Supreme Court Blocks Missouri FEHBA Preemption

The U.S. Supreme Court knocked down an effort by Missouri to keep health plans from seeking reimbursement from the lawsuit awards of enrollees with federal employee health benefits.

Members of the court ruled 8-0 Tuesday, in favor of a company that is now part of Aetna Inc., that Missouri has no authority to regulate the subrogation and reimbursement provisions in the contracts of Federal Employees Health Benefits Program carriers.

The preemption provision in Section 8902(m)(1) of the Federal Employees Health Benefits Act of 1959 overrides state health insurance laws using different language than the Employee Retirement Income Security Act of 1974 uses, but Section 8902(m)(1) overrides state subrogation laws just as well as the ERISA preemption provision does, the court held.

Subrogation is a legal mechanism a health plan uses when it pays for an injured patient's care, then stands in place of the patient in actions to recover damages from the party, or parties, that caused the injuries.

Advocates for the injured patients argue that subrogation may reduce the amount of cash victims of negligence, or intentional wrongdoing, have to get by. Health plan sponsors, including the federal government, say that the health plan itself suffers a financial loss due to an enrollee's covered injury, and that exercising subrogation rights is an important way for the plan to protect its limited resources and hold down coverage costs.

The Case

Jodie Nevils, the patient in the case, Coventry Health Care of Missouri Inc., fka Group Health Plan Inc. v. Nevils (Case Number 16-149), had coverage from a Coventry Health Care FEHBA plan in Missouri in 2006.

He was hurt in an automobile accident. Coventry Health Care paid his bills. Nevils sued the driver who hurt him and recovered a settlement.

Coventry Health Care used a subrogation provision in its contract with OPM to put a lien on $6,592.24 of the settlement proceeds.

Missouri normally bans that kind of subrogation provision.

Two lower courts ruled against Nevils, arguing that the Missouri law did not apply to FEHBA plans.

The Missouri Supreme Court ruled in Nevils' favor.

Nevils acknowledged in his response to Coventry Health Care's appeal to the U.S. Supreme Court that the Supremacy Clause of the U.S. Constitution lets federal laws preempt state laws.

Nevils argued, however, that FEHBA Section 8902(m)(1) violates the Constitution, by letting a contract between a health plan and the U.S. Office of Personnel Management, the federal agency that oversees the federal health benefits program, override state laws.

The Opinion

Justice Neil Gorsuch, who joined the court Monday, did not participate in making the decision.

The other justices rejected Nevils' argument.

In the opinion for the court, Justice Ruth Bader Ginsburg concluded that the Nevils' argument about the ability of a federal contract to override state law "elevates semantics over substance."

"While Congress' formulation might differ from the phrasing of other statutes, Section 8902(m)(1) manifests the same intent to preempt state law," Ginsburg wrote. "Because we do not require Congress to employ a particular linguistic formulation when preempting state law, Nevils' Supremacy Clause challenge fails."

The new U.S. Supreme Court ruling has the effect of sending the Coventry Health Care case back to the Missouri Supreme Court for reconsideration.

Justice Clarence Thomas wrote a concurring opinion that he agrees with the Coventry Health Care ruling but worries about the possibility that another federal statute might give a federal executive agency too much power to enter into contracts that preempt state law.

Nevils, "however, failed to make that argument," Thomas wrote.

Nevils might be able to raise that issue when the case returns to the Missouri Supreme Court, Thomas wrote.

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