IN THE SUPREME COURT OF IOWA No. 81 / 05–1853
Filed May 30, 2008
MAGELLAN HEALTH SERVICES, INC.
Appellee,
vs.
HIGHMARK LIFE INSURANCE COMPANY,
Appellant,
WELLMARK, INC., d/b/a WELLMARK BLUE CROSS AND BLUE SHIELD OF IOWA and WELLMARK HEALTH PLAN OF IOWA, INC.,
Appellee.
Appeal from the Iowa District Court for Polk County, Douglas F.
Staskal, Judge.
Defendant appeals district court grant of summary judgment to the
plaintiff, which determined that defendant was the primary insurer and
thus liable for coverage. AFFIRMED.
Denny M. Dennis of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des
Moines, and Stephen F. Ban of Metz Lewis LLC, Pittsburgh, Pennsylvania,
for appellant.
Michael A. Dee of Brown, Winick, Graves, Gross, Baskerville and
Shoenebaum, P.L.C., Des Moines, and Erica J. Dominitz of Dickstein,
Shapiro, Morin & Oshinsky LLP, Washington, D.C., for appellee Magellan. 2 Hayward L. Draper and Thomas H. Walton, Nyemaster, Goode, West,
Hansell & O’Brien, P.C., Des Moines, for appellee Wellmark. 3 APPEL, Justice.
In this case, we are called upon to determine the legal ramifications of
conflicting coordination of benefits provisions in a self-funded welfare
benefit plan governed by the Employee Retirement Income Security Act of
1975 (ERISA) and an individual health insurance policy issued pursuant to
Iowa Code chapter 513C.
I. Factual Background and Prior Proceedings.
John Doe was diagnosed with leukemia in the 1990s. His medical bills were initially paid through group health insurance coverage provided
by his mother Jane Doe’s employer, Principal Financial Group. At the same
time, John was also covered as a dependent under his father’s group
insurance plan—the Magellan “90/60 Preferred Provider Option” (Magellan
90/60 Policy). The Magellan 90/60 Policy was administered by CareFirst of
Maryland, Inc. d/b/a CareFirst BlueCross BlueShield (CareFirst). The
Magellan 90/60 Policy was issued under a self-funded plan governed by
ERISA.
In 1997, Jane left Principal for other employment. She exercised her
COBRA rights, and John’s medical bills continued to be paid by Principal for eighteen months. After COBRA benefits were exhausted, John
continued to be covered as a dependent under his father’s insurance plan.
Although John was covered by the Magellan 90/60 Policy, Jane was
concerned that group plan administrators might deny her son specialized
treatment because such care was not “medically necessary.” In order to
guarantee that benefits would be available for desired care, Jane obtained
an individual insurance policy for John 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 4 of the person’s health status. The Wellmark Policy became effective on May
1, 1999.
In July 1999, the Iowa Insurance Commissioner promulgated
regulations mandating that policies issued pursuant to Iowa Code section
513C.9 “shall not duplicate benefits paid under any other health insurance
coverage.” Iowa Admin. Code r. 191—75.7(4). As a result of this mandatory
regulation, John’s Wellmark Policy was amended to state that “[b]enefits
covered . . . will not duplicate benefits covered under any other health insurance coverage.” Such a limitation is commonly referred to as “always
secondary” language.
The Magellan 90/60 Policy also had a provision related to
coordination of benefits, often referred to by the acronym COB. The
relevant COB language in the Magellan 90/60 Policy is as follows:
This plan determines its order of benefits using the first of the following rules that applies:
1) Non-dependent/dependent. The benefits of the plan which covers the person as an employee, member or subscriber (that is, other than as a dependent) are determined before those of the plan which covers the person as a dependent . . . .
....
7) Longer/shorter length of coverage. If none of the above rules determines the order of benefits, the benefits of the plan that covered an employee, member or subscriber longer are determined before those of the plan that covered that person for the shorter term.
