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Insurers who operate government-sponsored health benefit plans for federal employees can’t be sued under state laws for the way they operate their plans ( Mahajan v. Blue Cross Blue Shield Ass’n , 2017 BL 336465, S.D.N.Y., No. 16-cv-6944, 9/22/17 ).
The U.S. District Court for the Southern District of New York said Sept. 22 that a plan participant couldn’t sue the Blue Cross Blue Shield Association for violating New York deceptive trade practices laws by allegedly misrepresenting the scope of its preferred provider network and the availability of in-network certified lactation consultants. The court said provisions of the Federal Employee Health Benefits Act (FEHBA), the law that establishes the federal employee benefit programs, preclude any state law claims against how the insurers operate the plans.
The decision is one of the first to apply a U.S. Supreme Court opinion from last term that took an expansive view of the power of FEHBA to override state law claims, Coventry Health Care of Mo., Inc. v. Nevils, 137 S. Ct. 1190, 85 U.S.L.W. 4193 (2017). In that case, the high court said plan participants couldn’t use a Missouri law to stop insurers from seeking to recoup coverage payments from a third-party lawsuit or settlement, known as subrogation.
Judge P. Kevin Castel frequently cited to the Coventry decision in finding the preemption clause of FEHBA prevented the federal employee from bringing her state law claims against Blue Cross Blue Shield Association.
FEHBA created the Federal Employee Health Benefits program, in which private insurers contract with the federal Office of Personnel Management to provide what amounts to an employer-sponsored health insurance plan for federal workers. Under the FEHBA preemption clause, the terms of those contracts “that relate to the nature, provision or extent of coverage or benefits” supersede any state or local law that relate to health insurance or health plans.
In this case, as in the Coventry case, the court said applying the state’s deceptive trade practices laws to punish alleged misrepresentations of network access would interfere with the administration of FEHBA plans and are thus preempted by the contract Blue Cross had with the OPM.
Damon McDougal of The Law Offices of Damon McDougal, LLC in Cliffside Park, who represents the federal employee in the case, said the court’s decision was inconsistent with precedent from the U.S. Court of Appeals for the Second Circuit and mischaracterized the test for preemption under the law.
“The statutes at issue in our complaint involve misrepresentation under the New Jersey Consumer Fraud Act and deceptive business practices under the New York General Business Law,” he told Bloomberg BNA. “These laws were enacted to prevent the kind of deceit and dishonesty that Blue Cross intended in knowingly providing brochures with false information to lure in consumers,” he added. McDougal said the New Jersey Consumer Fraud Act “clearly does not relate to health insurance or plans as expressly required” by FEHBA’s preemption provisions.
McDougal also took issue with what he said were inconsistencies within the court’s order itself. “On the one hand the Court concedes that the federal statute’s requirement that the state law relate to health insurance or plans limits the scope of preemption, only later to say that the state law at issue ‘need not relate specifically to health insurance or plans’,” McDougal said. This contradictory language amounts to “a clear error of law,” he added.
McDougal told Bloomberg BNA his client intends to appeal the court’s decision. “The Second Circuit will review this matter and reverse the decision from this court, which has attempted to create new and binding law outside the scope of its federal appeals court, whose holdings it managed to ignore,” he said.
Representatives for Blue Cross didn’t respond to Bloomberg BNA’s request for comment.
At the heart of the dispute is whether the insurers that provide FEHBA plans are required to include insurance benefits for breastfeeding and lactation to new mothers. The Affordable Care Act requires insurers to cover such services.
Jacqueline Wyka Mahajan, a federal employee, claimed Blue Cross misrepresented the availability of lactation consultants in its FEHBA network, causing her to pay for out-of-network care with lactation consultants and pay for infant formula when she was unable to breast feed her baby.
Blue Cross argued it wasn’t required to provide in-network access to these services, only that it was required to cover the services, either through in-network or out-of-network providers, and not impose any cost-sharing on the out-of-network services.
The court didn’t address the merits of the dispute, instead focusing on the question of whether the state law claims could be brought in the first place. However, the court did note that a FEHBA plan participant who is denied coverage she believes is mandated by the ACA can submit her claim to the insurer and then appeal that denial through the OPM and eventually to the federal courts without bringing a state law claim.
Mahajan is represented by The Law Offices of Damon McDougal LLC in Cliffside Park, N.J. Blue Cross is represented by Miller & Chevalier Chartered in Washington.
To contact the reporter on this story: Matthew Loughran in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com
The court's opinion is at http://src.bna.com/sPq.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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