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No. 00-1471
In the Supreme Court of the United States
KENTUCKY ASSOCIATION OF HEALTH PLANS, INC.,
ET AL., PETITIONERS
v.
JANIE A. MILLER, COMMISSIONER, KENTUCKY
DEPARTMENT OF INSURANCE
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE
PAUL D. CLEMENT
Acting Solicitor General
Counsel of Record
EDWIN S. KNEEDLER
Deputy Solicitor General
JAMES A. FELDMAN
Assistant to the Solicitor
General
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
HOWARD M. RADZELY
Acting Solicitor of Labor
ALLEN H. FELDMAN
Associater Solicitor
NATHANIEL I. SPILLER
Deputy Associate Solicitor
GARY K. STEARMAN
Attorney
Department of Labor
Washington, D.C. 20210
QUESTION PRESENTED
Whether Kentucky's "any willing provider" law, which requires
each health maintenance organization (HMO) in the State to make available
to its subscribers the services of any medical provider in its geographical
region that agrees to the terms and conditions offered by the HMO, is saved
from preemption as a law that "regulates insurance" under ERISA
Section 514(b)(2)(A), 29 U.S.C. 1144(b)(2)(A).
In the Supreme Court of the United States
No. 00-1471
KENTUCKY ASSOCIATION OF HEALTH PLANS, INC.,
ET AL., PETITIONERS
v.
JANIE A. MILLER, COMMISSIONER, KENTUCKY
DEPARTMENT OF INSURANCE
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE
This brief is submitted in response to the Court's invitation to the Solicitor
General to express the views of the United States.
STATEMENT
1. Kentucky's "any willing provider" (AWP) law provides:
A health insurer shall not discriminate against any provider who is located
within the geographic coverage area of the health benefit plan and who is
willing to meet the terms and conditions for participation established by
the health insurer, including the Kentucky state Medicaid program and Medicaid
partnerships.
Ky. Rev. Stat. Ann. § 304.17A-270 (Michie 2001).1 Under the AWP law,
a "health insurer" must make available to its subscribers the
services of any medical provider in its geographical area that agrees to
the terms and conditions offered by the HMO to providers. An "insurer"
is defined as
any insurance company; health maintenance organization; self-insurer or
multiple employer welfare arrangement not exempt from state regulation by
ERISA; provider-sponsored integrated health delivery network; self-insured
employer-organized association, or nonprofit hospital, medical-surgical,
dental, or health service corporation authorized to transact health insurance
business in Kentucky.
Ky. Rev. Stat. Ann. § 304.17A-005(23) (Michie 2001). Supporters of
AWP laws argue that the laws make it easier for patients to have access
to providers of their choice, while opponents argue that they lead to increased
costs by limiting the ability of insurers to guarantee a high volume of
patients to providers in return for lower charges. See Pet. App. 34a n.18.
The issue in this case is whether ERISA preempts the Kentucky AWP law. Three
ERISA provisions are relevant. First, ERISA's general preemption provision,
Section 514(a), 29 U.S.C. 1144(a), states that ERISA "shall supersede
any and all State laws insofar as they may now or hereafter relate to any
employee benefit plan." Second, ERISA's insurance saving clause, Section
514(b)(2)(A), 29 U.S.C. 1144(b)(2)(A), provides that "nothing in this
subchapter shall be construed to exempt or relieve any person from any law
of any State which regulates insurance, banking, or securities." Third,
ERISA's deemer clause, Section 514(b)(2)(B), 29 U.S.C. 1144(b)(2)(B), which
qualifies the insurance saving clause, provides that "[n]either an
employee benefit plan * * * nor any trust established under such a plan,
shall be deemed to be an insurance company or other insurer * * * for purposes
of any law of any State purporting to regulate insurance companies, [and]
insurance contracts."
2. Contending that ERISA preempts Kentucky's AWP law, petitioners-five health
maintenance organizations (HMOs) licensed under the laws of Kentucky and
a Kentucky-based non-profit association of HMOs-filed suit against the Insurance
Commissioner of Kentucky in federal district court to enjoin enforcement
of the law. Pet. App. 64a-65a. The district court upheld the law, ruling
that, although the AWP law "relate[s] to" ERISA plans, it "regulates
insurance" and is therefore saved from preemption under the insurance
saving clause. Id. at 78a-82a.
3. A divided panel of the Sixth Circuit affirmed. Pet. App. 1a-38a. The
court unanimously ruled that Kentucky's AWP law "relate[s] to"
employee benefit plans under 29 U.S.C. 1144(a), because it has both a "reference
to" and a "connection with" ERISA plans. The panel concluded
that, because the AWP law applies to a "self-insured plan * * * to
the extent permitted by ERISA," Ky. Rev. Stat. Ann. § 304.17A-005(23)
(Michie 2001) (emphasis added), it refers to ERISA plans. See Pet. App.
