Does the Federal Employees Health Benefits Act (“FEHBA”) preempt state anti-subrogation law and does 5 U.S.C. § 8902(m)(1) violate the Supremacy Clause?
The Supreme Court will decide whether § 8902(m)(1) of the Federal Employees Health Benefits Act (“FEHBA”) allows insurance companies to collect reimbursements from the insured after personal injury claims or whether a “presumption against preemption” allows state anti-subrogation laws to prevail. Petitioner Coventry Health of Missouri, Inc. argues that FEHBA unambiguously preempts state anti-subrogation laws; preemption comports with the Supremacy Clause; and the Office of Personnel Management’s new final rule, codified in § 8902(m)(1), should be granted Chevron deference. In contrast, Respondent Jodie Nevils argues that FEHBA’s language is ambiguous; Chevron deference does not apply; and allowing preemption of state anti-subrogation law violates the Supremacy Clause by encroaching on law traditionally left to the states to regulate. This case will clarify the potential for state anti-subrogation law preemption to influence the cost of health care coverage for FEHBA plan enrollees and will address federalism concerns regarding the balance of power between the federal government and the states for the administration and provision of health insurance to federal employees.
Questions as Framed for the Court by the Parties
The Federal Employees Health Benefits Act (“FEHBA”), 5 U.S.C. § 8901 et seq., governs the health benefits of millions of federal workers and dependents, and authorizes the Office of Personnel Management (“OPM”) to enter into contracts with private insurance carriers to administer benefit plans. FEHBA expressly “preempt[s] any State or local law” that would prevent enforcement of “[t]he terms of any contract” between OPM and a carrier which “relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits).” In a 2015 regulation, OPM codified its longstanding position that FEHBA-contract provisions requiring carriers to seek subrogation or reimbursement “relate to . . . benefits” and “payments with respect to benefits,” and therefore FEHBA preempts state laws that purport to prevent FEHBA insurance carriers from pursuing subrogation and reimbursement recoveries. 5 C.F.R. § 890.106(h). Expressly disagreeing with multiple federal circuits and state appellate courts, the Missouri Supreme Court nevertheless construed FEHBA not to preempt state laws—explicitly refusing to accord any deference to OPM’s regulation. A majority of the court further concluded that Section 8902(m)(1) violates the Supremacy Clause of the U.S. Constitution. The questions presented are:
- Whether FEHBA preempts state laws that prevent carriers from seeking subrogation or reimbursement pursuant to their FEHBA contracts.
- Whether FEHBA’s express-preemption provision, 5 U.S.C. § 8902(m)(1), violates the Supremacy Clause.
In 2006, Respondent Jodie Nevils, a federal employee working for the United States Postal Service, was injured in a car accident. Nevils was covered by a health insurance plan through the petitioner Coventry Health Care of Missouri, Inc. (“Coventry,” formerly known as Group Health Plan), which provided local plans in Missouri to federal employees under the Federal Employees Health Benefits Program (“FEHBA”). FEHBA covers nearly 85% of federal employees, and Congress originally passed FEHBA in order to lower the cost of health insurance for federal employees while maximizing benefits. After Coventry paid Nevils’s insurance claim, Nevils reached a settlement deal in tort proceedings against the driver of the other vehicle involved in the accident. Coventry initiated a lien of $6,592.24 against the funds that Nevil’ received from the settlement, as Coventry’s contract with Nevils allowed it to “seek reimbursement or subrogation when an insured obtains a settlement judgment against a tortfeasor for payment of medical expenses.”
After paying off the lien to Coventry, Nevils filed suit in Missouri state court alleging that the subrogation provision in Coventry’s contract violated a Missouri anti-subrogation law that prevented health insurance companies from seeking reimbursement for paid medical expenses if the insured receives payment from personal injury action. The Missouri Supreme Court ruled in favor of Nevils, holding that § 8902(m)(1) of FEHBA—which states that “any contract . . . shall supersede and preempt any State or local law . . . which relates to health insurance or plans”—does not apply to state anti-subrogation law. The court maintained that § 8902(m)(1) of FEHBA does not preempt Missouri law because Coventry’s seeking reimbursement for Nevils’ medical expenses has “no immediate relationship” to Nevils’s actual medical coverage and only impacts Nevils’s financial status. While the Supreme Court reviewed Coventry’s petition for certiorari, the Office of Personnel Management (“OPM”)—the governmental organization charged with administering FEHBA—released a final rule explicitly stating that § 8902(m)(1) applies to all contracts associated with FEHBA. In response, the Supreme Court vacated and remanded the case back to the Missouri Supreme Court in order to reconsider the facts in light of the new OPM regulation.