(Emphasis in original).
After Jane obtained the individual “always secondary” Wellmark
Policy, CareFirst, acting on behalf of Magellan, discovered the dual coverage
for John. Wellmark informed CareFirst that it believed the Wellmark Policy
provided coverage that was secondary to the coverage in the Magellan 5 90/60 Policy. CareFirst reviewed the issue and came to the same
conclusion.
Unfortunately, in late 2001, John’s leukemia returned. Substantial
medical expenses incurred on behalf of John in 2001 and 2002 were paid
by CareFirst pursuant to its determination that the Magellan 90/60 Policy
was the primary insurer.
In late 2001, Magellan purchased a stop-loss reinsurance policy with
Highmark to cover health care claims made under the Magellan 90/60 Policy during calendar year 2002. In November 2002, Magellan submitted a
claim with Highmark to recover the catastrophic costs that it incurred on
John’s behalf. In February 2003, Highmark denied the claim, having
determined that the Magellan 90/60 Policy was secondary to the primary
coverage of the Wellmark Policy. As a result, according to Highmark,
coverage under the Wellmark Policy had to be exhausted before the
Magellan 90/60 Policy became liable for John’s medical expenses.
On October 3, 2003, Magellan filed suit against Highmark and
Wellmark. Among other claims, Magellan alleged that Highmark had
breached the provisions of its stop-loss policy by failing to reimburse Magellan for John’s medical expenses in 2002. Highmark countered that
ERISA preempted application of the “always secondary” regulation and that
the COB language of the Magellan 90/60 Policy rendered the Wellmark
Policy primarily liable for the claims submitted by John. All parties filed for
summary judgment.
On October 10, 2005, the district court granted Magellan’s motion for
summary judgment and denied Highmark’s motion. The court’s resolution
mooted Wellmark’s motion. The district court held that ERISA did not
preempt Iowa Code chapter 513C and the accompanying “always
secondary” regulation. According to the district court, the provisions of 6 Iowa Code chapter 513C and the accompanying regulation lacked the
required “reference to” or “connection with” an ERISA plan to trigger
preemption because the statute did not “touch on the main purposes
underlying ERISA.” As a result, the mandatory provisions of Iowa Code
chapter 513C and the accompanying regulation supported Magellan and
Wellmark’s claim that the Wellmark Policy coverage was secondary to that
provided by the Magellan 90/60 Policy. Although the district court did not
so state, the logical impact of the district court’s determination was that Magellan was legally required under the mandate of Iowa Code chapter
513C and the accompanying “always secondary” regulation to pay the claim
of its insured, and that Highmark was in turn required to reimburse
Magellan pursuant to the stop-loss policy Highmark issued to Magellan.
Based on the above rationale, the district court entered judgment in
favor of Magellan and Wellmark against Highmark. After the ruling, the
parties stipulated that the amount of damages involved in the case was
$919,596.
On appeal, Highmark seeks to overturn the district court’s judgment
by advancing two propositions. First, Highmark argues that ERISA preempts Iowa Code chapter 513C, thereby preventing Magellan and
Wellmark from relying upon the command in Iowa Administrative Code rule
191—75.7(4) that the Wellmark Policy is an “always secondary” policy.
Second, assuming Iowa Code chapter 513C as implemented by Iowa
Administrative Code rule 191—75.7(4) is preempted, Highmark asserts that,
as a matter of federal common law, the Magellan 90/60 Policy coverage is
secondary under the contractual terms of both policies.
Magellan and Wellmark counter that regardless of the preemption
analysis, the Magellan 90/60 Policy is primary under federal common law.
In any event, Magellan and Wellmark contend that chapter 513C and the 7 accompanying “always secondary” regulation are not preempted by ERISA.
Further, Magellan and Wellmark contend that regardless of the preemption
and federal common law analysis, the decision of Magellan and its
administrator, CareFirst, should be upheld as reasonable and made in good
faith. Finally, Wellmark advances the argument that when the relevant
language is properly interpreted, there is no conflict between the Magellan
90/60 Policy and the Wellmark Policy.