10a-11a. The court further held that AWP laws have a "connection with"
ERISA plans, because they "affect the benefits available by increasing
the potential providers, [and] they directly affect the administration of
the plans," id. at 19a.
Like the district court, however, the panel majority ruled that the AWP
law is saved from preemption as a law that "regulates insurance."
Applying the analytical framework, of UNUM Life Ins. Co. of Am. v. Ward,
526 U.S. 358, 367-368, 373 (1999), the court first found that the AWP law
is specifically directed at the insurance industry, thus satisfying the
common-sense test for insurance regulation. Pet. App. 22a-24a. The court
observed that "[t]he fact that it includes within its reach HMOs as
well as traditional insurance companies does not take it out of the realm
of insurance regulation," because "[i]n the end, HMOs function
the same way as a traditional health insurer: The policyholder pays a fee
for a promise of medical services in the event that he should need them."
Id. at 22a-23a. The court similarly held that the law's coverage of certain
self-insured government and church plans (which are exempt from ERISA, see
29 U.S.C. 1003(b) (1994 & Supp. V 1999) and thus not protected from
state insurance regulation by the "deemer clause," 29 U.S.C. 1144(b)(2)(B))
does not preclude a finding that the law "regulate[s] insurance,"
because "it is * * * within the authority of a state in enacting laws
dealing with insurance to include within such laws entities that act as
self-insurers." Pet. App. 24a; see id. at 24a-29a. Observing that the
AWP law increases benefits by giving the insured more freedom to choose
and is part of "a comprehensive subtitle of Kentucky's insurance code
regulating health benefit plans," the court concluded that the law
"clearly" satisfies the common-sense test. Id. at 30a. The court
also held that the Kentucky law does not apply to non-insurers engaged solely
in plan administration, observing that the Kentucky law "eliminate[s]
any ambiguity as to whether administrators under contracts with benefit
plans are included within the scope of the statutes. They obviously are
not." Id. at 28a n.14.
The court also followed UNUM in considering the three factors utilized in
determining whether a particular practice constitutes the "business
of insurance" for purposes of the McCarran-Ferguson Act, 15 U.S.C.
1012(b). See UNUM, 526 U.S. at 373-375. First, the court concluded that
the AWP law "spreads the cost component of the policyholder's risk
among all the insureds, instead of requiring the policyholder to shoulder
all or part of this cost when seeking care or treatment from an excluded
doctor or hospital of his or her choice." Pet. App. 31a. The court
also found that the AWP laws "directly impact the insurer-insured relationship
because they affect restrictions on the network of providers available for
treatment under the plan and they directly affect the administration of
the plan * * * by expanding covered treatment from a closed pool of providers
to an open pool of providers." Id. at 36a. Finally, the court reiterated
that, because the Kentucky law does not apply to entities outside the insurance
business, it is directed at insurance and thus satisfies the third factor.
Id. at 36a-37a.
Judge Kennedy dissented from the court's holding that the AWP law "regulates
insurance" and is therefore saved from preemption. Pet. App. 39a-63a.
In her view, the AWP law fails the common-sense test and the three McCarran-Ferguson
Act factors. With respect to the common-sense test, she stated that the
law "clearly target[s] more than just members of the insurance industry,"
because in her view it "appl[ies] to non-ERISA covered self-insured
plans," id. at 40a-41a, and to "third parties that a self-insured
ERISA plan hires to administer its plan benefits," id. at 42a, which
she viewed as outside the insurance industry. As to the three McCarran-Ferguson
factors, Judge Kennedy concluded that the AWP law does not spread risk because
"[t]he risk assumed by the benefit plan under its policy, that the
policyholder will require medical treatment, remains unaltered" by
the AWP law. Id. at 50a. She concluded that the AWP law neither changes
the relationship between the insurer and the insured nor is integral to
it, because it "center[s] on the insurer-provider relationship,"
id. at 58a, and "leave[s] the contract terms between the insurer and
insured, unaltered," id. at 59a. Finally, she concluded that the AWP
law is not "limited to entities within the insurance industry"
because the AWP law "not only regulates entities that fall outside
the traditional definition of insurer," but also "extends to include
entities in no way involved in underwriting risks," such as HMOs that
administer ERISA-exempt self-insured plans. Id. at 59a.
DISCUSSION
The court of appeals correctly held that ERISA does not preempt Kentucky's
AWP law. The law "relates to" employee benefits plans by indirectly
but substantially affecting their content, but is saved from preemption
because it is a law that regulates insurance. Nonetheless, further review
is warranted because the case presents an important and recurring issue
that has caused substantial confusion and widely varying results in the
courts of appeals. The issue in this case is, however, related to the issue
pending before the Court in Rush Prudential HMO v. Moran, No. 00-1021. We
therefore suggest that the Court hold the petition in this case and then
dispose of it as appropriate in light of its decision in Rush.