On remand, the Missouri Supreme Court ruled that § 8902(m)(1) still does not override state subrogation law. The Missouri Supreme Court maintained that it is not required to apply Chevron deference and, since there was no textual change to FEHBA itself, a “presumption against preemption” remains the appropriate reading of § 8902(m)(1) and the proper understanding of Congress’s intent. The Supreme Court of the United States granted certiorari on November 4, 2016.
DOES FEHBA UNAMBIGUOUSLY PREEMPT STATE ANTI-SUBROGATION AND ANTI-REIMBURSEMENT LAWS?
Coventry argues that the Federal Employee Health Benefits Act (“FEHBA”) unambiguously preempts state anti-subrogation and anti-reimbursement laws based on the statute’s plain language and underlying Congressional purpose. FEHBA § 8902(m)(1) preempts any state or local law that “relates to health insurance or plans” and that frustrates “[t]he terms of any [FEHBA] contract . . . which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits).” Coventry first looks at the plain language of this section and contends that anti-subrogation and anti-reimbursement laws undisputedly fall into FEHBA’s preemption clause because they (1) relate to health insurance or plans and (2) “relate to the nature, provision, or extent of coverage or benefits.” To support this contention, Coventry notes that precedent has established a broad definition of the term “relates to.” Coventry then argues that in light of this broad definition, subrogation and reimbursement provisions “relate to the ‘extent’ and ‘provision’” of employees’ coverage and of their benefits under the ordinary meaning of these terms. Coventry also notes that the Court has already concluded that reimbursement rights relate to employee benefits in the context of the Employee Retirement Income Security Act (“ERISA”), a federal statute that governs private employee benefit plans, and asserts that that reasoning is applicable to this case. Continuing its textual analysis, Coventry further claims that “even if subrogation and reimbursement did not relate to coverage and benefits,” subrogation and reimbursement rights would still fall under the preemption clause because they are “payments with respect to benefits.” Coventry then argues that Congress’s purpose for enacting FEHBA’s preemption clause confirms Coventry’s textual analysis. According to Coventry, the clause’s original purpose was to combat state law interference with FEHBA insurance plans in order to avoid increased premium costs to the government and non-uniformity of benefits for enrollees in the same plan. Coventry argues that reading the statute such that it does not preempt state laws would thwart these aims.
Coventry also asserts that the Missouri Supreme Court erred when it when it “applied a presumption against preemption” and relied on Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006), to find that FEHBA is ambiguous. Coventry first contends that the Missouri Supreme Court’s analysis is based on a misreading of McVeigh. Coventry notes that other courts have recognized that McVeigh does not establish anything about the correct interpretation of FEHBA’s preemption clause. Coventry also claims that the Supreme Court’s passing description in dictum of competing interpretations of FEHBA does not justify invoking the presumption against preemption, especially in light of the statute’s plain language and Congress’s purpose in favor of preemption. Coventry then contends that the presumption against preemption is irrelevant in this case because courts do not invoke the presumption when a statute contains an express preemption clause, and § 8902(m)(1) is an express preemption clause. Further, Coventry asserts that the presumption does not apply in this case because the presumption is triggered in areas of traditional state regulation, not areas that are uniquely federal in nature, like the provision of federal-employee benefits.