II. Standard of Review. Summary judgment is reviewed for correction of errors at law.
Buechel v. Five Star Quality Care, Inc., 745 N.W.2d 732, 735 (Iowa 2008).
Summary judgment should be upheld where there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of
law. Id. In reviewing the record, the evidence is considered in the light
most favorable to the nonmoving party. Id.
III. Discussion.
A. Introduction. 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.
The threshold question is whether the “always secondary” mandate of
Iowa Code chapter 513C as implemented by Iowa Administrative Code rule
191—75.7(4) is preempted by ERISA.1 If not preempted, the “always
secondary” provision is fully applicable, Magellan is liable for the loss, and
Highmark, as the stop-loss insurer, must pay Magellan. If, on the other
1Highmark does not challenge the validity of the administrative rule or Magellan’s
interpretation that it amounts to an “always secondary” mandate for chapter 513C policies. 8 hand, the “always secondary” provision is subject to ERISA preemption, the
statutory command has no force and effect and does not resolve the case.
If the “always secondary” provision of Iowa Code chapter 513C as
implemented by Iowa Administrative Code rule 191—75.7(4) is preempted,
however, a second set of questions must be addressed, namely, whether the
COB provisions of the Magellan 90/60 Policy and the Wellmark Policy
conflict and, if they do, how the conflict should be resolved. We do not
reach this second set of questions, however, as we find that the “always secondary” regulation is not preempted by ERISA.
B. ERISA Preemption of Iowa Code Chapter 513C.
1. Framework for ERISA preemption analysis. ERISA provides three
clauses that relate to the relationship between ERISA and state law: the
preemption clause, the savings clause, and the deemer clause. Under
ERISA, any provision of state law which “relates to” an ERISA plan is
superseded under what is known as the preemption clause of ERISA.
29 U.S.C. § 1144(a). On the other hand, state insurance, banking, or
securities laws are explicitly removed from preemption under ERISA’s
savings clause. Id. § 1144(b)(2)(A). What is known as the ERISA deemer clause, however, further provides that an employee benefit plan may not be
“deemed to be an insurance company . . . or to be engaged in the business
of insurance or banking for purposes of any law of any State purporting to
regulate insurance companies, [or] insurance contracts. . . .” Id.
§ 1144(b)(2)(B).
Analysis of ERISA preemption ordinarily requires three steps. The
first step is whether the state statute in question “relates to” an ERISA plan
and is therefore within the scope of the preemption clause. If so, the next
question is whether the state statute is nonetheless saved through
application of the savings clause. Finally, where a state statute falls within 9 the scope of the preemption clause but is also within the scope of the
savings clause, the analysis moves on to a determination of whether the
savings clause does not apply as a result of the deemer clause.
2. Highmark arguments in favor of ERISA preemption of Iowa Code
chapter 513C. Highmark asserts that Iowa Administrative Code rule 191—
75.7(4) is unenforceable because it is preempted by ERISA. According to
Highmark, the “always secondary” provision “relates to” or is “connected
with” the ERISA plan in this case. In support of its position, Highmark cites FMC Corp. v. Holliday, 498 U.S. 52, 111 S. Ct. 403, 112 L. Ed. 2d 356
(1990). In FMC, the United States Supreme Court held that a Pennsylvania
anti-subrogation statute which prohibited self-funded ERISA plans from
requiring reimbursement in the event of recovery from a third party was
preempted by ERISA. Id. at 65, 111 S. Ct. at 411, 112 L. Ed. 2d at 369.
According to the Supreme Court in FMC, the anti-subrogation statute was
an insurance statute under the ERISA savings clause, but could not be
applied against a self-funded ERISA plan by virtue of the deemer clause. Id.
