This week, the U.S. Office of Personnel Management (“OPM”) published three notices of proposed rulemaking (“NPRMs”) regarding the administration of the Federal Employees Health Benefits (“FEHB”) Program. The FEHB Program provides for coverage of federal employees and annuitants and their dependents. 5 U.S.C. § 8901, et seq. These three NPRMs address subrogation and reimbursement recovery, enrollment after termination of a plan or plan option, and rate setting for community-rated plans.

Subrogation and Reimbursement Recovery

OPM’s proposed rule on subrogation and reimbursement recovery would ensure that FEHB Program carriers may seek reimbursement or subrogation recoveries in all states. 80 Fed. Reg. 931 (Jan. 7, 2015) (available here). The supplementary materials to this regulation reiterate the position the government has consistently taken—“that a covered individual’s entitlement to FEHB benefits and benefit payments is conditioned upon, and limited by, a carrier’s entitlement to subrogation and reimbursement recoveries pursuant to a subrogation or reimbursement clause in the FEHB contract.” 80 Fed. Reg. at 931.

These regulations would add a new section, 5 C.F.R. § 890.106, to FEHB Act implementing regulations. Section 890.106 would do the following:

  • Require that all FEHB contracts provide for subrogation and reimbursement by carriers;
  • Condition Program benefits and benefit payments to covered individuals on the carriers’ rights to subrogation and reimbursement, and require FEHB brochures (official statements of benefits) to explain this condition;
  • Set forth the two requisite circumstances that trigger a carrier’s right to subrogation or reimbursement: receipt of benefits or benefit payments by a covered individual as a result of an illness or injury, and the individual’s recovery or right to recovery from a third party based on the same illness or injury;
  • State that a carrier’s claim for subrogation or reimbursement is not subject to OPM’s administrative disputed claims process outlined at 5 C.F.R. § 890.105; and
  • Establishes procedural rules for carriers’ recoveries.

FEHB contracts already generally require carriers to pursue subrogation and reimbursement. However, several states statutorily prohibit such recoveries against insureds. Preemption of state law under the FEHB Program is governed by 5 U.S.C. § 8902(m)(1): “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.” Courts have differed as to whether state anti-subrogation laws are preempted by § 8902(m)(1). Compare, e.g., Kobold v. Aetna Life Ins. Co., 233 Ariz. 100 (Ariz. 2013) with, e.g., Bell v. Blue Cross & Blue Shield of Oklahoma, 2014 WL 5597265, at *8 (W.D. Ark. Nov. 3, 2014).

In the past, OPM has taken measures to encourage carriers’ efforts to seek subrogation recoveries, including issuing Carrier Letter No. 2012-18 and filing amicus curiae briefs in appeals of carriers’ subrogation and reimbursement cases. These regulations would be more effective than those efforts in one important way—Chevron deference. OPM’s proposed regulations would expressly codify its interpretation of the FEHB Act that “[a] carrier’s rights and responsibilities pertaining to subrogation and reimbursement under a FEHB contract relate to the nature, provision, and extent of coverage or benefits (including payments with respect to benefits) within the meaning of 5 U.S.C. § 8902(m)(1).” 78 Fed. Reg. at 933 (to be codified at 5 C.F.R. § 890.106(h)) (emphasis added). If this interpretation is finalized, courts would likely defer to it.

Comments on this subrogation and reimbursement recovery NPRM are due on or before February 6, 2015.

Rate Setting for Community-Rated Plans

The proposed rule on rate setting for community-rated plans would amend and update provisions of the FEHB Acquisition Regulation (“FEHBAR”). 80 Fed. Reg. 926 (Jan. 7, 2015) (available here). OPM published a final rule in 2012 that now requires most community-rated FEHB plans to move from similarly-sized subscriber group (“SSSG”) comparison requirements to FEHB-specific medical loss ratio (“MLR”) requirements. The latter were developed based on provisions of the Affordable Care Act and regulations promulgated by the Departments of Health and Human Services, Labor, and the Treasury. Only plans that use traditional community rating (“TCR”) may continue to use SSSGs.