Nevils, however, cites McVeigh to argue that FEHBA’s plain language is ambiguous. Under McVeigh, the Supreme Court explained that FEHBA contains no provision addressing the subrogation or reimbursement rights of its carriers, and the statute’s preemption clause could be interpreted to either give preemptive power to subrogation and reimbursement provisions or exclude them from wielding preemptive power. To further support the argument that FEHBA is ambiguous, Nevils contends that Coventry’s arguments regarding FEHBA’s plain language are based on the same arguments that the Supreme Court rejected in McVeigh. Further, Nevils asserts that Coventry’s reliance on the Court’s reasoning regarding ERISA is misplaced because ERISA and FEHBA are meaningfully different. Nevils then argues that interpreting FEHBA such that subrogation and reimbursement provisions preempt state laws raises constitutional problems. Thus, under the doctrine of constitutional avoidance, Nevils contends that the interpretation of FEHBA under which these provisions do not preempt state laws must prevail. Nevils further asserts that the presumption against preemption also supports this interpretation of the statute and that this presumption applies in this case because insurance regulation has traditionally been under the control of the states.
Nevils also counters Coventry’s arguments regarding Congress’s purpose in enacting FEHBA by noting that Coventry relies on recent comments by the Office of Personnel Management (“OPM”) to discern this purpose. Nevils claims that the Court should instead look to Congress’s own statements when it enacted the statute to determine its purpose. Nevils then notes that Congress did not identify state anti-subrogation laws as posing problems for insurance carriers that offer nationwide plans when it enacted the statute; additionally, Congress did not identify these state laws as worthy of concern when it amended the preemption clause.
SHOULD OPM’S REGULATION CONSTRUING FEHBA TO PREEMPT STATE LAWS RECEIVE CHEVRON DEFERENCE?
Coventry argues that regardless of whether FEHBA is clear or ambiguous, the Court must uphold OPM’s regulation construing FEHBA to preempt state anti-subrogation and anti-reinstatement laws because the regulation is reasonable under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The regulation is reasonable, Coventry contends, because it is the most persuasive reading of the statute’s plain language. Coventry also notes OPM’s consistency, experience, and expertise in administering FEHBA. Further, Coventry claims that the Missouri Supreme Court incorrectly declined to analyze the regulation under Chevron deference and instead created its own carve-out unsupported by and irreconcilable with precedent. Coventry argues that the Supreme Court should follow precedent stating that Chevron does not apply piecemeal to one topic but not others. In addition, Coventry contends that Chevron validates rules for all matters that an agency administers and that the Court has made clear that Chevron applies to the interpretation of preemption provisions.
Nevils counters that OPM’s interpretation of FEHBA’s preemption clause should not receive Chevron deference because Congress did not authorize OPM to enact regulations preempting state law, and Congressional delegation of this authority is a precondition to deference. In support of this argument, Nevils looks to examples of Congressional authorization of agency regulations preempting state law and argues that FEHBA does not match any of these examples. Nevils also contends that OPM’s regulation should not receive Chevron deference because the Court has drawn a distinction between questions regarding the substantive meaning of a statute, which may receive deference, and questions regarding whether a statute is preemptive, for which there is no precedent of according deference. Nevils argues that this case presents the latter question, and thus Chevron deference does not apply. Even if Chevron applied to this case, Nevils contends, OPM’s regulation should not receive deference because the doctrines of constitutional avoidance and the presumption against preemption resolve FEHBA’s textual ambiguity, and thus there is nothing for OPM to resolve via regulation. Further, Nevils asserts that OPM’s regulation is unreasonable because it did not meaningfully deliberate on the federalism and constitutional concerns relevant to the case, as is required.
DOES FEHBA’S PREEMPTION CLAUSE VIOLATE THE SUPREMACY CLAUSE?
Coventry asserts that FEHBA’s preemption clause comports with the Supremacy Clause because the statute itself, rather than the provisions of contracts between the federal government and private parties, displaces state law. Thus, according to Coventry, FEHBA’s preemption clause meets the Supremacy Clause’s requirement that “the Laws of the United States . . . shall be the supreme Law of the Land.” The fact that the preemption clause defines the scope of the state laws that FEHBA preempts by reference to OPM’s contracts is immaterial, Coventry argues. Further, given that FEHBA can fairly be read to comport with the Supremacy Clause, Coventry contends that this reading must be done in order to save the statute from unconstitutionality.