Highmark asserts that like the Pennsylvania statute in FMC, Iowa Code
chapter 513C impermissibly overrides benefit provisions in self-funded ERISA plans.
Highmark claims that the approach in FMC has been followed in at
least three federal circuits. For example, in LaRocca v. Borden, Inc., 276
F.3d 22, 30 (lst Cir. 2002), the First Circuit Court of Appeals held that
“ERISA preempts state legislation designed to limit plans’ . . . coordination
of benefit provisions.” Similarly, in Auto Owners Insurance Co. v. Thorn
Apple Valley, Inc., 31 F.3d 371, 375 (6th Cir. 1994), the Sixth Circuit Court
of Appeals held that COB provisions of self-insured ERISA plans trump
state laws which seek to make no-fault policies always secondary payers.
Further, the Eighth Circuit Court of Appeals in Prudential Insurance Co. of 10 America v. National Park Medical Center, Inc., 413 F.3d 897, 912–13 (8th Cir.
2005), utilizing FMC concepts, held that an Arkansas “any willing provider”
law was preempted by the deemer clause as applied to self-funded plans.
Highmark recognizes that in several cases subsequent to FMC, the
United States Supreme Court “sharpened” its review of ERISA preemption.
See De Buono v. NYSA-ILA Med. & Clinical Serv. Fund, 520 U.S. 806, 117
S. Ct. 1747, 138 L. Ed. 2d 21 (1997) (finding gross receipts tax not
preempted); Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 117 S. Ct. 832, 136 L. Ed. 2d 791 (1997) (finding
wage payment statute not preempted); N.Y. State Conference of Blue Cross &
Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S. Ct. 1671, 131
L. Ed. 2d 695 (1995) (finding surcharges on hospital rates not preempted).
According to Highmark, however, these cases did not represent a sea
change from the approach in FMC, but only a refinement of ERISA
preemption analysis. Further, Highmark emphasizes that unlike, for
instance, the wage payment statute involved in Dillingham, the payment of
plan benefits is a core area of ERISA concern.
Highmark asserts that its position is supported by the relatively recent case of Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 121 S. Ct.
1322, 149 L. Ed. 2d 264 (2001). In that case, the United States Supreme
Court held that a state statute providing for automatic revocation of
beneficiary designations upon divorce was preempted as applied to ERISA
plans. Id. at 152, 121 S. Ct. at 1330, 149 L. Ed. 2d at 274–75. The Court
noted that the state statute that bound plan administrators to a particular
choice of rules in determining beneficiary status involved an area of core
ERISA concern including ERISA’s provision that a plan shall “ ‘specify the
basis on which payments are made to and from the plan.’ ” Id. at 147, 121
S. Ct. at 1327, 149 L. Ed. 2d at 271 (quoting 29 U.S.C. § 1102(b)(4)). The 11 Supreme Court further stated that the payment of benefits was “a central
matter of plan administration.” Id. at 148, 121 S. Ct. at 1328, 149 L. Ed.
2d at 272. Finally, the Supreme Court in Egelhoff stressed the need for
nationally uniform plan administration in such core matters. Id. According
to Highmark, the Supreme Court’s emphasis in Egelhoff on the core nature
of payment of benefit provisions and the need for national uniformity apply
with equal force in this case.
Additionally, Highmark notes that the Eighth Circuit has adopted a multi-factored test to determine whether a state law has sufficient
“connection with” ERISA plans to trigger preemption. See Ark. Blue Cross &
Blue Shield v. St. Mary’s Hosp., Inc., 947 F.2d 1341, 1344–45 (8th Cir.
1991). According to Highmark, the “always secondary” regulation meets
most of the criteria of the multi-factored test by negating a provision of the
Magellan 90/60 Policy, affecting the relationships between primary ERISA
entities and the structure of ERISA plans, adversely impacting the uniform
administration of ERISA plans, causing an economic impact on an ERISA
plan, and being inconsistent with the deemer clause, which provides that
self-funded ERISA plans are not subject to the state regulation. 3. Magellan and Wellmark arguments against ERISA preemption of
Iowa Code chapter 513C. Magellan and Wellmark provide a markedly
different analysis of ERISA preemption. They assert that the “always
secondary” regulation does not fall within the scope of the preemption
clause and that as a result, the statute is fully applicable and Magellan is
entitled to reimbursement.
