1 An Overview of FEHBA and the Power of Its Preemption While the healthcare industry is dominated by a growing number of acronyms, practitioners and clients alike are often unfamiliar with one that has been around for more than 45 years: FEHBA. Originally enacted in 1959, the Federal Employee Health Benefits Act ( FEHBA ) established a program to provide federal employees, federal retirees, and their eligible family members (collectively enrollees ) with subsidized healthcare benefits. See 5 U.S.C With more than nine million participating Americans today, FEHBA is the largest employersponsored group health insurance program in the world. 3 FEHBA is a comprehensive statutory and regulatory scheme that establishes the Federal Health Benefits Program and indictates how claim decisions are to be resolved. In doing so, it provides only limited judicial review, with a broad preemption clause that is similar to the one found in the Employee Retirement Income Security Act of relied, at least in part, on Davila to hold that a cause of action pled as a medical malpractice or mixed treatment/eligibility case was completely preempted by FEHBA. This article provides a comprehensive overview of FEHBA and addresses how courts will likely respond to claimants By Fred A. Smith, III, 1 and David M. Goldhaber 2 Sedgwick, Detert, Moran & Arnold LLP 1974 ( ERISA ). Despite the restrictions set forth by FEHBA, claimants who are dissatisfied with the limitation on their ability to recover damages are increasingly trying to avoid preemption to litigate their claims under more liberal state laws and expand the amount of recovery available. Given the similarity between the preemption clauses found in ERISA and FEHBA and the limited case law discussing FEHBA preemption, courts often look to ERISA preemption decisions for guidance. 4 While some claimants have successfully avoided FEHBA preemption in the past, claimants will likely encounter increased difficulties in circumventing the limited judicial review allowed by FEHBA in light of the United States Supreme Court s decision in Aetna Health, Inc. v. Davila, the new seminal case on ERISA preemption. 5 Indeed, at least one Illinois federal court has now attempts to avoid its sweeping preemption scheme. An Overview of FEHBA Congress first enacted FEHBA after recognizing that a viable solution was needed for the rising costs of medical care in the United States. FEHBA s stated goal was to provide a measure of protection for civilian Government employees against the high, unbudgetable, and, therefore, financially burdensome costs of medical services through a comprehensive government-wide program of insurance for federal employees... the costs of which will be shared by the Government, as employer, and its employees. 6 A broad class of individuals are allowed to enroll in FEHB health plans. 7 The Office of Personnel Management ( OPM ), which serves as the federal government s humanresource agency, is tasked with the overall responsibility for running and enforcing this program. Under FEHBA, the United States does not serve as a healthcare insurer. Rather, the United States, through the OPM, contracts with various private insurers referred to as carriers in the Statute on behalf of enrollees to provide healthcare plans with various coverages and costs. 8 FEHBA requires contracts between the carriers and OPM to contain a detailed Statement of Benefits that includes maximums, limitations and other terms related to benefits. 9 The Statement of Benefits section is in turn incorporated into the federal contract and serves as the official description of benefits and plan terms. 10 The term carrier is broadly defined in FEHBA. 11 Consequently, various private insurers and other health care entities, including health maintenance organizations ( HMO s), participate in this program. In fact, there are currently more than 350 health plans for program enrollees to choose from. 12 The OPM subsidizes the federal program by contributing 60% of the average premium. 13 The health plans contracts are typically for a one-year term and negotiated annually. Enrollees are permitted to switch plans during each open enrollment period. 14 Individual policies or contracts are not issued to program enrollees. FEHBA itself does not outline the specific methods of dispute resolution This article was published in the American Bar Association Health Law Section s The Health Lawyer.