This proposed rule would modify SSSG rules by expanding the universe of subscriber groups that could be considered an SSSG. Currently, the FEHBAR states only that “[a]ny group with which an FEHB carrier enters into an agreement to provide health care services is a potential SSSG (including separate lines of business, government entities, groups that have multi-year contracts, and groups having point-of-service products).” 48 C.F.R. § 1602.170-13(b). This provision has been the subject of some debate, particularly as to whether subscriber groups of subsidiaries or other entities associated with a carrier could be considered subscriber groups of the carrier. The proposed rule expands the list of permissible sources for SSSGs to include customers of the carrier, a division or subsidiary of the carrier, a separate line of business of the carrier, or an entity under contract with the carrier to provide health benefits. 80 Fed. Reg. at 927 (to be codified at 48 C.F.R. § 1602.170-13). Apart from the language regarding subsidiaries of the carrier, the latter provision regarding entities “under contract with the carrier to provide health benefits” has potentially expansive reach of uncertain scope. For example, if a carrier subcontracts with a particular firm for the provision of behavioral health benefits to FEHBP enrollees, the language of the proposed rule might permit OPM to identify other customers of the behavioral health services vendor as SSSGs for the FEHBP contractor, if they would otherwise qualify.

The proposed rule would also require carriers to identify one SSSG for each plan, rather than two, and limit potential SSSGs to only those that are also rated on a TCR basis. The rule would also make changes to FEHBAR contract clauses to conform to the substance of the 2012 final rule, 80 Fed. Reg. at 928-29 (to be codified at 48 C.F.R. §§ 1652.215-70, 1652.216-70), and make technical corrections to other provisions of the FEHBAR. 80 Fed. Reg. at 927-28 (to be codified at 48 C.F.R. §§ 1602.170-14, 1615.402, 1615.406-2).

Comments on this rate setting for community-rated plans NPRM are due on or before March 9, 2015.

Enrollment Options after Termination of a Plan or Plan Option

OPM’s proposed rule on enrollment options after termination of a plan or plan option would modify default selections of FEHB plans for individuals who lose coverage due to discontinuation of an FEHB plan or plan option. 80 Fed. Reg. 929 (Jan. 7, 2015) (available here ).

Currently, if an FEHB plan or plan option is discontinued, an employee or annuitant enrolled in the plan or plan option may enroll in different FEHB coverage under a special enrollment period ending 60 days after the date of the loss of coverage. Generally, if an employee fails to enroll during that period, he or she will be enrolled in the other option under the same plan, or, if the whole plan is discontinued, he or she will be considered to have cancelled coverage. 5 C.F.R. § 890.301(i)(4)(ii), (iii). If an annuitant fails to enroll during the special enrollment period, he or she will be enrolled in the other option under the same plan, or, if the whole plan is discontinued, he or she will be “enrolled in the option of the Blue Cross and Blue Shield Service Benefit Plan that OPM determines most closely approximates the terminated plan . . . .” 5 C.F.R. § 890.306(l)(4)(ii), (iii).

The proposed rule would provide for either an employee or an annuitant who failed to enroll in a plan to be enrolled in the lowest-cost remaining option under her plan, or, if the whole plan is discontinued, to be enrolled in the lowest-cost nationwide plan option that is not a High Deductible Health Plan. 80 Fed. Reg. at 930-31 (to be codified at 5 C.F.R. §§ 890.301(i)(4), (n), 890.306(l)(4)). Similarly, eligible former spouses, employees and annuitants whose coverage is terminated due to disaster, and individuals enrolled under a temporary continuation of coverage who fail to enroll during a special enrollment period would be enrolled in either the lowest-cost remaining option under the terminated plan or the lowest-cost nationwide plan. Id. (to be codified at §§ 890.806(j)(4), 890.301(i)(4), 890.1108(h)(4)).

Comments on this enrollment options after termination of a plan or plan option NPRM are due on or before March 9, 2015.

These three proposed rules will affect many FEHB carriers. Crowell & Moring attorneys are available to help determine their potential impact on your business and develop comments to OPM to inform its rulemaking process.