A. Any Willing Provider Laws "Relate To" ERISA Plans
Under Section 514(a) of ERISA, 29 U.S.C. 1144(a), the provisions of ERISA
"shall supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan." This provision is "clearly
expansive." Egelhoff v. Egelhoff, 121 S. Ct. 1322, 1327 (2001). It
"yield[s] a two-part inquiry: A law 'relate[s] to' a covered employee
benefit plan for purposes of § 514(a) 'if it [1] has a connection with
or [2] reference to such a plan.'" California Div. of Labor Standards
Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997)
(citation and internal quotation marks omitted).
1. Although the Kentucky AWP law makes a literal reference to the ERISA
statute, the court of appeals erred in holding that the law makes a forbidden
"reference to" ERISA plans, as this Court has used that phrase.
By its terms the AWP law applies to any "insurer," including any
"self-insurer or multiple employer welfare arrangement not exempt from
state regulation by ERISA." Ky. Rev. Stat. Ann. § 304.17A-005(23)
(Michie 2001) (emphasis added). That reference to the ERISA statute neither
singles out ERISA plans for differing treatment, Mackey v. Lanier Collection
Agency & Serv., Inc., 486 U.S. 825, 830 (1988), nor is dependent on
such plans for its operation, District of Columbia v. Greater Washington
Board of Trade, 506 U.S. 125, 130-131 (1992). Rather, it simply acknowledges
the limits on the scope of state laws imposed by the "deemer clause"
of ERISA, Section 514(b)(2)(B), 29 U.S.C. 1144(b)(2)(B), which prevents
the States from regulating self-insured plans under the guise of regulating
insurance. FMC Corp. v. Holliday, 498 U.S. 52, 61 (1990). The Kentucky AWP
law thus treats all insurers and all plans (ERISA and non-ERISA) alike,
to the extent permitted by federal law. If such a citation to ERISA itself
were sufficient to warrant preemption, it would create the perverse result
that a state law's express recognition of the limits imposed by federal
law would render the state law preempted, not only to the extent acknowledged
by that reference, but in other areas that the States concededly may regulate
consistent with ERISA.
2. The court of appeals was correct, however, in holding that the AWP law
falls within the scope of ERISA's express preemption provision because it
has a "connection with" ERISA plans. A state law has such a connection
if it "mandate[s] employee benefit structures or their administration."
New York State Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645, 658 (1995); see Dillingham, 519 U.S. at 328. The
AWP law requires that insurers offer to all who purchase their policies,
including ERISA plans and their participants and beneficiaries, open-panel
provider networks (i.e., those in which the insurer may not limit the universe
of available providers) rather than closed, exclusive networks. Participants
and beneficiaries of ERISA plans therefore have a wider choice of providers
than they would have without the law. Accordingly, the AWP law "relates
to" ERISA plans for the same reasons that other mandated-benefits laws
do. See Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985)
(assuming that law requiring minimum mental health benefits relates to ERISA
plans); Travelers, 514 U.S. at 663-664 (discussing Metropolitan Life); Shaw
v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983) (law requiring pregnancy
benefits relates to ERISA plans).2
B. AWP Laws Are Saved By ERISA's Insurance Saving Clause
The court of appeals correctly held that Kentucky's AWP law is saved from
preemption as a law that "regulates insurance" under 29 U.S.C.
1144(b)(2)(A). In deciding whether a state law is saved under that clause,
the Court first asks "whether, from a 'common-sense view of the matter,'
the contested prescription regulates insurance." UNUM, 526 U.S. at
367-368. To satisfy the common-sense test, a "law must not just have
an impact on the insurance industry, but must be specifically directed toward
that industry." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 50 (1987);
see UNUM, 526 U.S. at 368. Thus, a general state tort or contract law that
includes the insurance industry within its reach, but is not specifically
directed at it, does not "regulate insurance" and therefore is
not within the saving clause. Pilot Life, 481 U.S. at 50, 57. Here, as the
court below concluded, the AWP law makes clear on its face that it is targeted
at the insurance industry. In reviewing that determination, this Court does
not "normally disturb an appeals court's judgment on an issue so heavily
dependent on analysis of state law." UNUM, 526 U.S. at 368.
1. The court below correctly ruled that the AWP law satisfies the common-sense
test because it is specifically directed at insurance. By its terms, the
AWP law applies to "health insurer[s]." Pet. App. 89a. It defines
health insurers to include not only traditional health insurers, but also
entities that take more innovative approaches to insurance and the provision
of health care, such as a "health maintenance organization" or
a provider-sponsored "health service corporation." Ky. Rev. Stat.
Ann. § 304.17A-005(23) (Michie 2001). HMOs may play several roles in
relation to a health benefit plan, but one role-and the one covered by the
Kentucky law-is that of insurer. As this Court has recognized, such organizations
are "risk-bearing organizations," because they generally "assume[]
the financial risk of providing the benefits promised." Pegram v. Herdrich,
530 U.S. 211, 218-219 (2000); see also Pet. App. 22a-23a; U.S. Amicus Br.
at 13-16, Rush Prudential, No. 00-1021.3 Indeed, millions of employees in
the United States are offered the choice between indemnity health insurance
plans and HMO membership as similar ways to obtain health insurance coverage.