2 An Overview of FEHBA and the Power of Its Preemption Continued or set out what remedies are available under the statute. Instead, FEHBA vested the OPM with the power to promulgate the necessary regulations to carry out the congressional mandate. 15 The OPM in turn created a detailed regulatory scheme for handling claims and resolving disputes over benefit determinations. See 5 C.F.R , et seq. The OPM regulations provide the specific procedures for how medical benefit claims are to be administered. The Administration of FEHBA Claims Under FEHBA, carriers are empowered to make claim decisions pursuant to the terms of their plans. The carriers often subcontract with third-party administrators ( TPA s) to perform the claims handling on their behalf. In resolving claims, the carriers or TPAs determine issues such as medical necessity, length of hospital stay, whether services are covered under the enrollee s plan and whether the claim should be denied. When a carrier denies a claim, an individual has six months in which to seek reconsideration. 16 A carrier then has 30 days to either: (1) affirm the denial; (2) pay the bill; or (3) request additional information in order to reconsider the claim. 17 If the plan requests additional information, it must reach its decision within 30 days from receipt of that information. 18 FEHBA also calls for a mandatory administrative review process through the OPM. The statute s legislative history notes that Congress intended that the OPM s review process would provide an adequate administrative remedy for enrollees and would prevent them from being forced into courts to recover the benefits they are due. 19 If an enrollee believes that the FEHBA insurer, or its TPA, has wrongfully denied medical benefits or simply failed to respond to the claim, the individual may ask the OPM to review the claim s handling and/or the insurer s decision. 20 Congress first enacted FEHBA after recognizing that a viable solution was needed for the rising costs of medical care in the United States. FEHBA s stated goal was to provide a measure of protection for civilian Government employees against the high, unbudgetable, and, therefore, financially burdensome costs of medical services. Thus, under FEHBA, if a plan enrollee challenges a carrier s final claim decision, he/she must first submit the claim to the OPM for a review process. 21 The enrollee must request an OPM review within: (1) 90 days after the carrier s decision; (2) 120 days after the request for benefits to the carrier if it fails to respond; or (3) 120 days after a carrier requests additional information from the enrollee but fails to act on it. 22 The OPM is in turn required to provide the claimant with a written notice of its decision within 90 days after his/her request for the review. 23 After reviewing the claim, the OPM may either: (1) request additional information to further evaluate the claim; (2) obtain an advisory opinion from an independent physician; or (3) reach a decision based solely on the information provided by the individual. 24 Interestingly, the OPM also has the right to reopen its review process if new evidence becomes available at a later time. 25 FEHBA expressly requires participating carriers to comply with the OPM s interpretation of their plans. This enables the OPM to develop a consistent application of the participating health plans. FEHBA also vests the OPM with the authority to compel a carrier to pay an enrollee if the OPM resolves a benefits dispute in his/her favor. 26 Limited Judicial Review What options are available to an enrollee if a carrier denies a claim and the OPM agrees with the denial? If the claimant still disagrees with the OPM s denial, the claimant may then sue the OPM to obtain judicial review of the OPM s decision. However, this judicial review is quite limited. First, judicial review is only allowed after an individual exhausts the review process of both the carrier and the OPM. 27 Second, an individual requesting judicial review may only challenge a final action from the OPM concerning the denial of a benefit. 28 There is no challenge of the insurer s determination. Third, in light of the restriction only allowing review of final action by the OPM, lawsuits can only be brought against the OPM. 29 Neither participating insurers nor their TPAs are proper parties in these actions. Finally, judicial relief is strictly limited to evaluating whether the OPM should require the carrier to pay the benefits in dispute or confirm that the denial was proper. 30 A claimant must initiate a lawsuit against the OPM within three years of when the medical care or service was provided. 31 The United States District Courts have original jurisdiction over the suits. When reviewing the OPM claim decision, courts are strictly limited to the record that existed when the OPM rendered its final decision. 32 [ 2 ] Sedgwick, Detert, Moran & Arnold LLP
