Kentucky Association of Health Plans, Inc. v. Miller

In Kentucky Association of Health Plans, Inc. v. Miller, the Supreme Court unanimously held that states' "any willing provider" laws are not preempted by the Employee Retirement Income Security Act of 1974 (ERISA).1 The Court ruled that states can regulate their health maintenance organizations (HMOs),

and thus upheld a Kentucky law that requires insurers to reimburse services of any health care provider who is willing and able to meet established criteria. The Supreme Court has heard several cases related to ERISA in the last few years, and other such cases are working their way through the court system.2 Coupled with this most recent decision in Miller, the Supreme Court may significantly alter the shape of the insurance industry.

ERISA

The Employee Retirement Income Security Act (ERISA) sets minimum standards for voluntarily established pension and health plans in private industry in order to provide protection for individuals enrolled in these plans.3 ERISA preempts any state laws that "relate to any employee benefit plan," thereby shielding insurance companies and employers from certain state laws.4 However, ERISA excludes from preemption those laws that "regulate insurance, banking, or securities."5 Whether something falls in this latter category has traditionally been determined by the factors set out under the McCarran-Ferguson Act.6 These three factors are: "first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry."

Kentucky's "Any Willing Provider" Law

In 1994, Kentucky enacted the Kentucky Health Care Reform Act, which stated that HMOs could not discriminate against health care providers who were willing to meet the requirements for plan participation.7 This "any willing provider" law provides that

A health insurer shall not discriminate against any provider who is located within the geographic coverage area of the health benefit plan and who is willing to meet the terms and conditions for participation established by the health insurer, including the Kentucky state Medicaid program and Medicaid partnerships.8

Another Kentucky law forbids discrimination against chiropractors who are able and willing to meet the requirements for involvement.9

Kentucky's versions of the "any willing provider" laws are some of the broadest of all state laws. Approximately twenty states cover only pharmacies. Georgia, Idaho, Illinois, Indiana, Minnesota, Virginia and Wyoming have "any willing provider" laws that apply directly to physicians.10 Kentucky goes beyond the scope of even these states, applying to the "full range of medical care."11

Generally, doctors favor these statutes because the laws prohibit HMOs from limiting the number of doctors that the plans will accept by forbidding the HMOs from discriminating against physicians who recommend certain treatments or object to certain insurance practices.12 Moreover, the laws generally allow greater consumer choice by increasing the number of physicians covered by their insurance plans.

Factual History

In 1997, a Kentucky-based association of HMOs and a group of seven individual Kentucky HMOs, including Aetna and Humana, brought suit against the Commissioner of Kentucky's Department of Insurance, asserting that the Kentucky Health Care Reform Act was preempted by ERISA.13 The District Court for the Eastern District of Kentucky granted summary judgment to the defendant, holding that although the law relates to employee benefits plans, it also regulates insurance and is thus not preempted by ERISA. On appeal by the HMOs, the Court of Appeals for the Sixth Circuit affirmed the district court's decision and held that the Kentucky statute did, in fact, regulate insurance "as a matter of common sense."14 Considering the factors laid out in the McCarran-Ferguson Act, it concluded that the laws were "specifically directed toward 'insurers' and the insurance agency."15

The Supreme Court granted certiorari to resolve the preemption question, since states' "any willing provider" laws had received varied rulings from the Courts of Appeals. Although the Court of Appeals for the Fourth Circuit had agreed with the Sixth Circuit and upheld the applicable Virginia state "any willing provider" law, the Eighth and Fifth Circuits had found that similar laws in Arkansas and Louisiana were preempted.16

The Supreme Court Decision

In their arguments to the Court, the HMOs maintained that the decision to uphold the Kentucky statute, and those like it, would impede the insurance industry's ability to control the quality and cost of health care delivery. They explained that HMOs' cost controlling mechanisms - mechanisms mat keep them in business and allow them to offer their product to purchasers at a relatively affordable price - depend on the organizations' ability to contract for discounted rates with health care providers (via high patient volume).17 The health plans argued that forcing them to accept any qualified doctor willing to meet certain conditions would "deny customers the benefit of their cost-reducing arrangements with providers."18 In any case, the HMOs maintained, the "any willing provider" laws fell outside the scope of the exception to preemption because the statutes were not "specifically direct[ed]" toward the insurance industry and did not regulate a particular insurance practice.19 The "any willing provider" laws, they contended, focus on the relationship between third-party providers and the insurers instead of focusing on the specific terms of the insurance policies or practices.20

The Bush administration, the Counsel of State Governments, and the American Medical Association supported Kentucky, maintaining that HMOs should be required to abide by state laws.21