Accordingly, the application of the Kentucky law to HMOs as well as traditional
insurers does not detract from the law's basic character as one that regulates
"insurance."4
Nor does the inclusion of self-insured plans, including governmental or
church plans, take the AWP law outside the insurance saving clause. Governmental
and church plans are exempt from ERISA, 29 U.S.C. 1003(b) (1994 & Supp.
V 1999), regardless of whether they are self-insured. Moreover, a State
may reasonably conclude that "a party who has not purchased insurance,
effectively act[s] as its own insurer," and States may therefore regulate
self-insuring entities as part of their regulation of insurance. Pet. App.
24a; see General Elec. Co. v. Gilbert, 429 U.S. 125, 138 n.16 (1976) ("That
General Electric self-insures does not change the fact that it is, in effect,
acting as an insurer."). Indeed, ERISA's deemer clause, 29 U.S.C. 1144(b)(2)(B),
necessarily presumes that self-insured entities are subject to state insurance
regulations. The precise function of the clause is to exempt self-insured
plans from state laws that would otherwise apply to them through operation
of ERISA's insurance saving clause. See FMC, 498 U.S. at 61 ("We read
the deemer clause to exempt self-funded ERISA plans from state laws that
'regulat[e] insurance' within the meaning of the saving clause.").
UNUM, 526 U.S. at 367 n.2 (deemer clause is a "limitation on state
regulatory authority"). That exemption would be unnecessary-and the
deemer clause superfluous-if the fact that a state law regulates self-insurance
meant that the state law does not "regulate[] insurance."
This Court recognized as much in Metropolitan Life. There, the Court held
that the state mandated-benefits law was a law that regulated "insurance"
within the meaning of the saving clause, even though it included self-insured
plans among the insurers within its scope. See 471 U.S. at 735-736 n.14,
740-747. Notwithstanding that intended scope, the Court simply held that,
because of the "deemer clause," the mandated-benefits law did
not apply to self-insured plans covered by ERISA. See id. at 735-736 n.14.
The Court did not hold that the inclusion of self-insured plans made the
law one that does not regulate insurance.
2. Consideration of the three McCarran-Ferguson factors, insofar as they
bear on the ERISA analysis, confirms the conclusion that the Kentucky AWP
law "regulates insurance." At least the last two of those factors
are satisfied here. As the court below correctly concluded (Pet. App. 35a-36a),
the AWP law "serves as 'an integral part of the policy relationship
between the insurer and the insured.'" UNUM, 526 U.S. at 374; Stuart
Circle Hosp. Corp. v. Aetna Health Mgmt., 995 F.2d 500, 503 (4th Cir.) (regulations
governing treatment and cost are integral parts of insurer-insured relationship),
cert. denied, 510 U.S. 1003 (1993). Like other mandated-benefit provisions,
the AWP law's mandate of open networks fundamentally changes the underlying
insurance promise between the insurer and insured. See Metropolitan Life,
471 U.S. at 744 (state regulation affecting "the type of policy which
could be issued" is part of "the core of the 'business of insurance'");
see also UNUM, 526 U.S. at 374 (notice-prejudice rule integral to relationship
by changing bargain between insurer and insured); Texas Pharmacy, 105 F.3d
at 1041. The AWP law, although not mandating coverage of specific conditions
like the mandated coverage of mental illnesses in Metropolitan Life nevertheless
defines the scope of the benefits provided and mandates the type of policy
that may be issued.
Likewise, for essentially the same reasons that the AWP law regulates insurance
as a matter of common-sense, see pp. 8-11, supra, the court of appeals correctly
held that the law satisfies the third McCarran-Ferguson factor in this context
because the law is properly construed as limited to regulating insurers
and entities acting as insurers.5 This Court does not "normally disturb
an appeals court's judgment on an issue so heavily dependent on analysis
of state law," UNUM, 526 U.S. at 368. As in UNUM, the Court "lack[s]
cause" to do so here, because the court of appeals' construction is
reasonable. See Pet. App. 23a-29a.6
Thus, at least two of the three McCarran-Ferguson Act factors, plus the
common-sense test, are satisfied. That is sufficient to support the court
of appeals' holding that Kentucky's AWP law is not preempted. See UNUM,
526 U.S. at 374. The court of appeals ruled that the AWP law also satisfies
the first, risk-spreading factor because it has the effect of spreading
the insureds' risk by providing them with more physicians to choose from
and thereby reducing the likelihood that they will receive medical care
outside the network and personally shoulder the cost of treatment. Pet.