3 Because FEHBA does not specifically provide otherwise, the Administrative Procedure Act, 5 U.S.C. 500 through 706, governs judicial review of OPM decisions. 33 Under the Administrative Procedure Act, the court must afford considerable deference to the OPM s findings and set aside an action only if it was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A). But, unlike the procedures provided for successful ERISA claims, a successful FEHBA litigant cannot recover attorneys fees or costs. 34 As discussed below, state law remedies are also preempted. This limited judicial review scheme effectively prevents claimants from pursuing medical benefit claims against the carriers and their subcontracting TPAs. See, e.g., Botsford v. Blue Cross and Blue Shield of Montana, Inc., 314 F.3d 390, 397 (9th Cir. 2002) (allowing suits against parties other than the OPM would undermine the federal scheme: We conclude that Congress intended to limit the defendant in suits involving disputes over FEHBA benefits to the United States. ). However, attorneys for claimants have long attempted to look for and create ways to avoid FEHBA s limited judicial review and preemption clause to take advantage of the broader remedies available under various state laws. Preemption Under FEHBA Under well-established jurisprudence, a claim may arise under federal law if a federal statute preempts state law in a particular field. 35 Courts typically commence their preemption analysis with a review of the allegations set forth in the complaint often referred to as the well-pleaded complaint rule to determine whether a federal question is presented by the pleadings. However, the complete preemption doctrine serves as an exception to that rule. See, e.g., Jass v. Prudential Health Care Plan Inc, 88 F.3d 1482, 1487 (7th Cir. 1996) (recognizing that a claim pled as a state law claim is properly recharacterized as a complaint arising under federal law when Congress has legislatively displaced the claim). Consequently, federal subject matter jurisdiction exists if the complaint concerns an area of law completely preempted by federal law, even if the complaint fails to mention a federal basis of jurisdiction. 36 FEHBA is intended to be one such statute and should therefore completely preempt certain state law claims. In 1978, Congress amended FEHBA to include a preemption clause. The policy underlying the amendment was to ensure uniformity in the administration of FEHBA plan benefits. 37 The 1978 preemption section stated: The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions. Act of Sept. 17, 1978, Pub. L. No , 1, 92 Stat. 606 (amended 1998). Congressional legislative history reveals that the purpose of this clause was to supersede and preempt any State or local law, or any regulation issued under such law relating to health insurance or plans, to the extent that such law or regulation is inconsistent with the provisions of the Federal employees health benefits contract. 38 Notwithstanding the legislative history, the preemption clause only specified that state and local laws and regulations were preempted where they were inconsistent with such contractual provisions established under FEHBA. 39 This allowed Courts to reject FEHBA preemption if the state laws were found to be consistent with the FEHBA benefit contract provisions. Court decisions on the extent and scope of FEHBA preemption varied from jurisdiction to jurisdiction, and a split in authority developed. 40 Some courts relied In 1978, Congress amended FEHBA to include a preemption clause. The policy underlying the amendment was to ensure uniformity in the administration of FEHBA plan benefits. upon the preemption clause to thwart state law claims. 41 Many others found exceptions to preemption and allowed plaintiffs to have their day in state court to pursue their state law claims. 42 In another attempt to get around preemption, plaintiffs also argued that their state law claims were not preempted by 8902(m)(1) because they only related to the manner in which the benefit claim was processed (arguing improper claim handling) rather than the nature and extent of coverage. While few courts have been faced with this argument, at least one court has rejected it. 43 Given the scarcity of cases analyzing FEHBA preemption, courts also looked to the body of case law interpreting the ERISA preemption clause for guid- Sedgwick, Detert, Moran & Arnold LLP [ 3 ]
