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Insurers who administer benefit plans for nearly 8 million federal employees are closely watching the Supreme Court, where arguments over the insurers’ reimbursement rights took center stage March 1 ( Coventry Health Care of Mo., Inc. v. Nevils, U.S., No. 16-149, argued 3/1/17 ).
The Federal Employees Health Benefits Act (FEHBA) created the country’s largest employer-sponsored health benefits program. The federal government pays about 72 percent, or more than $30 million, in premiums to insurers every year. Insurers, in turn, pay out tens of billions of dollars in benefits annually.
The court is considering whether insurers can recoup part of those benefits, which they say will keep premiums, and by extension taxes, from rising. Coventry Health Care of Missouri Inc. is testing a Missouri law that prohibits insurers from going after damages or settlements federal employees recover from third parties who caused them injuries, when the insurer paid for the employee’s medical treatment.
A federal employee covered by a plan issued by Coventry under its contract with the Office of Personnel Management (OPM) successfully defended the law in the Missouri Supreme Court. That court upheld Jodie Nevils’ argument, saying FEHBA’s express preemption clause didn’t demonstrate the Congress clearly intended to supersede state law in this area.
The justices initially seemed to inclined to overrule the state court. Coventry’s attorney, Miguel Estrada, of Gibson, Dunn & Crutcher LLP, Washington, appeared to have presented most of his case before the justices set about questioning him.
The employee’s attorney wasn’t as lucky. Matthew W.H. Wessler, of Gupta Wessler PLLC, Washington, faced tough inquiries throughout his presentation.
Wessler received “pointed questioning,” William M. Jay, a partner at Goodwin Procter in Washington and a highly experienced appellate litigator, told Bloomberg BNA. Estrada, on the other hand, fielded more “conceptual” questions, including one early on from Justice Anthony M. Kennedy, who asked what other principles the court should keep in mind when writing its opinion in this case.
It is difficult to predict much from a lack of questioning by the justices, Jay said. Lopsided questioning, however, can be a “pretty good indication” of what they are thinking about the case, he said.
Coventry argued before the high court that beneficiaries should be required to pay back at least some of the health-care benefits it pays for medical treatment of injuries caused by third-parties. It said laws like Missouri’s are preempted by the FEHBA.
FEHBA states the “terms of any contract” that “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, or any regulation issued thereunder, which relates to health insurance plans.”
Additionally, OPM’s insurer contracts require insurers to seek subrogation or repayment of benefits paid to participants from other sources. Estrada argued that third-party damages and settlements relate to the coverage of benefits, or at least are payments with respect to benefits. Therefore, FEHBA expressly preempts state anti-subrogation laws, he said.
Estrada didn’t face any hostile or skeptical questions, Jay said, and his toughest questions came from Chief Justice John G. Roberts. Roberts focused on the delegation question. Congress didn’t include in the FEHBA a requirement that insurers recoup benefits paid out to treat third-party-caused injuries, Roberts noted. The recoupment requirement instead was included only in the insurers’ contract with OPM.
Roberts questioned whether this delegation to the insurers could have preemptive effect. Could Congress, for example, delegate to the American Bar Association the job of creating laws governing the legal profession, which then would supersede any state law that purported to do so? Roberts asked.
Estrada said he believed the scheme wouldn’t be consistent with the Constitution’s supremacy clause, but then argued that scenario wasn’t close to what happened here. The FEHBA expressly preempted the Missouri anti-subrogation law, he said. Federal law wasn’t being displaced by terms in a private party’s contract, he said.
Wessler, citing Supreme Court precedent, told the court FEHBA requires “careful construction.” The law doesn’t expressly preempt state anti-subrogation laws because the third-party proceeds the employees recover don’t “relate to the nature, provision, or extent of coverage or benefits” and aren’t “payments with respect to benefits,” he said.
Justice Samuel A. Alito Jr. was skeptical of that argument. “Money is money,” Justice Elena Kagan added. The employees have a right to benefits minus the amount paid by the third party, Alito said, insisting that relates to the insurer’s payments.
Wessler turned to another argument, insisting Congress, in enacting FEHBA, had intended to preserve, not preempt, state insurance laws as they affect federal employee health insurance benefits. FEHBA wasn’t designed to have broad preemptive power, he said.
Alito asked Wessler to justify this argument. When he responded that the legislative history supported his claim, Alito referred to the late Justice Antonin Scalia, saying Scalia would be “having fits” over this reference to legislative history. Scalia famously didn’t believe legislative history should play a role in the court’s interpretation of federal laws.
Wessler also tried to distinguish the FEHBA from the Employee Retirement Income Security Act, which governs private insurers. ERISA has been construed as preempting state law, but Wessler said ERISA’s express preemption clause refers to specific provisions within the law, FEHBA’s preemption clause does not.
ERISA 20 years ago was construed as preempting laws just like the one at issue here, Jay told Bloomberg BNA. A ruling that the FEHBA does the same would put federal health plans on par with private sector health plans, he said.
Estrada, in closing, told the court this is an easy case. It isn’t one where the court is being asked to act as the “body shop for the roller derby across the street,” he said.
His point, Jay said, was that it shouldn’t take much for the court to construe the preemptive language in the insurers’ contracts as constitutional.
And unless the preemption language is unconstitutional, the insurer “has a lot of legal weight on its side,” Jay said.
Estrada added that the justices here aren’t being asked to construe Congress’s reference to a “penalty” as a “tax,” alluding to Nat’l Fed. of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2012 BL 160004 (U.S. 2012), in which the court narrowly held the Affordable Care Act valid as an exercise of Congress’s power under the Constitution’s taxing and spending clause, after the court said it didn’t pass muster under the commerce clause.
The statement earned a grin from Roberts, who wrote the majority opinion in NFIB.
Last November, the court granted Coventry’s petition for review, asking it to decide whether the FEHBA overrides state laws prohibiting insurers from demanding repayment of money spent to care for beneficiaries whose injuries were caused by others ( 215 HCDR, 11/7/16 ).
This was the second time this case was before the court. In 2014, the court reversed and remanded a Missouri Supreme Court decision that denied Coventry’s recoupment attempt. The U.S. Supreme Court pointed to OPM regulations that reaffirmed the right of a FEHBA-governed health plan to seek reimbursement from a plan participant.
On remand, the Missouri Supreme Court again determined that the state’s law governed the case and prevented Coventry from recouping the amount paid out.
Other courts, including the U.S. Courts of Appeals for the Eighth and Tenth Circuits, have construed the FEHBA as preempting state anti-subrogation laws.
To contact the reporter on this story: Mary Anne Pazanowski in Washington at email@example.com
To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com
The transcript of the argument is at http://src.bna.com/mD6.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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