By Dave Place, J.D., Director of Lien Resolution
The Federal Employees Health Benefits Act (FEHBA) of 1959 (5 U.S.C. 8901 et seq.) is the largest employer-sponsored group health insurance program in the world, covering more than 8 million federal employees, retirees, former employees, and family members. FEHBA Plans are contracts between the insurance carrier and the United States Office of Personnel Management (OPM). Most federal employees are eligible to enroll in FEHBA Plans, although regulations exclude certain persons and positions (such as employees of the Tennessee Valley Authority and workers paid on a contract or piecework basis). After the determination of eligibility, the employee selects from available plans, many of which restrict enrollment by geographic region or category of service (e.g. the Foreign Service Benefit Plan and the Rural Carrier Benefit Plan).
FEHBA contains a preemption provision which provides that certain contract terms in health insurance plans “shall” preempt state or local law. The language of a FEHBA Plan preempts state law, whether consistent or inconsistent with federal plan provisions, on matters of “coverage or benefits” (5 U.S.C. 8902(m)(1)). However, the United States Supreme Court rendered an important decision limiting preemption under FEHBA in the case of Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 126 S. Ct. 2121 (2006). In McVeigh, The Supreme Court declined to exercise subject matter jurisdiction, holding that Section 8902(m)(1) does not raise a federal question to support federal jurisdiction. The Court noted it was undisputed that FEHBA did not expressly create a federal right of action, and the carrier’s right to reimbursement arose by contract, not federal law. The Court noted that FEHBA’s preemption clause displaced state law on issues relating to “coverage or benefits,” but
“[t]he Act contains no provision addressing the subrogation or reimbursement rights of carriers”
McVeigh at 683
“No law opens federal courts to carriers seeking reimbursement from beneficiaries or recovery from.”
McVeigh at 687
The Court continued its analysis by stating in unequivocal terms,
“[I]f Congress intends a preemption instruction completely to displace ordinarily applicable law, it may be expected to make that atypical intention clear. Congress has not done so here.”
McVeigh at 698
“[A] reimbursement of the kind Empire here asserts stems from a personal injury recovery, and the claim underlying that recovery is plainly governed by state law. We are not prepared to say that under 8902(m)(1) an OPM-BCBS contract term would displace every condition state law places on that recovery.”
McVeigh at 698
The Court reasoned that along with the reimbursement right created in the FEHBA plan documents there was also a subrogation right which was mingled with the reimbursement right. Had the FEHBA Plan chosen to assert it subrogation right then,
“no access to a federal forum could have been predicated on the [FEHBA] contract right. The tortfeasors’ liability, whether to the insured or the insurer, would be governed not by an agreement to which the tortfeasors are strangers, but by state law.”
McVeigh at 698
Therefore, since there was held to be no federal cause of action to enforce such contract terms, any claims by FEHBA carriers for such reimbursement would have to be presented in state court.
“In sum, the presentations before us fail to establish that §8902(m)(1) leaves no room for any state law potentially bearing on federal employee-benefit plans in general, or carrier-reimbursement claims in particular. Accordingly, we extract from §8902(m)(1) no prescription for federal-court jurisdiction.”
McVeigh at 698
This rationale not only made it clear that FEHBA Plan’s must bring reimbursement actions in state court but also that state laws which impact that recovery right can be applied. In the wake of McVeigh, other federal circuit courts have issued opinions rejecting preemption of various state law provisions governing tort recoveries. In Blue Cross Blue Shield of Ill v. Cruz, 495 F.3d 510 (7th Cir. 2007), the court rejected preemption of the state’s “common fund” rule and in Van Horn v. Arkansas Blue Cross, 629 F. Supp 2d 905 (D. Ark. 2007), the court rejected preemption of the “made whole” doctrine. (See also, Morris v. Humana Health Plan, Inc., 829 F.Supp2d.848 (W.D. Missouri, 2011); Calingo v. Meridian Res. Co. LLC, 2011 U.S. Dist. Lexis 83496 (S. D. N.Y. 2011); Cedars-Sinai Med. Ctr. V. Natl League of Postmasters of the U.S., 497 F.3d 972 (9th Cir. 2007)).