4 An Overview of FEHBA and the Power of Its Preemption Continued ance. 44 However, this case law also varied by jurisdiction, and inconsistencies between circuits emerged. This inconsistent case law also helped fuel uncertainty over preemption of FEHBA cases in certain courts. Some authors even called on Congress to amend 8902(m)(1) to provide a more clear statement as to the scope of FEHBA preemption. 45 All of these factors led to the amendment of the FEHBA preemption provision to clarify its reach. In 1998, Congress amended the preemption clause to expand federal jurisdiction over FEHBA claims and cure the inconsistent results in the courts. The broader provision now states: The terms of any contract under this chapter which relate to the nature, provision or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans. See 5 U.S.C. 8902(m)(1). This amended section eliminated the language concerning inconsistent state laws. Congress designed the new provision to strengthen the ability of national plans to offer uniform benefits and rates to enrollees regardless of where they may live. 46 It also intended to strengthen the case for trying FEHBA program claims disputes in federal courts rather than state courts. 47 Finally, the broader preemption clause is designed to keep cases in federal courts where there will be a more uniform application of FEHBA and its regulatory scheme. This in turn allows the OPM to control the cost of the program and avoid a patchwork quilt of benefits that vary among the states. 48 With this amendment, the FEHBA preemption clause now more closely resembles its counterpart in ERISA. 49 While ERISA preemption decisions often receive a great deal of attention in the courts and media, little is heard about preemption under FEHBA since the claims are not as prevalent. Congress amended FEHBA s preemption clause to expand federal jurisdiction over FEHBA claims and cure the inconsistent results in the courts. Preemption Decisions Following the 1998 amendment to 8902(m)(1), courts almost universally have recognized its broad application. 50 These decisions, and the FEHBA preemption scheme, however, did not stop claimants from trying to advance certain state law claims. The preemption clause is therefore still one of the more litigated aspects of FEHBA. Medical benefit claimants have historically had some success in avoiding preemption by characterizing their claims as involving both questions of eligibility for benefits and the appropriateness of medical care. Such matters have been termed mixed eligibility and treatment cases. The legal authority most often cited by claimants to support these claims has been the Supreme Court s decision in Pegram v. Herdrich. 51 In Pegram, an HMO plan participant consulted a physician for stomach pain resulting from an inflamed abdomen. The physician required the beneficiary to wait eight days for an ultrasound to be performed at a facility staffed by HMO physicians more than 50 miles away. During the waiting period, the participant s appendix ruptured, causing peritonitis. The plan participant then sued the HMO and her treating physician in state court alleging medical malpractice and fraud. Asserting ERISA preemption, the defendants removed the case to federal court and sought a dismissal of the claims in favor of the relief provided under ERISA. In analyzing ERISA preemption, the Supreme Court held that mixed eligibility and treatment decisions made by the HMO, through its physician employee(s), were not fiduciary decisions under ERISA. The state medical malpractice claims therefore survived. Some courts subsequently relied upon the holding in Pegram to carve out medical malpractice and quality of care exceptions to FEHBA preemption. One example occurred in Roach v. Mail Handlers Benefit Plan. 52 There a federal employee allegedly received improper medical treatment from her plan which required her to have ankle surgery. She sued her health plan and its subcontractor in state court alleging medical malpractice, breach of contract and other state law claims. While the employee alleged traditional malpractice claims in her complaint, she also alleged a denial of medical treatment certification under her medical benefits plan. Asserting complete preemption of the claims under FEHBA, the defendants removed the case to federal court and secured a summary judgment. On appeal, the plaintiff argued that the district court erred by characterizing her medical malpractice claim as a denial of benefits preempted by FEHBA. [ 4 ] Sedgwick, Detert, Moran & Arnold LLP
