The U.S. Supreme Court unanimously decided, in Coventry Health Care of Missouri, Inc. v. Nevils, that the Federal Employees Health Benefits Act (FEHBA) preempts state laws that prohibit subrogation recovery by health insurance carriers.

FEHBA expressly preempts state law. Specifically, “[t]he terms of any contract under this chapter [5 U.S.C. § 8901, et seq.] which relate to nature, provision, or extent of coverage or benefits (including payments with respect to benefits)” preempt state health insurance laws and regulations. Contracts between the Office of Personnel Management (OPM) and a health insurance carrier under the Federal Employees Health Benefits Program (FEHBP) each include a provision requiring the carrier to subrogate and pursue reimbursement of FEHB claims and to condition benefits on the carrier’s rights to subrogation and reimbursement.

The plaintiff in this case, a former federal employee, was injured in an automobile accident and received medical treatment covered under his FEHBP plan. He then sued and recovered a settlement award based on the accident. His FEHBP carrier asserted a lien against his settlement award and recovered the costs of his medical treatment pursuant to its FEHBP contract. The plaintiff then sued the carrier, alleging that its recovery of the costs of his medical treatment was prohibited by Missouri state law.

The Court first discussed whether FEHBA’s preemption provision preempts state laws that would prohibit a carrier’s right to recover subrogation, and then discussed whether such preemption is prohibited by the Supremacy Clause.

According to the Court, the language of FEHBA’s preemption clause unambiguously covers the contractual subrogation provision. The decision briefly acknowledges the presumption against preemption of state law, which the Missouri Supreme Court decision on appeal had applied to find no preemption of state law. In addition, the Court points to regulations at 5 C.F.R. § 890.106 promulgated by OPM in 2015 that specifically call for the contract provisions requiring subrogation and reimbursement. But the Court declined to analyze the presumption or the regulations in depth, finding that the statutory language unambiguously requires preemption and is reinforced by FEHBA’s context and purpose. The decision distinguishes its decision from dicta in Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006), in which the Court saw two plausible readings of the FEHBA preemption clause. The Court noted that its decision in that case turned on jurisdiction, not on choice of law, and the case did not require the Court to evaluate different readings of the provision.

After finding that FEHBA’s preemption clause covered the contractual provision requiring subrogation and reimbursement, the Court turned to the constitutional question of whether the Supremacy Clause allows preemption based on the terms of federal contracts. The Court held that preemption is constitutional because it is FEHBA—not the contract—that preempts state law. The decision dismisses the counterargument that FEHBA’s preemption provision (uniquely among preemption clauses) calls for the “terms of any contract” to supersede and preempt state law whereas the Supremacy Clause provides that only federal laws can preempt state laws. The Court characterized this argument as elevating “semantics over substance” because the language manifests the same Congressional intent to preempt.

By holding that FEHBA preempts state law, and that such preemption is constitutionally permissible, this decision ends a series of disputes between private litigants and FEHBP carriers over whether state subrogation prohibitions applied to health benefits covered under the FEHBP. Soon after its decision in Nevils, the Court denied certiorari for two other cases dealing with FEHBA preemption of state subrogation prohibitions, Bell v. Blue Cross and Blue Shield of Oklahoma, and Kobold v. Aetna Life Insurance Co.

Beginning January 1, 2016, the Federal Employees Health Benefits Program (FEHBP) will include a self plus one enrollment option for its members. For 2015 and previous years, federal employees and annuitants enrolling in FEHBP plans had only two options, self only or self and family. The change was initially mandated by the 2013 Bipartisan Budget Act, and the U.S. Office of Personnel Management (OPM) published regulations on September 17, 2015 finalizing implementation of the self plus one enrollment type.

The new self plus one option will allow FEHBP members with one eligible dependent to enroll in a potentially less-expensive plan option than self and family. The rule does not impact eligibility for FEHBP benefits, either for employees and annuitants or for dependents, nor does it generally change the processes for members to enroll in coverage or modify coverage during the year. Premium conversion members—that is, FEHBP members whose shares of premiums are paid with pre-tax dollars, including most active employees—may enroll and change enrollment either during the open season in November and December of each year or upon the occurrence of a Qualifying Life Event (QLE). Like newly enrolling or changing from one plan to another, switching a covered family member will be permitted only during open enrollment or following a QLE. In addition to during open season and after QLEs, non-premium conversion members, including annuitants, may decrease enrollment type at any time by moving from self and family to self plus one or self only or from self plus one to self only. To address the novelty of the self plus one enrollment type and mitigate the effects of member confusion, in early 2016, OPM will allow a special “limited enrollment period” that will allow premium conversion members to decrease coverage from self and family to self plus one.

Continue Reading OPM Finalizes Regulations Implementing Self Plus One Enrollment Type for FEHBP and Addresses Carriers’ Cost Concerns