Insurers providing health care benefits to federal employees can obtain reimbursement when their insured obtains a tort recovery, despite a state law prohibiting such reimbursement, based on the preemption provision of the Federal Employees Health Benefits Act (FEHBA), pursuant to the U.S. Supreme Court’s decision in Coventry Health Care of Missouri, Inc., fka Group Health Plan, Inc. v. Nevils, issued April 18, 2017.
Under FEHBA, the federal Office of Personnel Management (OPM) contracts with private insurance carriers to provide health insurance for federal employees. These contracts require carriers to seek reimbursement or subrogation of medical payments if the insured obtains a settlement or judgment from a responsible party. However, Missouri law, like some other states, prohibits insurers from obtaining reimbursement in personal injury claims.
Jodie Nevils, a federal employee insured under a FEHBA plan, was injured in a car accident. When Nevils settled with the driver, his insurer asserted a lien to recover its medical payments. Nevils alleged that the insurer’s recovery violated Missouri’s common law prohibition on subrogation. The Supreme Court of Missouri agreed, holding that Missouri’s prohibition on subrogation of health insurance claims was not preempted by FEHBA.
The U.S. Supreme Court reversed, holding that Missouri’s anti-subrogation law is preempted by FEHBA when applied to federal employee benefit plans. FEHBA contains a provision expressly preempting state law, which provides:
“The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including 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.”
5 U.S.C. § 8902(m).
The Supreme Court held that FEHBA preempts Missouri’s subrogation law, because subrogation and reimbursement “relate to …. payments with respect to benefits.” The Court emphasized the federal government’s strong interest in regulating insurance for federal employees, to ensure “uniform administration of the program, free from state interference,” as well as the federal government’s financial interest in obtaining subrogation recoveries.
The Court rejected the argument that the FEHBA statute violates the Supremacy Clause of the U.S. Constitution by assigning preemptive effect to the terms of a contract, noting that many federal statutes preempt state law by leaving the “context-specific scope of preemption to contractual terms.” Justice Thomas submitted a concurring opinion, solely to express his “reservation” that a “statute that confers on an executive agency the power to enter into contracts that pre-empt state law . . . might unlawfully delegate legislative power to the President insofar as the statute fails sufficiently to constrain the President’s contracting discretion.” (J. Thomas, concurring).
This opinion is significant, in that the U.S. Supreme Court unanimously upheld the broad preemptive power of federal law, particularly in areas in which the federal government is found to have a significant federal interest, and it upheld Congress’ ability to define the scope of a statute’s preemption by the terms of an agency’s contract.
Health care providers, insurers, and patients should be aware that, where the patient is covered by a health care plan under FEHBA, terms of that plan which relate to the nature, provision or extent of coverage or benefits – including terms regarding subrogation and reimbursement – will preempt state law that relates to health insurance plans.