5 After evaluating the factual record, the U.S. Court of Appeals for the Ninth Circuit agreed and held that FEHBA did not preempt the participating health plan participant s medical malpractice claim. 53 The Ninth Circuit explained that FEHBA preemption must be interpreted to protect both the federal interest in the uniform administration of FEHBA benefits and a state s interest in the quality of medical care. 54 The court concluded that the mere reference to the existence of a benefit plan in a state law claim, without more, does not endanger the uniform federal interpretation of a FEHBA plan. 55 Other cases followed the holding in Roach. 56 The import of such mixed eligibility/ treatment decisions has now been significantly limited by Aetna Health, Inc. v. Davila. In Davila, the U.S. Supreme Court reversed two decisions rendered by the Fifth Circuit. In these cases, the Fifth Circuit had rejected ERISA preemption and allowed plan participants to sue their healthcare plans for negligent denial of benefits under the Texas Healthcare Liability Act ( THLA ). Passed in 1997, the THLA allowed patients to sue their HMOs for negligent denial of benefits and provided for compensatory and punitive damages against HMOs for their coverage decisions. At least nine other states, including Arizona, California, Georgia, Maine, New Jersey, North Carolina, Oklahoma, Washington and West Virginia, had enacted similar laws. 57 In one of the consolidated cases in Davila, the plaintiff suffered from bleeding ulcers. He contended that this condition resulted from the plan s decision to restrict his treatment. While the plaintiff s physician had prescribed Vioxx to treat arthritis pain, his HMO plan required two less expensive medications, covered by the plan s formulary, to be used before Vioxx could be approved. Plaintiff maintained that this caused his adverse medical condition; he then sued the plan under the THLA. In the second case, the plaintiff developed post-surgical complications from a hysterectomy which required a second hospital admission. The claimant maintained that this was caused when the nurse from her HMO originally only approved a one-day hospital stay despite her physician s recommendation that she recuperate in the hospital for several days. The plaintiff there, too, brought an action under the THLA. The Fifth Circuit found that ERISA did not preempt the THLA and ruled that these plaintiffs could pursue their state law claims. The Supreme Court reversed. It held that plaintiffs actions against their respective HMOs for alleged failures to exercise ordinary care in handling coverage decisions were completely preempted by ERISA and removable to federal court. It reasoned that any state law cause of action that duplicates, supplements or supplants ERISA s civil enforcement remedies conflicts with the congressional intent to make ERISA remedies exclusive, and any such state law cause of action would be preempted. By its decision, the Supreme Court made it clear that states cannot enact statutes like the THLA in order to circumvent ERISA preemption. The Supreme Court also cautioned courts not to distinguish between preempted and non-preempted claims based on the labels affixed to them by litigants as this would elevate form over substance and allow parties to evade preemption. 58 Significantly, the Supreme Court clarified, and expressly limited, its prior holding in Pegram v. Hendrich. It stated:... the reasoning in Pegram only make[s] sense where the underlying negligence also plausibly constitutes medical treatment by a party who can be deemed to be a treating physician or such a physician s employer. 59 Consequently, pursuant to Davila, the recipients of medical benefits can only pursue a mixed eligibility/treatment malpractice case against a party who is the treating physician or that physician s employer. It did not take long for a court to look to Davila for guidance in deciding a FEHBA preemption decision in a purported mixed eligibility/treatment case. In McCoy v. Unicare Life and Health Ins. Co., a Northern District of Illinois federal court held that FEHBA completely preempted a medical Medical benefit claimants have historically had some success in avoiding preemption by characterizing their claims as involving both questions of eligibility for benefits and the appropriateness of medical care. Such matters have been termed mixed eligibility and treatment cases. malpractice action originally pled as a mixed eligibility/treatment case under Pegram. 60 In denying the plaintiff s motion to remand the case back to state court, the court referenced the Davila decision and ruled that the plaintiff s claims against the HMO and its contracting Independent Physician Association ( IPA ) were completely preempted by FEHBA. This was the first reported decision to apply FEHBA preemption following the Supreme Court s Davila ruling. It is also one of Sedgwick, Detert, Moran & Arnold LLP [ 5 ]
