By Cory Bilton
The Supreme Court of Missouri recently decided Nevils v. Group Health Plan, Inc., holding that FEHBA does not pre-empt Missouri’s anti-subrogation law. Google informs me that Jefferson City, Missouri, where the Supreme Court of Missouri is located, is roughly 930 miles away from the Washington DC area. Despite the distance, Nevils could have a significant impact in our area, both for Virginia residents and for federal employees. This is not to say that the analysis laid out in the Nevils decision is new. In fact, I think the Missouri Supreme Court just said what we’ve all been thinking (or, at least, what many local lawyers who routinely have to deal with FEHBA liens have been thinking).
The Background: What is a FEHBA lien anyway?
FEHBA is an acronym for the Federal Employees Health Benefits Act. FEHBA is a set of federal laws enacted in 1959 to provide federal civilian employees with health benefits. So it’s just the laws creating health insurance for federal employees. These benefits are administered by the Office of Personnel Management (OPM). The OPM is the HR department for federal employees.
When a federal employee is injured by someone else’s negligence, the FEHBA health plan will initially pay the injured federal employee’s medical expenses. But the health plan expects to be paid back if money is collected from the wrongdoer. The FEHBA health plan’s expectation to be repaid could be referred to as a FEHBA lien, right of reimbursement, or subrogation interest. (The technical difference between these terms is a subject for another day.)
The Problem: Some States Don’t Allow Health Insurance Liens
Insurance has been historically regulated by states. The result is that insurance law varies pretty widely from one state to another. With regard to health insurance liens, some states have decided that, as a matter of public policy, health insurers have no lien. The policy behind this is that people who have health insurance pay for it, and therefore the health insurer should not be relieved of its obligation to pay for an insured’s medical expenses, even if those expenses are due to someone’s negligence. This is often referred to as an anti-subrogation law or statute.
Since FEHBA health plans are created by federal law, the OPM has long argued that it’s right to be repaid is governed by federal law, not state law (the OPM’s opinion letter is here). One federal statute, 5 U.S.C. § 8902(m)(1), specifically provides that any contract terms in a FEHBA health plan that “relate to the nature, provision, or extent of coverage or benefits” shall preempt all state or local laws. The OPM’s legal argument is that its lien interest, created in the terms of the health plan, relates to the nature, provision, or extent of coverage or benefits, and therefore preempts state anti-subrogation laws.
As many personal injury lawyers in the Washington DC area know, Virginia has an anti-subrogation statute, Va. Code § 38.2-3405. So health insurers in Virginia generally have no right to be repaid for medical expenses incurred because of someone else’s negligence. However, there are many exceptions to this, such as Medicare, Medicaid, and self-funded ERISA health plans. If the FEHBA preemption language in § 8902(m)(1) preempts Virginia’s anti-subrogation statute, then FEHBA liens become another exception to the general rule. The Virginia Supreme Court has not decided this issue.
The Failed Resolution: Empire Healthchoice v. McVeigh
If you are unfamiliar with this area of the law, you might think that this is a perfect subject for the US Supreme Court to take up. And you’d be right! The Supreme Court did take up this question, in a roundabout way, in Empire Healthchoice v. McVeigh (2006). But the Court’s conclusion in the Empire case was that there was ultimately no subject matter jurisdiction over a FEHBA reimbursement dispute. With respect to whether § 8902(m)(1) preempted state law on the FEHBA health plans’ claims for reimbursement, the majority fiendishly toyed with all of us. Maybe a reimbursement term in the health insurance contract relates to benefits, and maybe not; “we need not choose between those plausible constructions.”
Needless to say, the Empire holding just added fuel to the fire. It has something for everyone. Plaintiffs’ lawyers make a strong argument that Empire supports the idea that state law governs FEHBA liens and claims for reimbursement. But as those of you who followed the link to the OPM opinion letter above probably noticed, the OPM uses the Empire case to support its position that state law is preempted in matters involving FEHBA liens. Both sides of the debate attempt to use Empire as a weapon against the other. The only thing Empire settled for certain is that the FEHBA plan can’t sue the insured for reimbursement in federal court.
The Present: Nevils v. Group Health Plan
In Nevils, the Missouri Supreme Court decided the question that Empire avoided. Much like Virginia, Missouri has an anti-subrogation statute. The issue in the case was whether a FEHBA lien preempts the state law subrogation ban. The majority said “no.” The analysis goes like this: Empire found that there are multiple interpretations of FEHBA’s preemptive power. Empire also distinguished between insurance benefits and subrogation. Then Nevils’ majority goes on to argue that the FEHBA plan’s right to reimbursement does not relate to coverage or benefits by literally discussing the meaning of the words “relate”, “coverage”, and “benefits” (a la Black’s Law Dictionary). The final conclusion: “[t]he subrogation provision in favor of [Group Health Plan] creates a contingent right to reimbursement and bears no immediate relationship to the nature, provision or extent of Nevils’ insurance coverage and benefits.”
This argument works equally well for FEHBA liens in Virginia. In fact, it’s the very argument that many practitioners in the area have already been using to argue against repaying FEHBA plans in Virginia since Empire. No part of the majority’s argument in Nevils relies exclusively on Missouri law. While decisions by the Missouri Supreme Court have no binding effect in Virginia, it is persuasive.
Nevils offers us a bonus. I have been referring to the Nevils’ majority, but there is really no dissent. All seven judges agreed on the outcome. But there is a concurring opinion that offers a separate reason why a FEHBA plan’s reimbursement rights do not preempt state law. Justice Wilson argues that “the preemption language in § 8902(m)(1) is not a valid application of the supremacy clause in article VI of the Constitution of the United States; as a result, it has no effect.” He argues that the supremacy clause assigns primacy to federal law, but not to terms of a contract between the federal government and a private insurer. It is the terms of the health insurance contract that provide for reimbursement, not any part of the FEHBA statutes directly. This, Justice Wilson says, is beyond the preemptive effect that is authorized by the supremacy clause. So even if Congress did intend § 8902(m)(1) to cover reimbursement and to preempt state law in this area, Congress does not have the power to do this.
This argument strikes at a deeper policy issue at stake in this debate; whether contract language can preempt state law. This issue also arises with ERISA and arbitration clauses as well. State and federal laws are enacted, at least arguably, by representatives of the people. But clauses or phrases in a contract are not the product of our system of government. Such contracts are usually drafted by a private company (sometimes in negotiation with an agency of the government). To give the terms of that contract not only the effect of law, but also the effect of preempting state laws, seems to give that contract too much power. No lawmaker had ever seen or voted on the terms of the FEHBA contract. Therefore, so the argument goes, its terms cannot preempt state law.
The Takeaway
In sum, Nevils provides good arguments that, like Missouri, Virginia’s anti-subrogation law is not preempted by FEHBA either. Although the arguments have been kicked around and used by lawyers elsewhere, it is encouraging that a state supreme court has decided the issue directly. I think a direct decision helps to move the debate forward, instead of letting the issue languish in uncertainty for decades to come. Regardless of how the policy debate turns out, personal injury lawyers with clients in Virginia (which has both an anti-subrogation law and a lot of federal employees) need to be aware of Nevils and the arguments it advances.
Please read my disclaimer.