App. 31a; accord Stuart Circle, 995 F.2d at 503; see also Express Scripts,
262 F.3d at 838 (law preventing HMOs from making mail-order pharmacies exclusive
providers transferred risk by enabling insured to avoid paying higher price
at retail pharmacy when mail-order pharmacy delays filling prescription);
Texas Pharmacy, 105 F.3d at 1041-1042; Blue Cross & Blue Shield v. Bell,
798 F.2d 1331, 1334-1335 (10th Cir. 1986).7 But even if that conclusion
is based on too broad a view of the risk-spreading factor, the McCarran-Ferguson
factors are not necessary conditions for determining whether a law regulates
insurance under ERISA's insurance saving clause. See UNUM, 526 U.S. at 373-374;
see p. 16, infra. Thus, the court of appeals' ultimate conclusion that the
Kentucky AWP law comes within the insurance saving clause is correct.
3. Contrary to petitioners' contention (Pet. 19-23), the decision of the
court of appeals does not conflict with this Court's decision in Group Life
& Health Ins. Co. v. Royal Drug Co., 440 U.S. 205 (1979), which held
that an arrangement between insurers and pharmacists was not exempt from
the federal antitrust laws under Section 2(b) of the McCarran-Ferguson Act,
15 U.S.C. 1012(b). The insurer in Royal Drug entered into agreements with
participating pharmacies, whereby policyholders could purchase drugs from
the pharmacy for two dollars and the insurer would reimburse the pharmacy
for the actual costs of the drugs purchased. Although the insurer offered
that arrangement to all pharmacies, not all pharmacies chose to participate
on those terms. 440 U.S. at 209. The Court held that the agreements satisfied
none of the McCarran-Ferguson Act factors, and that they therefore were
not exempt from the federal antitrust laws. The Court reasoned that the
insurer's policyholders were "basically unconcerned with arrangements
made between [the insurer] and participating pharmacies." Id. at 214.
Characterizing the agreements as "merely arrangements for the purchase
of goods and services by [the insurer]," ibid., the Court held that
they did not spread risk, were not central to the insurer-insured relationship,
and extended to entities outside the insurance industry, id. at 214, 216,
231-233.
In contrast to the private agreements at issue in Royal Drug, state AWP
laws do not merely set the rate at which an insurer will reimburse a provider
who already is part of the provider network-a matter with which the policyholders
in Royal Drug were "basically unconcerned." See also Union Labor
Life Ins. Co. v. Pireno, 458 U.S. 119, 132 (1982) (policyholder's "only
concern is whether his claim is paid") (emphasis added). AWP laws regulate
who may be included in that network to begin with. Pet. App. 32a. Thus,
although such laws affect persons other than the insurer and the insured,
they do so by inviting them into the provider network that the insurer makes
available to the insured. In that respect, AWP and similar laws affect the
nature of the insurer's underlying promise to the insured by changing the
network of providers available to the insured from a limited, closed one
to an open one. See UNUM, 526 U.S. at 374; see also Pet. App. 31a; Express
Scripts, 262 F.3d at 837-838; Texas Pharmacy, 105 F.3d at 1041. Although
policyholders are likely not to be directly concerned with the insurer's
costs of providing benefits (as in Royal Drug), they are likely to be very
concerned with the range of providers available to them under the plan (and
therefore the likelihood that the "family doctor" is covered by
the plan). Access to health care is a key element of the relationship between
insurer and insured. AWP laws therefore "regulate insurance" within
the meaning of ERISA's insurance saving clause. Pet. App. 33a-34a; Texas
Pharmacy, 105 F.3d at 1041.8
More generally, although Royal Drug is informative in the ERISA context,
it was not itself an ERISA case and does not control the ERISA analysis.
Royal Drug involved the application of the second clause of Section 2(b)
of the McCarran Ferguson Act, which is an exemption to the federal antitrust
laws and, as such, must be construed narrowly. See Pireno, 458 U.S. at 126;
Royal Drug, 440 U.S. at 231. ERISA's saving clause, by contrast, is not
an exemption subject to a narrow construction, but a preservation of state
authority. Cf. Metropolitan Life, 471 U.S. at 741 ("[t]he presumption
is against pre-emption"). In that regard, the saving clause bears a
greater resemblance to the first clause of Section 2(b), which preserves
state laws "enacted * * * for the purpose of regulating the business
of insurance," 15 U.S.C. 1012(b), and "was intended to further
Congress's primary directive of granting the States broad regulatory authority
over the business of insurance." Department of Treasury v. Fabe, 508
U.S. 491, 505 (1993). The ERISA saving clause thus has a broader scope than
the narrow exemption from the antitrust laws at issue in Royal Drug. See
ibid.
Furthermore, the language of the ERISA insurance saving clause, which saves
"any law of any State which regulates insurance," 29 U.S.C. 1144(b)(2)(A)
(emphasis added), is broader than the language of the first clause of Section
2(b) of the McCarran-Ferguson Act, which applies to state laws enacted for
the purpose of regulating "the business of insurance." 15 U.S.C.