Nevils argues, however, that the Supremacy Clause does not apply. According to McVeigh, FEHBA’s preemption clause “renders preemptive contract terms in health insurance plans, not provisions enacted by Congress.” The Supremacy Clause states that the “Laws of the United States” are the “Supreme Law of the Land” but the terms of the contracts at issue under FEHBA are not law but terms “voluntarily negotiated between private insurance companies and unelected bureaucrats” and thus cannot preempt state laws. Nevils asserts that rather than being immaterial, the source of federal law that preempts state law—here contracts—matters because the targets of preemption are left to “the vagaries of private contract instead of lawmaking by Congress.” In addition, Nevils claims that interpreting the statute in the manner that Coventry suggests would require rewriting the text of the law, which the Court does not have the power to do.
POTENTIAL OF INCREASED COSTS FOR FEHBA PLAN ENROLLEES
Coventry argues that not allowing § 8209(m)(1) to preempt state anti-subrogation law violates Congress’ original intent—to enact FEHBA as a means of providing federal employees with affordable health insurance options that minimize costs while maximizing benefits. Coventry contends that, without FEHBA preemption, a “motely patchwork” of state laws would emerge. Coventry suggests that the incongruity would undermine the uniform administration of insurance plans across the nation while unfairly driving up the cost of insurance plans for enrollees in states that do not have anti-subrogation laws, in order to subsidize enrollees in states that do. America’s Health Insurance Plans and the Association of Federal Health Organizations maintain that § 8902(m)(1) saves the government over $125 million per year, and the burden of managing FEHBA plans differently in all fifty states, each with unique subrogation and reimbursement laws, would pose an enormous monetary strain that will both “directly” and “indirectly” impact enrollees. America’s Health Insurance Plans and the Association of Federal Health Organizations contend that less money will be available to the Treasury Fund to subsidize FEHBA plans, administrative costs will increase, and less plan options will be available for enrollees.
In contrast, Nevils argues that a “mere money” concern over the increased price of FEHBA plans is not a basis of argument against state anti-subrogation preemption. Nevils contends that, since the FEHBA plan at issue is a “community-rated” plan where any personal injury reimbursements—even in states without anti-subrogation laws—do not get credited to the government, Coventry’s “cross-subsidization” argument fails and enrollees in other states will not experience an increase in costs. The American Association for Justice (“AAJ”) maintains that Coventry overstated the amount that would be credited in full to the Treasury Fund, as only approximately “$2.60 annually for every $1,000 in premiums” would be saved after taking into account payment for third-party collectors, administrative fees, and attorney costs. The Missouri Association of Trial Attorneys argue that, even if there are administrative or monetary costs to allowing state anti-subrogation preemption, the benefits associated with allowing the states to have “oversight and localized decision-making” over FEHBA plan regulation outweighs these costs.
EROSION OF FEDERALISM AND THE WEIGHT OF THE SUPREMACY CLAUSE
Coventry argues that preemption of § 8209(m)(1) over state anti-subrogation laws does not violate the Supremacy Clause because it is FEHBA—the statute as a whole—that preempts state law and not the “provisions of a contract” between enrollees and FEHBA plan providers, which traditionally falls under state regulation. The Chamber of Commerce of the United States maintains that the Supremacy Clause ensures that Congress can “override state law when necessary to the national interest.” The Chamber of Commerce contends that allowing state anti-subrogation law to preempt § 8209(m)(1) would cause an imbalance in federalism that would limit the scope and type of response that Congress could use to respond to issues of national interest without feeling the pressure of constant state law preemption.
In contrast, Nevils reasons that not allowing § 8902(m)(1) to preempt state anti-subrogation law maintains state sovereignty because Congress has not provided a “clear and manifest purpose” as to why FEHBA should intervene with contract law that has been traditionally left to the states to regulate. The AAJ argues that FEHBA contractual rights could also have implications on state tort law. The AAJ contends that allowing FEHBA preemption would impose limits on tort remedies, prevent claimants from becoming “whole” again, and not capitalize on the idea that states are in a more favorable position to regulate the interface between health care, insurance, and the tort system. Additionally, the National Governors Association and other state and local organizations argue that the courts must prevent Chevron deference from overriding state interests; agencies are “specialized institutions,” ill-equipped to handle law traditionally left to the states, and should only be given deference when Congress expressly authorizes it.
- Miracle Jones, Supreme Court to Rule on Federal Employee Health Insurance, Jurist (Nov. 6, 2016, 3:22 P.M.).