6 An Overview of FEHBA and the Power of Its Preemption Continued only a few reported cases finding that FEHBA completely preempts a complaint with medical malpractice or mixed treatment/eligibility causes of action. The plaintiff in McCoy filed a medical malpractice lawsuit in the Circuit Court of Cook County, Illinois, against his HMO and the IPA that contracted with the HMO to deliver benefits. He alleged that these defendants denied certain medical benefits for his burn injuries. He contended that the managed care defendants were negligent by preventing him from obtaining treatment at the burn center of his choice and refusing to approve and/or cover the costs for certain treatment and occupational therapies. Plaintiff maintained that this prevented him from achieving a full recovery. court denied plaintiff s motion for remand, finding that FEHBA completely preempts plaintiff s claim against the HMO and IPA. 62 In so holding, the court recognized that: A plaintiff cannot circumvent the clear intent of Congress to completely preempt an area of law by phrasing allegations so that they appear to be malpractice allegations and by omitting any reference to the FEHBA. Regardless of titles and jargon included in a complaint, if it is clear from the facts in the action that the allegations are essentially contesting the eligibility of benefits rather than treatment decisions, then the claims should properly be deemed what they truly are and the court should not proceed under the Pursuant to Davila, the recipients of medical benefits can only pursue a mixed eligibility/treatment malpractice case against a party who is the treating physician or that physician s employer. The court also specifically responded to plaintiff s attempt to characterize his claim as one involving mixed plan eligibility and treatment issues under the Pegram decision. The court rejected that contention since the Supreme Court limited the ability of a claimant to state a mixed eligibility and treatment claim in Davila. 63 The court recognized that a mixed issues claim is only applicable to situations where a referring physician is making treatment decisions while simultaneously owning or operating the health plan which is also making eligibility determinations. 64 In the end, the federal court in McCoy concluded that the plaintiff cannot artfully attempt to plead around FEHBA, particularly when, as in this instance, Congress has indicated that the complete preemption doctrine is applicable. 65 At least one other court, Benoti v. First Health, has looked to the decision in McCoy for guidance when conducting a FEHBA preemption analysis. 66 Consequently, it would appear that the uncertainty surrounding preemption under FEHBA that once existed for certain claims may now be a thing of the past. Based on the holding of Davila, and the reasoning set forth in McCoy, it is anticipated that courts facing certain FEHBA preemption challenges in the future are likely to reject them and follow the analysis in McCoy. The defendants removed the case to federal court on the grounds that FEHBA completely preempted and barred plaintiff s state law claims. In response, plaintiff moved to remand and argued that his amended complaint alleged facts sufficient to establish a mixed eligibility/treatment decision that could proceed in state court under Pegram. The defendants responded that FEHBA completely preempts the judicial review of all medical benefit claims and argued that plaintiff had improperly characterized his suit as a medical malpractice action. The Illinois federal court recognized a lower court split on the issue of the applicability of the complete preemption doctrine to FEHBA. 61 However, the pretense that the allegations are legitimate malpractice claims. McCoy, 2004 WL at *5. The court concluded that plaintiff s claims against the HMO, and the IPA that contracted with the HMO to deliver benefits, were completely preempted by FEHBA. Conclusion FEHBA has established the largest employer-sponsored group health insurance program in the world. As such, there are millions of plan participants who must carefully navigate FEHBA s statutory scheme and the OPM regulations to recover medical benefits denied by participating carriers. Plan participants have previously had some success in being allowed to pursue more expansive state law claims relying upon the holding in Pegram by characterizing their causes of action as mixed eligibility/treatment claims. This often allowed them to avoid the limited judicial relief set forth under FEHBA. However, the Supreme Court in Davila has now severely limited the ability to circumvent preemption. Davila restricts [ 6 ] Sedgwick, Detert, Moran & Arnold LLP