To combat the rising tide of Federal Circuits supporting the above rationale, the U.S. Office of Personnel Management (OPM) issued an “FEHB Program Carrier Letter,” dated June 18, 2012 (the “OPM Letter”), which was sent to BCBSA and all other insurance carriers administering plans under FEHBA. OPM expressed its official position that FEHBA preempts state laws on issues of subrogation and reimbursement, and instructed carriers such as BCBSA to “utilize this correspondence as needed in your recovery efforts.” The OPM explained its reasoning as follows:
“FEHB Program contracts … require enrollees to reimburse the plan in the event of a third party recovery. Carriers are required to seek reimbursement and/or subrogation recoveries in accordance with the contract. The funds received by [carriers] from these recoveries are required to be credited to [a fund] established by 5 U.S.C. § 8909, held by the Treasury of the United States, and … subrogation and reimbursement recoveries serve to lower subscription charges for individuals enrolled in the Federal Employees Health Benefits Program. The carrier’s right to subrogation and/or reimbursement recovery is both a condition of, and a limitation on, the payments that enrollees are eligible to receive for benefits; the carrier’s contractual obligation to obtain them necessarily relates to the enrollee’s coverage or benefits (including payments with respect to benefits) under the FEHB program. These recoveries therefore fall within the purview of the FEHBA’s preemption clause, and supersede state laws that relate to health insurance or health plans.”
Despite the fact that all the legal authority cited in the “OPM Letter” by John O’Brien the Director Healthcare and Insurance for the OPM predates McVeigh, one federal district court was persuaded. In Calingo v. Meridian Res. Co., LLC, 2013 WL 1250448 (S.D.N.Y. 2013) (Calingo II), the Court gave deference to the OPM Letter noting that reimbursement and subrogation play an integral role in the overall administration of the Federal Employees Health Benefits Program and thus “relate to” the coverage and benefits of those insured under the program. Specifically, the Court noted that the OPM Letter explains that “subrogation and reimbursement recoveries serve to lower subscription charges for individuals enrolled in” FEHBA Plans, because monies recovered under contractual subrogation and reimbursement provisions are returned to the government and used to lower the subscription charges of all FEHBA enrollees. Therefore, the Court acknowledged that subrogation and reimbursement provisions in FEHBA benefits Plans directly reduce the amount of money enrollees pay for their health insurance, and presumably affect the benefits they receive.
In working to reduce or eliminate the amount your client must repay his FEHBA plan, plaintiff’s counsel should expect to receive both the “OPM Letter” and Calingo II from the recovery vendor. Despite the Southern District of New York’s reliance on the self-serving “OPM Letter” the rational of McVeigh and is progeny is still controlling. Claims for reimbursement by a FEHBA Plan must be brought in state court and state laws which bear on reimbursement rights of collateral sources can still be applied.
The first step in addressing the purported recovery rights of the FEHBA Plan should be to download and review the correct plan document. All FEHBA Plans can be viewed and downloaded on the OPM’s website at http://www.opm.gov/healthcare-insurance/healthcare/plan-information/.
This may address many issues such as if the particular plan allows for a reduction to reflect attorney fees. Secondly plaintiff’s counsel will need to obtain and audit the claim’s summary associated with their client’s specific date of loss. As is often the case, the claim’s summary is likely to include charges which are unrelated to the personal injury action. Finally, the plaintiff’s attorney should argue the rationale of McVeigh and use state collateral source laws to diminish or eliminate the FEHBA Plan’s reimbursement claim.
If you need assistance with a FEHBA lien reduction issue, Synergy can help. We specialize in reducing these liens so contact us today for a free assessment.