer’s right to reimbursement and subrogation under an FEHBA plan was opaque in many jurisdictions, including Georgia, adhering to versions of the made whole doctrine. In such jurisdictions, the made whole doctrine helps individuals who were not fully compensated for all economic and non-economic losses fight against contractual rights of reimbursement and subrogation. Put another way, the made whole doctrine assured the insurer – not the insured – would bear the burden of any recovery less than enough to cover all the insured’s losses.

Prior to the decision in , this issue was looked at in Georgia in , 541 F.3d 1320 (11th Cir., 2008) when the court held that in a reimbursement claim brought by an FEHBA plan administrator there was no federal question jurisdiction. While the issue as to whether or not the FEHBA plan language could preempt state law was still outstanding, this case offered a glimmer of hope for Plaintiff’s lawyers. The law on FEHBA subrogation remained unsettled and although it was certainly still evolving, it appeared, at least for a short time that an FEHBA plan’s right to reimbursement might be governed by Georgia state law and that O.C.G.A. § 33-24-56.1 would apply. That statute provides that a benefit provider may require reimbursement only if “the amount of the recovery exceeds the sum of all economic and non-economic losses incurred as a result of the injury, exclusive of losses for which reimbursement may be sought under this code section; and the amount of reimbursement claim is reduced by the pro rata amount of the attorney’s fees and expenses of litigation incurred by the injured party in bringing the claim.”

However, in the wake of , the water is clear enough to see that people insured under FEHBA plans will not be protected by their state’s made whole doctrine. Rather, they will be forced to comply with an insurer’s contractual subrogation and reimbursement prescription.

 

While the issue as to whether or not the FEHBA plan language could preempt state law was still outstanding, this case [Blue Cross Blue Shield Plan of Georgia v. Gunter, 541 F.3d 1320 (11th Cir., 2008)] offered a glimmer of hope for Plaintiff’s lawyers.

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