7 the right of recipients of medical benefits to pursue a mixed eligibility treatment malpractice case only against the patient s treating physician or that physician s employer. While the Davila decision interprets preemption under ERISA, at least two courts have found that the Supreme Court s preemption analysis applies equally to FEHBA matters. This proposition is supported by the fact that the preemption clauses in ERISA and FEHBA are nearly identical and serve similar purposes. FEHBA s underlying legislative rationale also supports complete preemption. As illustrated by the decision of the Northern District of Illinois in McCoy, courts have already started to rely on Davila, at least in part, to hold that a cause of action pled as a medical malpractice or mixed treatment/eligibility case is completely preempted by FEHBA. It is anticipated that others courts are likely to follow this trend. Thus, when FEHBA insurers and their subcontracting claims handlers make decision about claims, they should be immune from suits for state law medical negligence. Consequently, claimants who are dissatisfied with the level of recovery they can achieve under their FEHBA plan in the future will likely need to find new ways to avoid the broad reach of FEHBA and the power of its preemption. Footnotes 1 Fred A. Smith is a partner in the Chicago office of Sedgwick, Detert, Moran & Arnold. He is a member of the firm s Healthcare Practice Group, and his areas of specialty include healthcare, ERISA, medical device and medical malpractice litigation. He has defended healthcare clients in a variety of settings including class actions, products liability, physician termination litigation and reimbursement disputes. Before his legal career, Mr. Smith was the Director of the Department of Respiratory Therapy at the University of Chicago Hospitals and Clinics. Besides his clinical practice, he was involved in risk management with that allied health field. He is a member of the American, Illinois State and Chicago Bar Associations, the Illinois Association of Healthcare Attorneys and the Defense Research Institute (DRI). Fred Smith can be reached at or (312) David M. Goldhaber is special counsel in Sedgwick s Chicago office and a member of the firm s Healthcare Practice Group. In the healthcare arena, he represents hospitals, MCOs, healthcare professionals and life, health and disability insurers in litigation matters and related insurance coverage issues. Mr. Goldhaber has successfully defended life, health and disability claims, privilege disputes and malpractice actions against physicians, plan administrators and MCOs. He is a member of the ABA Health Law Section, DRI, and the Chicago Bar Association, where he served as a Legislative Liaison for its Health Law Committee. He can be reached at (312) or 3 OFFICE OF PERSONNEL MANAGEMENT, FEHB HANDBOOK (available at (last visited June 7, 2005). 4 See Botsford v. Blue Cross and Blue Shield of Montana, Inc., 314 F.3d 390, 394 (9th Cir. 2002); Hayes v. Prudential Ins. Co. of America, 819 F.2d 921, 922 (9th Cir. 1987). 5 See Aetna Health, Inc. v. Davila, 542 U.S. 200, 124 S.Ct (2004). 6 H.R. Rep. No , at 1 (1959), reprinted in 1959 U.S.C.C.A.N. 2913, See 5 U.S.C See Hayes v. Prudential Ins. Co. of America, 819 F.2d 921, 922 (9th Cir. 1987). 9 Blue Cross and Blue Shield of Illinois v. Cruz, 396 F.3d 793, 795 (7th Cir. 2005) Pursuant to 5 U.S.C. 8901(7), Carrier means a voluntary association, corporation, partnership, or other nongovernmental organization which is lawfully engaged in providing, paying for, or reimbursing the cost of, health services under group insurance policies or contracts, medical or hospital service agreements, membership or subscription contracts, or similar group arrangements, in consideration of premiums or other periodic charges payable to the carrier, including a health benefits plan duly sponsored or underwritten by an employee organization. 12 OFFICE OF PERSONNEL MANAGEMENT, FEHB HANDBOOK, supra note The Health Maintenance Organization of New Jersey, Inc. v. Whitman, 72 F.3d 1123, 1130 (3rd Cir. 1995) (citing 5 U.S.C (1994)). 14 See Hayes v. Prudential Ins. Co. of America, 819 F.2d 921, 922 (9th Cir. 1987) ( After OPM negotiates changes with the carriers all federal enrollees are permitted to switch enrollment from one plan to another, regardless of their state of health, during a period called open season. Each enrollee thus may obtain the most beneficial plan but is not guaranteed the same coverage in future years that had been available the preceding year. ) U.S.C. 8913(a) C.F.R (b) (1998) (b)(2) H.R. Rep. No. 459 (1983) C.F.R (a)(1), (3) (1998). 21 See id (a) (e)(1) (e)(4) (e)(2). 25 See id (e)(5). Such actions are not typically taken by private carriers. 26 See 5 U.S.C. 8902(j). 27 See 5 C.F.R (a)(1) (1998). 28 See id (c). 29 See id (c). 30 See id (c), (d). 31 See id (d). 32 See id (c). 33 See Harris v. Mutual of Omaha Cos., 992 F.2d 74, 79 (7th Cir. 1993)(concluding the Administrative Procedure Act governs review of final OPM decisions); Caudill v. Blue Cross & Blue Shield, 999 F.2d 74, 79 (4th Cir. 1993)(same). 34 See, e.g., Bryan v. Office of Personnel Management, 165 F.3d 1315 (10th Cir. 1999) (affirming the district court s denial of attorneys fees to a claimant). 35 See, e.g., Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 62-64, 107 S.Ct (1987) (holding that employee s state law claims were preempted by ERISA and were therefore federal causes of action) H.R. Rep. No. 282, at 4 (1977) U.S.C. 8902(m)(1) (amended 1998). 40 See Haller v. Kaiser Found. Health Plan of the Northwest, 184 F.Supp.2d 1040, (D. Or. 2001) (explaining that there is a spit among the district courts and citing various cases for both positions). 41 See, e.g., Blue Cross & Blue Shield of Florida, Inc. v. Departmet of Banking and Sedgwick, Detert, Moran & Arnold LLP [ 7 ]