While Magellan and Wellmark recognize the broad preemption
analysis in FMC, they claim the Supreme Court significantly narrowed the
scope of preemption in De Buono, 520 U.S. at 806, 117 S. Ct. at 1747, 138
L. Ed. 2d at 21, Dillingham, 519 U.S. at 316, 117 S. Ct. at 832, 136 L. Ed. 12 2d at 791, and Travelers Insurance, 514 U.S. at 645, 115 S. Ct. at 1671,
131 L. Ed. 2d at 695. Specifically, Magellan and Wellmark note that in
Travelers Insurance, the United States Supreme Court stated that Congress
addressed the claims of preemption “with the starting presumption that
Congress does not intend to supplant state law.” Travelers Ins., 514 U.S. at
654, 115 S. Ct. at 1676, 131 L. Ed. 2d at 704. Further, Magellan and
Wellmark cite Dillingham for the proposition that a state law has “reference
to” ERISA only “[w]here a State’s law acts immediately and exclusively upon ERISA plans . . . or where the existence of ERISA plans is essential to a
law’s operation. . . .” Dillingham, 519 U.S. at 325, 117 S. Ct. at 838, 136
L. Ed. 2d. at 799.
Magellan and Wellmark further assert that under Dillingham, the
“connection with” test of ERISA preemption requires the court to look at
both “ ‘the objectives of the ERISA statute as a guide to the scope of the
state law that Congress understood would survive’ . . . as well as the nature
of the effect of the state law on ERISA Plans.” Id. (quoting Travelers Ins.,
514 U.S. at 656, 115 S. Ct. at 1677, 131 L. Ed. 2d at 705). Under these
authorities, Magellan and Wellmark argue, the district court correctly held that Iowa’s “always secondary” regulation has no “relation to” ERISA plans
because it does not operate directly and exclusively on them. Nor is it
“connected with” ERISA plans, according to Magellan and Wellmark,
because the statute does not clearly touch on the objectives of ERISA.
Congress thus must have understood that it is the type of law that would
survive ERISA preemption.
Magellan and Wellmark also argue that Highmark’s reliance upon
Egelhoff is misplaced. In Egelhoff, the Supreme Court held that a state
statute which automatically revoked beneficiary designations where the
beneficiary is a divorced spouse, had a “connection with” a core area of 13 ERISA concern, namely, rules for determining the status of beneficiaries.
Egelhoff, 532 U.S. at 147, 121 S. Ct. at 1327, 149 L. Ed. 2d at 271–72.
According to Magellan and Wellmark, Egelhoff is distinguishable from the
present case because the state statute interfered with the relationship
between an ERISA plan and a plan beneficiary and with national uniform
administration of ERISA. Further, according to Magellan and Wellmark, the
“always secondary” regulation in this case, unlike the beneficiary-
terminating provision in Egelhoff, is a health measure designed to mandate the availability of a standard or basic insurance policy for residents who do
not otherwise qualify for health care. Magellan and Wellmark assert that
such a generally applicable health care measure is not the kind of
legislation that Congress intended to preempt.
Magellan and Wellmark further challenge Highmark’s claim that the
“always secondary” regulation is preempted under the multi-factored ERISA
preemption test utilized by the Eighth Circuit in Arkansas Blue Cross &
Blue Shield, 947 F.2d at 1341. According to Magellan and Wellmark, Iowa
Code chapter 513C and Iowa Administrative Code rule 191—75.7(4) do not
conflict with the terms of the Magellan 90/60 Policy, but instead simply determine which of the available COB provisions in the Magellan 90/60
Policy applies. Magellan and Wellmark further contend that Iowa Code
chapter 513C and the “always secondary” regulation do not affect the
relations between primary ERISA entities or the structure of the Magellan
90/60 Policy, do not have an economic impact other than a remote or
peripheral one, are not inconsistent with other provisions of ERISA, and
simply involve a health care regulatory issue that is historically a matter of
local concern.