1012(b) (emphasis added). Although the Court simply applies the three McCarran-Ferguson
Act factors in determining the scope of the second clause (the antitrust
exemption) in Section 2(b) of that Act, see Pireno, 458 U.S. at 129-134,
and likewise applies those same factors (albeit perhaps more flexibly) under
the first clause of Section 2(b) (the preservation of state authority) at
issue in Fabe, see 508 U.S. at 502-504, the Court has adopted a different
analysis under the ERISA insurance saving clause. In the ERISA analysis,
the Court first and foremost applies a "common-sense view of the matter,"
UNUM, 526 U.S. at 367, and only then considers the McCarran-Ferguson factors,
which in any event are merely "relevant" but not "required"
in assessing whether a state law "regulates insurance" under ERISA.
Id. at 373. See also id. at 374 (factors are "guideposts"); FMC,
498 U.S. at 60-61 (finding that a law "regulates insurance" under
ERISA without mention of McCarran-Ferguson factors). See also note 6, supra.
Thus, even if the Kentucky AWP law would fail Royal Drug scrutiny under
the McCarran-Ferguson Act, the court of appeals' decision that the AWP law
satisfies the ERISA insurance saving clause would remain sound.
C. The Issue Of Whether ERISA Preempts AWP Laws Merits Further Review, Although
The Court May Wish To Hold This Case Pending Its Decision In Rush Prudential
HMO v. Moran
1. The decision in this case appears to conflict with decisions of two other
courts of appeals holding similar state AWP statutes to be preempted. The
Eighth and Fifth Circuits have held that AWP-type laws are not preempted
if they apply only to traditional insurance companies, see Texas Pharmacy,
105 F.3d at 1040 (ruling on pre-1995 state law), and HMOs, see Express Scripts,
262 F.3d at 836-837, but that such laws are preempted if their definitions
of covered entities also include self-insured plans (and, perhaps, third-party
administrators for such plans, though that is unclear from the decisions).
See Prudential, 154 F.3d at 829; Texas Pharmacy Ass'n, 105 F.3d at 1038-1040
(ruling on state law enacted in 1995); CIGNA Healthplan of La., Inc. v.
Louisiana, 82 F.3d 642, 650 (5th Cir.), cert. denied, 519 U.S. 964 (1996).
Although the Fifth Circuit's decisions holding such laws to be preempted
have rested at least in part on misconceptions of the law that have since
been clarified, the Fifth Circuit appears to adhere to those decisions.9
See generally Corporate Health., 215 F.3d at 538 (attempting to harmonize
Fifth Circuit case law).
Under the Eighth and Fifth Circuit decisions, the Kentucky law at issue
in this case would have been held to be preempted. It has a broad coverage
provision that extends to a number of self-insured entities, such as "any
self-insurer or multiple employer welfare arrangement not exempt from state
regulation by ERISA; provider-sponsored integrated health delivery network;
self-insured employer-organized association or nonprofit hospital, medical-surgical,
dental, or health service corporation." Ky. Rev. Stat. Ann. §
304.17A-005(23) (Michie 2001). To be sure, the Kentucky law excludes self-insured
plans that are covered by ERISA and protected from state insurance regulation
by ERISA's "deemer clause," because it covers only self-insured
plans "not exempt from state regulation by ERISA." But that feature
could not save the Kentucky law under the Eighth Circuit's analysis. Although
the Arkansas AWP law at issue in Prudential similarly excluded such plans,
see 154 F.3d at 816 (reciting Arkansas AWP provision stating that AWP law
"shall not apply to self-funded or other health benefit plans that
are exempt from state regulations by virtue of [ERISA]"), the Eighth
Circuit's holding in Prudential that the Arkansas law was preempted rested
on the premise that the Arkansas AWP law covered some self-insured entities.
See Express Scripts, 262 F.3d at 836-837 (distinguishing Prudential). Because
the Kentucky law likewise appears to cover the same self-insured entities-i.e.,
those, like church and government plans, that are not covered by ERISA-it
would thus be preempted under the Eighth Circuit's analysis. It likewise
would be preempted under Fifth Circuit precedent. See Corporate Health,
215 F.3d at 538 & n.51; compare Stuart Circle (holding that Virginia
law that apparently applied to self-insured entities is saved by insurance
saving clause).
2. The issue that has caused the conflict in the circuits, as well as the
accompanying difficulty the courts have had in analyzing AWP laws, is important.
The wisdom of AWP legislation can certainly be debated. Pet. App. 34a n.18;
see also Pegram, 530 U.S. at 221 (structure of HMOs involves "complicated
factfinding and such a debatable social judgment" not usually left
to courts). But whatever its wisdom, approximately twenty-five States have
enacted some form of AWP law. William J. Bahr, Comments, Although Offering
More Freedom to Choose, "Any Willing Provider" Legislation is
the Wrong Choice, 45 U. Kan. L. Rev. 557, 568 n.112 (1997). Managed-care
entities subject to the strictures of those laws deliver a substantial portion
of health services nationwide. It is important that the permissible scope
and limits of state authority in this area be defined. Further review is
therefore warranted.
