Federal Employee Health Plan Insurers Score Another Win in Federal Courts

Chalk up another win for insurers who operate government-sponsored health benefit plans for federal employees.

The U.S. District Court for the Southern District of New York Sept. 22 ruled a federal employee 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 (Mahajan v. Blue Cross Blue Shield Ass’n, 2017 BL 336465, S.D.N.Y., No. 16-cv-6944, 9/22/17).

The court was one of the first to apply a U.S. Supreme Court decision from last term that took an expansive view of the ability of the Federal Employee Health Benefits Act (FEHBA) to prevent beneficiaries from pursuing state law claims against insurers for the way they run their federal employee benefit plans (Coventry Health Care of Mo., Inc. v. Nevils, 137 S. Ct. 1190, 85 U.S.L.W. 4193 (2017)).

In Coventry, 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.

However, Damon McDougal, the attorney for Jacqueline Wyka Mahajan, the federal employee challenging Blue Cross’ lactation consultant coverage, told me the federal trial court pushed the idea of preemption under FEHBA a step too far.

“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. 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 told me.

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.

The case has the added wrinkle of implicating the coverage requirements of the Affordable Care Act, which mandates certain women’s health services, such as lactation consultants, be covered by insurance.

The court deflected that concern by agreeing with Blue Cross that the insurer was only required to provide coverage of the services without charging the patient any additional cost-sharing amounts. The fact that the consultants were out-of-network doesn’t mean Blue Cross has run afoul of the minimum coverage requirements of the ACA, the court said.

McDougal told me he planned to appeal the case to the U.S. Court of Appeals for the Second Circuit. He said the federal trial court disregarded earlier Second Circuit opinions and he expected the appeals court to reverse the decision.

Depending on how that appeal goes, the Supreme Court may have another shot at further defining FEHBA preemption, with the added task of addressing the limits of the ACA minimum coverage requirements.

Read my full story here.

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