4. Analysis of Preemption Issue. At the outset, it is clear that Iowa
Code chapter 513C and the accompanying “always secondary” regulation do 14 not make “reference to” ERISA plans and are not targeted directly and
exclusively toward ERISA plans. As a result, the only question regarding
the application of the preemption clause in ERISA is whether the “always
secondary” regulation is sufficiently “connected with” ERISA to trigger
preemption.
The standard for determining whether a state law is “connected with”
ERISA plans in a fashion sufficient to cause preemption is subject to
considerable controversy. In Dillingham, the Supreme Court stated that courts should look to “the objectives” of ERISA as well as the “nature of the
effect of the state law” on ERISA plans in determining whether state law is
preempted. Dillingham, 519 U.S. at 325, 117 S. Ct. at 838, 136 L. Ed. 2d at
800. This formulation hardly provides clear guidance. In Travelers
Insurance, however, the Supreme Court stated that reviewing courts should
begin the preemption analysis “with the starting presumption that Congress
does not intend to supplant state law.” Travelers Ins., 514 U.S. at 654, 115
S. Ct. at 1676, 131 L. Ed. 2d at 704.
In this case, the main objective of ERISA, namely, providing
employees with stable benefits, is not seriously eroded by the application of the “always secondary” language of Iowa Administrative Code rule 191—
75.7(4). John’s mother determined that in order to avoid the possibility of
an unreasonable benefits determination by an ERISA plan, she would
purchase an individual non-ERISA insurance plan as a back-up policy.
When there is multiple coverage of a given loss, COB analysis is
commonplace in the insurance industry. Unlike Egelhoff, Iowa Code
chapter 513C and the “always secondary” regulation do not affect rules for
determining the status of beneficiaries.
Further, the objective of Iowa Code chapter 513C and the “always
secondary” regulation is “to promote the availability of health insurance 15 coverage to individuals regardless of their health status or claims
experience. . . .” Iowa Code § 513C.2. The policy underlying Iowa Code
chapter 513C and Iowa Administrative Code rule 191—75.7(4), thus does
not undercut ERISA objectives. Further, promoting the availability of
health insurance coverage to persons who might not otherwise obtain it is
within the scope of police powers traditionally left to state regulation. De
Buono, 520 U.S. at 814, 117 S. Ct. at 1752–53, 138 L. Ed. 2d at 29. Under
this record, we conclude there is no reason to believe that chapter 513C and Iowa Administrative Code rule 191—75.7(4) so clearly touch on the
objectives of ERISA that Congress must have understood that this is the
type of law that would not survive ERISA.
As a result, we hold that the “always secondary” provision in Iowa
Code chapter 513C as implemented by Iowa Administrative Code rule 191—
75.7(4) is not preempted by ERISA.2 Because of the mandate of the “always
secondary” rule, the Magellan 90/60 Policy provides primary coverage in
this case. Therefore, the district court properly granted summary judgment
to Magellan and denied summary judgment to Highmark.
IV. Conclusion. The district court order granting Magellan summary judgment and
denying summary judgment to Highmark is affirmed.
AFFIRMED.
All justices concur except Ternus, C.J., and Baker, J., who take no
part.
2Because we find the “always secondary” provision in Iowa Code chapter 513C, as implemented by the Iowa Administrative Code rule 191—75.7(4), is not within the scope of ERISA’s preemption clause, 29 U.S.C. § 1144(a), the savings and deemer clauses, 29 U.S.C. §§ 1144(b)(2)(A), (B), have no application.