8 An Overview of FEHBA and the Power of Its Preemption Continued Fin., 791 F.2d 1501 (11th Cir. 1986) (Florida s Unclaimed Property Act preempted to the extent it conflicts with federal employee benefit plan); Myers v. United States, 767 F.2d 1072, 1074 (4th Cir. 1985) (state law which purports to allow recovery of additional benefits not contemplated by a federal insurance contract must be deemed inconsistent with and preempted by FEHBA); and Tackitt v. Prudential Ins. Co., 758 F.2d 1572, 1575 (11th Cir. 1985) ( the interpretation of health insurance contracts is controlled by federal, not state, law ). 42 See, e.g., Howard v. Group Hosp. Serv., 739 F.2d 1508, (10th Cir. 1984) (approving state law interpretation of FEHBA plan); Eidler v. Blue Cross Blue Shield United of Wisconsin, 671 F.Supp (E.D. Wisc. 1987) (holding that plaintiff s state tort claim of bad faith is not barred by FEHBA). 43 See, e.g., Hayes v. Prudential Ins. Co. of America, 819 F.2d 921 (9th Cir. 1987). 44 See id. at 926; Blue Cross & Blue Shield, Inc. v. Department of Banking & Fin., 791 F.2d 1501 (11th Cir. 1986). 45 See Brian Harr, Legislative Reform: FEHBA s Preemption Clause: Is It a Model for Private Employers Subsidized Health Care?, 22 J. LEGIS. 267, 273 (1996) ( Since the courts have been unable to agree upon what Congress true intent was, Congress should amend section 8902(m)(1). ). 46 H.R. Rep. No , at 9 (1998) Wormack v. Southeastern Mutual Ins. Co., 907 S.W.2d 163, 166 (Ky. Ct. App. 1995) (quoting Caudill v. Blue Cross and Blue Shield of North Carolina, 99 F.2d 74, (4th Cir. 1993)). 49 ERISA s preemption clause states: the Fred A. Smith can be reached at: One North Wacker Drive, Suite 4200 Chicago, IL David M. Goldhaber can be reached at: One North Wacker Drive, Suite 4200 Chicago, IL provision of this subchapter... shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan U.S.C. 1144(a). 50 See, e.g., Botsford v. Blue Cross and Blue Shield of Montana, Inc., 314 F.3d 390, 397 (9th Cir. 2002) (instructing the district court to dismiss plaintiff s claim under the Montana Unfair Trade Practices Act with prejudice after concluding that FEHBA completely preempted the state law claim); Doyle v. Blue Cross Blue Shield of Illinois, 149 F.Supp.2d 427, 432 (N.D. Ill. 2001) (concluding that Congress clearly intended for the terms of FEHBA plan contracts to completely preempt state law causes of action relating to health insurance or plans); Blue Cross and Blue Shield of Illinois v. Cruz, 2003 WL (N.D. Ill. 2003) (recognizing FEHBA preemption for coverage and benefit claims); Kight v. Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc., 34 F.Supp.2d 334, (E.D. Va. 1999) (recognizing that [c]onsidering the language of the statute and the legislative history, there can be no question that Congress has clearly manifested an intent to preempt state law regarding the terms and benefits of FEHBA plans and holding that challenges to benefit determinations, even when cast as state law claims, fall within FEHBA s civil enforcement provisions); Rievely v. Blue Cross Blue Shield of Tennessee, 69 F.Supp.2d 1028, (E.D. Tenn. 1999) (denying motion to remand and finding removal proper based on FEHBA s preemption of state law claims). 51 See Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct (2000). 52 See Roach v. Mail Handlers Benefit Plan, 298 F.3d 847 (9th Cir. 2002) at at See, e.g., Kincade v. Group Health Services of Oklahoma, 945 P.2d 485 (Okla. 1997). 57 Linda Greenhouse, Justices Hear Arguments About H.M.O. Malpractice Lawsuits, THE NEW YORK TIMES (March 24, 2004). 58 Aetna Health, Inc. v. Davila, 542 U.S. 200, 331, 124 S.Ct (2004). 59 at See McCoy v. Unicare Life and Health Ins. Co., 2004 WL , 34 Employee Benefits Cas (N.D.Ill. October 14, 2004). 61 The court cited Haller v. Kaiser Found. Health Plan of the Northwest, 184 F.Supp.2d 1040, (D. Or (explaining that there is a spit among the district courts and citing various cases for both positions). 62 The court followed the reasoning set forth in Doyle v. Blue Cross Blue Shield of Illinois, 149 F.Supp.2d 427 (N.D. Ill. 2001) and Rievley v. Blue Cross Blue Shield of Tennessee, 69 F.Supp.2d 1028 (E.D. Tenn. 1999). In both cases, the courts analyzed the expansive language included in FEHBA and noted that the 1998 amendment to the preemption clause. 63 Davila, 542 U.S McCoy, 2004 WL at at Benotti v. First Health, No. DC (N.J. Super. L. Div.) (finding the rationale expressed in McCoy for complete preemption under FEHBA to be persuasive). 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