U.S. Supreme Court Gives Missouri FEHB Insurers a Second Shot at Subrogation Thanks to New OPM Rule

July 15, 2015

Hidden amongst the flurry of opinions and orders issued in the past few weeks, the United States Supreme Court issued an order that could have a substantial impact on health insurers who provide benefits to federal government employees in Missouri. The Court vacated the Missouri Supreme Court's 2014 opinion in Nevils v. Group Health Plan, Inc.—which upheld Missouri's anti-subrogation rule in the face of a federal preemption challenge—and remanded the case for reconsideration in light of a new agency rule directly addressing the preemption issue.

Subrogation

Missouri, like a small number of other states, prohibits subrogation or reimbursement by insurers in personal injury cases. In 2014, the Missouri Supreme Court addressed whether the state's longstanding anti-subrogation rule applied to health insurance claims by federal government employees. Health benefits offered to federal employees are governed by the Federal Employee Health Benefit Act (FEHBA), which is administered by the Office of Personnel Management (OPM). Concerned about uniformity in the provision of health benefits to federal employees, Congress included a provision in FEHBA whereby the health insurance contracts between the government and the insurer preempt "any State or local law" that "relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits)." Pointing to this provision, the health insurer in Nevils argued that Missouri's anti-subrogation law was preempted because the insurer's contract with the government required it to seek subrogation or reimbursement for the payment of medical expenses. In support of this argument, the insurer cited a 2012 letter from OPM to federal health carriers stating that FEHBA preempted state anti-subrogation laws. The Missouri Supreme Court rejected the insurer's arguments, finding that FEHBA's preemption provision did not apply to subrogation claims because such claims do not "relate to the nature, provision, or extent of coverage or benefits." In reaching this holding, the Court declined to afford any deference to the OPM letter because it was an "informal . . . response to litigation." Judges Wilson and Breckenridge concurred; in their view, FEHBA's preemption provision applies to subrogation claims, but the provision is an unconstitutional intrusion on state sovereignty as it purports to give preemptive effect to contracts, rather than federal law.

The New OPM Rule

Following the Missouri Supreme Court's decision, the health insurance carrier filed a petition for certiorari in the United States Supreme Court. The U.S. Supreme Court called for the views of the Solicitor General. On June 22, 2015, while the petition for certiorari was pending, OPM issued a final administrative rule (80 Fed. Reg. 29,203 (May 21, 2015)) stating that a "carrier's rights and responsibilities pertaining to subrogation and reimbursement under any FEHB contract relate to the nature, provision, and extent of coverage or benefits" and is "effective notwithstanding any state or local law" to the contrary. Shortly thereafter, the Solicitor General filed a brief arguing that the Missouri Supreme Court's interpretation of FEHBA's preemption provision was incorrect. In light of OPM's new rule, the Solicitor General suggested that the Court grant certiorari, vacate the Missouri Supreme Court's judgment, and remand so that the Missouri Supreme Court could reevaluate its decision.

Potential Implications

It remains to be seen how the Missouri Supreme Court will address the preemption issue on remand. Although the new OPM rule clarifies that FEHBA's preemption provision does indeed apply to subrogation and reimbursement claims, the Missouri Supreme Court is not bound to defer to the agency's interpretation. In addition, proponents of the anti-subrogation rule are sure to push the full court to adopt Judges Wilson and Breckenridge's position that FEHBA's preemption provision is unconstitutional. What is certain is health care insurers now have another opportunity to convince the Missouri Supreme Court that they may seek subrogation or reimbursement for medical claims paid under FEHB plans.

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