This case requires the court to determine how the benefits of a self-funded ERISA group health policy and a non-ERISA individual health insurance policy should be coordinated with respect to a claim admittedly covered by both policies. There is no question that the insured is entitled to benefits and, in fact, the benefits have been paid. The fighting issue presented in this case is which insurer must bear the loss.
Magellan Services v. Highmark Life Insurance Company, — N.W.2d —-, 2008 WL 2221979 (Iowa) (May 30, 2008)
This state court case suggests an argument against ERISA preemption of state regulation of self funded group health plans based upon the presence of stop loss coverage, or some will so contend based upon the case outcome. More particularly, the case holding turns on consideration of a preemption argument advanced by a stop loss carrier in a contract dispute with its insured, the sponsor of a group health plan, and an individual policy insurance carrier that had a coverage obligation if the group health plan did not.
To assure coverage to her son who was battling leukemia, Jane Doe purchased an individual policy from Wellmark (Wellmark Policy). The Wellmark Policy was issued pursuant to Iowa Code chapter 513C, which requires health insurers operating in Iowa to provide a basic or standard level of health insurance coverage to an Iowa resident regardless of the person’s health status. The Wellmark Policy became effective on May 1, 1999.According to the opinion:
In July 1999, the Iowa Insurance Commissioner promulgated regulations mandating that policies issued pursuant to Iowa Code section 513C.9 â€œshall not duplicate benefits paid under any other health insurance coverage.â€ Iowa Admin. Code r. 191-75.7(4). As a result of this mandatory regulation, John’s Wellmark Policy was amended to state that â€œ[b]enefits covered … will not duplicate benefits covered under any other health insurance coverage .â€ Such a limitation is commonly referred to as â€œalways secondaryâ€ language.
Jane’s son already had coverage under his father’s plan, described as the “the Magellan 90/60 Policy”. Despite the “policy” moniker, the opinion states that the plan was self funded. This plan also had a provision related to coordination of benefits.
The coordination of benefits dispute arose when the group plan’s stop loss carrier, Highmark, refused to reimburse Magellan, the plan sponsor, on the grounds that the individual policy carrier should be primary. When Magellan and Wellmark sued, Highmark argued that ERISA preempted the state regulation that purported to allocation obligations as to primary versus secondary status of the parties.
Holding Against Highmark
The Iowa Supreme Court decided against Highmark, finding that the state insurance regulation did not fall within the scope of ERISA’s preemption provisions. The opinion provides no independent analysis of the issue, relying rather on a bare recital of the parties’ respective positions in order to set up the preemption question for decision.
Note: The case does not involve a claim for benefits. Disputes between plan sponsors and stop loss carriers should typically be viewed as contractual disputes that fall outside ERISA’s preemptive reach. In other words, the case could have been decided on a contractual basis but for the interposition of the preemption defense.
State Law COB Provisions – Did the Iowa Court get it wrong on the preemption issue? Absolutely.
An ERISA self-funded plan’s payment priority versus other payers cannot be ordered by state insurance regulation. The correct view is set forth in LaRocca v. Borden, Inc., 276 F.3d 22, 30 (lst Cir.2002) (cited by Highmark, but ignored by the Iowa court) where the First Circuit Court of Appeals held that â€œERISA preempts state legislation designed to limit plans’ … coordination of benefit provisions.â€
Implications For State Law Regulation – Personally, i do not see how state law regulation of carriers will really kick the can down the road for individual plaintiffs even if the Iowa case had the law right. Stop loss carriers insure plan administrators or plans, not plan beneficiaries. The Highmark/Magellan dispute was, in fact, a contractual argument between plan administrator and stop loss carrier. Thus, even were state regulation to extend so far as to enable compulsion of a stop loss carrier to assume coverage obligations or restrict contractual rights, this result would not innure to the benefit of plan participants in the typical case, since their rights are governed under the plan documents, not the stop loss policy.
Credits – Hat tip to Professor Roger Baron who called this case to my attention. The foregoing discussion sets forth my views.
Roger’s take on the case included below – I do agree with Roger that the case is one for the “possibilities” file.
On Friday, May 30, 2008, the Iowa Supreme Court handed down a decision in which it held that a stop loss insurer was required to honor state law concerning â€œcoordination of benefits.â€ That opinion, Magellan Health Services, Inc v. Highmark Life Insurance Company, 2008 WL 2221979 (Iowa) is set forth below. At issue is $919,596 incurred by a beneficiary diagnosed with leukemia. The district court applied state law, holding that the health coverage provided through the ERISA plan was primary under state law. The stop loss insurer insisted that state law did not apply to it. The Iowa Supreme Court affirmed in a unanimous decision with two Justices not participating. This opinion holds that this aspect of state law, as found in Iowa statute and in Iowa insurance regulation, is not preempted by ERISAâ€™s preemption clause. Although this opinion mentions the possibility of preemption and the possible application of the â€œsavings clauseâ€ and â€œdeemer clause,â€ the Court simply holds that Iowa state law â€œis not within the scope of ERISAâ€™s preemption clauseâ€ and accordingly the â€œsavings clause and deemer clauses have no application.â€ (quoted language taken from footnote 2.)
PLEASE NOTE: This decision is highly relevant to the situation concerning reimbursement where stop loss insurers similarly claim that they are not required to comply with state law concerning reimbursement. And, keep in mind that the U.S. Supreme Court clearly stated in FMC v. Holliday that while state law is not applicable to a self-funded plan itself, it is applicable to an insurer of an ERISA plan concerning the issue of reimbursement (subrogation on personal injury claims).