3. The question presented by this case is related to the question in Rush
Prudential HMO, Inc. v. Moran, No. 00-1021, cert. granted (June 29, 2001).
The question there is whether ERISA preempts an Illinois law requiring HMOs
to provide independent review by an outside physician in the event of a
disagreement regarding whether a particular treatment is medically necessary
and therefore included in the insurance coverage provided by the HMO. The
court of appeals in Rush Prudential held that the state independent review
law is saved from preemption by ERISA's insurance saving clause. Citing
the Eighth Circuit's decision in Prudential and the Fifth Circuit's decision
in Texas Pharmacy, the petitioner in Rush Prudential argues that the Illinois
law does not "regulate[] insurance" because it is directed at
HMOs, which in the petitioner's view do not necessarily offer insurance
products and "do not always bear the risk for the health plans with
which they contract." 00-1021 Pet. Br. at 37, 39-40.10 If the court
addresses that question, its analysis may well affect the issue in this
case. If so, this case should then be remanded to the court of appeals for
further consideration in light of the Court's decision in Rush Prudential.
If the decision in Rush Prudential does not address the insurance saving
clause in a way that sheds light on this case, the Court should grant plenary
review in this case at that time.
CONCLUSION
The Court should hold the petition for a writ of certiorari in this case
pending its decision in Rush Prudential HMO, Inc. v. Moran, No. 00-1021,
cert. granted (June 29, 2001), and then dispose of it accordingly.
Respectfully submitted.
PAUL D. CLEMENT
Acting Solicitor General*
EDWIN S. KNEEDLER
Deputy Solicitor General
JAMES A. FELDMAN
Assistant to the Solicitor
General
HOWARD M. RADZELY
Acting Solicitor of Labor
ALLEN H. FELDMAN
Associater Solicitor
NATHANIEL I. SPILLER
Deputy Associate Solicitor
GARY K. STEARMAN
Attorney
Department of Labor
NOVEMBER 2001
1 When this suit was commenced, the AWP law applied to "health benefit
plan[s]," Ky. Rev. Stat. Ann. § 304.17A-110(3) (Banks-Baldwin
1995); but in 1998, the Kentucky legislature revised the law to apply to
"health insurer[s]," as quoted above. Pet. App. 5a-6a. The court
of appeals addressed the validity of the law in its "present form."
Pet. App. 6a.
2 The direct impact of the AWP law's mandatory open-panel provider networks
on plans' benefit structures and the ability of plans to operate uniformly
across state lines contrasts with the incidental economic impact of state
laws of general applicability that are not sufficiently connected to ERISA
plans to meet the "relates to" requirement. See Travelers, 514
U.S. at 668; see also De Buono v. NYSA-ILA Med. & Clinical Serv. Fund,
520 U.S. 806, 815-816 (1997); Dillingham, 519 U.S. at 334; Mackey, 486 U.S.
at 831-836.
3 Like the dissent below, some courts of appeals have suggested that HMOs
are not engaged in insurance for purposes of ERISA's insurance saving clause.
Pet. App. 41a n.3. See also Prudential Ins. Co. of Am. v. National Park
Med. Ctr., Inc., 154 F.3d 812, 829 (8th Cir. 1998); Texas Pharmacy Ass'n
v. Prudential Ins. Co. of Am., 105 F.3d 1035, 1038-1039 (5th Cir.), cert.
denied, 522 U.S. 820 (1997). The continued validity of those decisions,
however, was undermined by this Court's discussion in Pegram. More recent
decisions from those same courts recognize that HMOs may be classified as
insurers for ERISA purposes. See Corporate Health Ins., Inc. v. Texas Dep't
of Ins., 215 F.3d 526, 538 (5th Cir. 2000) ("A statute may regulate
insurance if it applies to insurers, health care service contractors, and
HMOs."), petition for cert. pending, No. 00-665; Express Scripts, Inc.
v. Wenzel, 262 F.3d 829, 836 (8th Cir. 2001) ("The language of the
statutes was specifically directed at HMOs and we conclude that the provisions
regulate insurance under the common sense test."); see also 29 U.S.C.
1144(b)(2)(B) (protecting self-insured plans from application of state insurance
laws saved by 29 U.S.C. 1144(b)(2)(A) by barring plans from being deemed
to be "an insurance company or other insurer" for purposes of
such state laws) (emphasis added).
4 Judge Kennedy observed that such entities may in some instances merely
"handle paperwork and plan administration for a self-funded [i.e.,
self-insured] ERISA plan." Pet. App. 43a. She noted that in such cases,
"[t]he only risk underwritten is that accepted by the ERISA self-insured
plan, which under the 'deemer clause' of ERISA * * * cannot be treated as
an insurance company for the purposes of state regulation." Id. at
44a. The majority, however, expressly addressed whether HMOs and similar
entities acting solely as plan administrators for self-insured plans "are
included within the scope of the" AWP law and concluded that they "obviously
are not." Id. at 28a n.14. Cf. Corporate Health Ins., Inc., 215 F.3d
at 538 (administrators function as insurers in making benefit determinations).
