Part Two:  Is the Federal Employee Health Benefits Act Unambiguous?

 This post continues a series on Coventry Health Care of Missouri v. Nevils, and Kobold v. Aetna Life Insurance, two cases involving whether state laws can prohibit subrogation in the insurance contracts of federal employees.  Part One in the Series, which explains the concept of insurance subrogation and the basic legal issues, can be found here.  This Part explores whether insurance subrogation is covered by the clear, unambiguous language of the Federal Employee Health Benefits Act.

This post is for everyone who enjoys close readings of statutory text.  Buckle up!

The Federal Employee Health Benefits Act (FEHBA) governs the health insurance of all federal employees.  FEHBA allows insurance companies who cover federal employees to seek subrogation to recover expenses paid to policyholders if those policyholders received compensation from third parties.  Several states, however, prohibit subrogation in insurance contracts.  The Supreme Court must therefore decide whether FEHBA pre-empts federal law.

FEHBA’s pre-emption provision, Section 8902(m)(1), provides that the terms of a FEHBA contract “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.” 

There are two avenues for the Court to decide that FEHBA’s subrogation rights pre-empt state law: (1) The Court could hold that Section 8902(m)(1) applies to insurance subrogation, or (2) the Court could deem this pre-emption provision to be ambiguous about whether it covers insurance subrogation, but could give deference to the regulations of the Office of Personnel Management (OPM), which provide that Section 8902 applies to subrogation.  However, if the Court both holds that the language of FEHBA is ambiguous and denies deference to OPM’s regulations, then the Court must interpret FEHBA’s plain language on its own, using judicial methods of statutory interpretation, to determine whether Section 8902 applies to subrogation.

Last month, the Court heard oral argument in Coventry, to review the Missouri Supreme Court’s decision that FEHBA does not pre-empt Missouri’s anti-subrogation provision.  The Missouri court found that “the subrogation of a personal injury claim does not clearly ‘relate to the nature, provision, or extent of coverage or benefits.’”  Given that the statute was ambiguous, the court applied its own presumption against pre-emption to give the state of Missouri broad police powers to govern its own affairs.  The court found no indication that OPM deserved deference in interpreting the scope of FEHBA pre-emption and further wished to avoid a situation where the terms of a private contract –  the federal employees’ insurance contracts allowing subrogation –actually supersede state law.

In contrast, in Kobold, the Arizona Court of Appeals held that Aetna could seek subrogation after plaintiff Kobold, a postal worker, received a $145,000 settlement from the party who injured him in a motorcycle accident.  The Arizona lower court, like Missouri, held that FEHBA was ambiguous, because its pre-emption provision “does not directly reference reimbursement or subrogation provisions.”   The Arizona Supreme Court nevertheless held that FEHBA pre-empts state law by giving deference to OPM’s regulations on the matter.  The petition for certiorari in Kobold was distributed for conference in March but is likely being held until Coventry is decided.

Unlike the lower courts in Missouri and Arizona, I am sympathetic to the argument that Section 8902 unambiguously covers insurance subrogation.

The question of the scope of pre-emption is one of Congressional intent.  Courts use the ordinary meaning of the language of a statute as the expression of Congressional intent.  The text of Section 8902 has several components.  FEHBA pre-empts state laws that relate to health insurance or plans if the terms of a FEHBA contract for federal employee insurance – here, the terms requiring subrogation – either relate to the nature, provision, or extent of coverage or benefits or relate to payments with respect to benefits (or both).

As Coventry persuasively argues in its brief, terms like “relate to” are given broad meaning; “relate to” means having a connection with.  If Congress wanted to limit Section 8902 to only actual coverage or benefits (the health expenses covered and the amounts an insurer will pay on those items), it could have directly said so without using the term “relate to.”  In Morales v. Trans World Airlines, the Supreme Court held that state laws banning certain types of deceptive advertising related to the provision of rates, routes, and services, and thus were pre-empted by the Federal Aviation Act.  The Court’s decision was, in part, based on the fact that requiring rates to be advertised in a certain way will affect the price of airfare.

Similarly, anti-subrogation laws have a dramatic effect on what medical expenses an insurer will cover and how much it will charge in premiums.  If an insurer cannot seek reimbursement for money paid to a policyholder from a third party, premiums go up and coverage goes down.  Plus, “payments with respect to benefits” are often conditional on a policyholder’s not jeopardizing the insurer’s subrogation rights (by, for example, signing a waiver of liability with third parties).  Coventry is not as strong a case as Morales, because the pre-empted advertising restrictions in Morales, were about, and mentioned, rates.  Still, the total amount of benefits a policyholder like Kobold will receive is his $145,000 settlement minus the lesser payment provided by Aetna.  Kobold’s benefits are directly impacted by an insurer’s subrogation rights.  Further, in the context of private employer-sponsored insurance plans, subrogation issues have been held to “relate to” an employee benefit plan, although the language in the Employee Retirement Income Security Act  is broader than Section 8902 in FEHBA.

The best argument against federal pre-emption is that the Supreme Court, in Empire Healthchoice Assurance v. McVeigh, acknowledged that Section 8902(m)(1) is a “puzzling measure, open to more than one construction.”   The Court noted that perhaps subrogation may not relate to benefits because “reimbursement ordinarily arises long after ‘coverage’ and ‘benefits’ questions have been resolved, and corresponding ‘payments with respect to benefits’ have been made to care providers or the insured.”  But, this analysis was dicta.  The Court held that it needn’t choose a particular reading of Section 8902, because the case at issue involved federal jurisdiction over reimbursement suits from insurers of federal employees.  In McVeigh, the Court held that there was no federal jurisdiction over reimbursement suits regardless of how Section 8902 is read.

Even considering McVeigh, and considering the presumption against pre-emption (which generally applies only if the statute is deemed ambiguous), I think the text of the statute unambiguously covers subrogation, which is quite connected to coverage and benefits.  In future posts, I will tackle the argument that construing FEHBA to pre-empt state anti-subrogation law creates a Supremacy Clause problem, and I will consider what the Court will do if the statute is deemed ambiguous.

My final post in the series is here.