5 Neither petitioners, the court of appeals, nor any of the appellate decisions
cited by petitioners, see Pet. 15-16, have asserted that AWP laws fail to
satisfy the third factor because those laws regulate relations between insurers
and other entities (health care providers) that are not insurers. See Group
Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 231 (1979).
In applying the ERISA saving clause, that point is more appropriately considered
here under the second factor, as discussed in the text, because the fact
that the AWP law regulates the relationship between the insurer and providers
does not detract from the fact that it also regulates the relationship between
the insurer and the insured, and therefore "regulates insurance."
That does not mean, however, that the relationship between an insurer and
a provider is itself the "business of insurance" for purposes
of the McCarran-Ferguson Act's exemption from the antitrust laws. See pp.
15-16 & n.8, infra.
6 The application of the third factor to laws that regulate self-insurers
in the ERISA context may also differ from the application of that factor
to the practice of self-insurers in the antitrust context. See note 8, infra.
The ultimate statutory test for whether a state law is saved under ERISA
is whether it "regulates insurance." 29 U.S.C. 1144(b)(2)(A).
The ultimate statutory test in the antitrust context is different. There,
the McCarran-Ferguson Act exempts a practice from the federal antitrust
laws if it constitutes "the business of insurance." 15 U.S.C.
1012(b) (emphasis added). A self-insurer may reasonably be viewed as engaged
in "insurance," and therefore a law regulating self-insurers "regulates
insurance" under the ERISA saving clause. But a self-insurer would
not appear to be involved in "the business of insurance" within
the meaning of the McCarran-Ferguson Act.
7 Petitioners correctly note (Pet. 17-19) that the courts of appeals on
occasion have narrowly interpreted the McCarran-Ferguson "risk-spreading"
criterion as "refer[ring] to the risk of injury for which the insurance
company contractually agreed to compensate the insured." Cisneros v.
UNUM Life Ins. Co. of Am., 134 F.3d 939, 945-946 (9th Cir. 1998), cert.
denied, 526 U.S. 1086 (1999); see Pet. App. 48a-57a (Kennedy, J., dissenting).
That narrow view of risk-spreading under ERISA is incorrect. See UNUM, 526
U.S. at 374 (describing criterion as "whether the rule at issue 'has
the effect of transferring or spreading a policyholder's risk'") (quoting
Metropolitan Life, 471 U.S. at 743) (emphasis added); cf Department of Treasury
v. Fabe, 508 U.S. 491, 502-504 (1993) (under first clause of § 2(b)
of McCarran-Ferguson Act, Ohio creditor-priority scheme met risk-transfer
criterion by ensuring payment of policyholders' claims and performance of
insurance contract).
8 Although the Kentucky AWP law's effect on the insurer-insured relationship
is sufficient to bring that law within the scope of ERISA's insurance saving
clause, which is designed to preserve the broad authority of the States
over insurance, it does not follow that private conduct by an insurer affecting
a provider's ability to participate in the insurer's provider network would
be protected by the McCarran-Ferguson Act's narrow exemption from the antitrust
laws simply because that conduct might also have an effect on the insurer-insured
relationship.
9 For instance, in Texas Pharmacy, the Fifth Circuit rested its decision
in part on the proposition that HMOs and similar entities are not part of
the insurance industry, 105 F.3d at 1038-1039, but this Court has determined
otherwise. Pegram, 530 U.S. at 218-223. Following Pegram, the Fifth Circuit
broadened its view. See note 3, supra. Furthermore, in Texas Pharmacy and
CIGNA Healthplan, 82 F.3d at 650, the Fifth Circuit required the laws to
satisfy both the common-sense test and all three McCarran-Ferguson factors
to be saved as an insurance regulation. 105 F.3d 1038. This Court, however,
has expressly rejected that requirement, holding that the McCarran-Ferguson
factors are merely "guideposts" in the analysis and that a law
may "regulate insurance" under ERISA without satisfying all three
factors. UNUM, 526 U.S. at 373-374. In Corporate Health, the Fifth Circuit
acknowledged that clarification, but reaffirmed the basic holding that AWP
laws are preempted to the extent they regulate entities other than traditional
insurers and HMOs. 215 F.3d at 537.
10 The petitioner also argues that, under the Court's decision in Pilot
Life, 481 U.S. at 53-57, the Illinois law conflicts with the provision in
Section 502(a) of ERISA for bringing civil actions to recover benefits or
enforce the terms of the plan. See 00-1021 Pet. Br. at 19-32, Rush Prudential,
supra.
* The Solicitor General is recused in this case.