Writing for the Court, Justice Antonin Scalia abandoned the prior use of the McCarran-Ferguson test and its attention to whether a practice constitutes the "business of insurance." Scalia observed that case law in the ERISA context that has arisen out of the Act has generally "failed to provide clear guidance to lower federal courts."22 Moreover, Scalia noted, application of the McCarran-Ferguson factors is unclear and impractical. Scalia thus called for a "clean break" from prior practice.23 In its place, the Court established a new test. The test requires that state law meet two requirements in order for a practice to constitute regulation of insurance: the law must be specifically directed toward entities engaged in insurance (instead of having an impact on the insurance industry in general) and must substantially affect the risk pooling arrangements between the insurer and insured.24

Applying this test, Scalia held that the "any willing provider" laws regulate insurance and therefore are saved from preemption under ERISA. The Supreme Court did not deal with the policy arguments of the managed health care industry that a decision against the industry would increase medical costs in the absence of HMOs' ability to limit the providers with whom they would contract. Instead, the Court found unpersuasive the HMOs' contentions that the "any willing provider" statutes were not directed specifically toward the insurance industry and did not regulate insurance practices. The Court found that by forbidding HMOs from discriminating against providers willing to meet the requirements for participation, the laws regulated insurance by "imposing conditions on the right to engage in the business of insurance."25 The Court agreed with the HMOs that conditions on the right are not enough to avoid preemption, but that they must also substantially affect the risk pooling arrangement between the insured and insurer.26 However, the Court rejected the HMOs' claim that the law did not affect the risk pooling arrangement. Rather, increasing the number of medical providers who may be accepted by the HMOs under the state law "substantially affects the type of risk pooling arrangements that insurers may offer," making the Kentucky law fall under the exception to the preemption.27

Reactions

The insurance industry has expressly stated that it would not let the decision impede the future implementation of the managed care model. Representatives have maintained that Miller would not "affect rules that steer patients to favored doctors by permitting them to pay a lower share of the costs," thus maintaining the structure of the managed care industry.28 Spokespersons from UnitedHealth Group and Kentucky-based Humana, two of the largest health insurance companies in the country, have asserted that the ruling would not affect their business. The two companies went so far as to state that although health care costs may be necessarily raised, the decision was nonetheless a "validation of our commitment to open networks."29 In addition, some experts believe that regardless of this recent decision, state legislatures will not rush to enact any new "any willing provider" laws. Karen Ignagni, president of the managed care trade organization the American Association of Health Plans (AAHP), explained that insurers have already begun to expand access to physicians who would have been previously excluded, thereby making new laws unnecessary.30 Moreover, at least two states have created commissions to review laws regulating health insurance.31

Some experts were not as positive about the industry's ability to contend with the decision. For example, an analyst at a credit-rating firm told the New York Times that "the kind of special privileges that ERISA gives health plans are being whittled away."31 Moreover, many organizations have voiced concerns about the decision. The Alliance of American Insurers, a national trade association representing more than 340 property or casualty insurers, supported the HMOs' contentions, maintaining that the decision would lead to higher health care costs.33 Vice President of Workers Compensation for AAI Keith Bateman declared that the Alliance disapproved of the decision, stating that "these laws make it difficult for networks to negotiate for volume discounts from a select group of providers."34 A representative from Health Insurance Association of America was also upset by the decision, as "[t]hese laws are one more instance of government unnecessarily interfering in private relationships between doctors and health plans."35 These insurance organizations, and others, believe that costs will increase while the quality of health care will decrease, thus impacting workers' access to suitable health care. They also worry that networks will be less able to restrict admission to physicians who may have "a history of poor results or that may engage in fraudulent behavior."36

Although many private organizations have voiced disapproval of Miller, the American Medical Association (AMA) has expressed support for the decision. The President-elect of the AMA stated that the decision "adds clarity to patient protections established by state lawmakers against the abuses of managed care."37 Others contend that the decision will expand health care options.38 For example, the president of the Federation of American Hospitals believes that under Miller, "the patients and their physicians can make the decision on where they are going to be treated."39 The nonprofit organization supports the Court's apparent approach of "taking the ERISA law structure apart piece by piece."

By allowing Kentucky to require HMOs to include physicians or chiropractors in networks if they meet the plans' criteria, the Supreme Court has held that ERISA does not necessarily preempt state laws regulating insurance. Although some voices in the insurance industry have expressed anxiety about the impact of the decision on the quality and cost of health care, consumers and health care providers generally view the ruling as a positive step in increasing consumer choice and appropriate health care.

Valerie Gutmann

REFERENCE

References

1. Kentucky Ass'n of Health Plans, Inc. v. Miller, 123 S.Ct. 1471, 1474 (2003).

2. See Rush, Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) (upholding state law that required outside review of an HMO's refusal to authorize a treatment and holding that a state can require health plans to pay for review by an independent board).

3. U.S Department of Labor, Employee Retirement Income Security Act - ERISA, at <http://www.dol.gov/dol/topic/health-plans/erisa.htm> (last visited April 22, 2003).

4. 29 U.S.C.A. 1144(a) (1974).

5. 29 U.S.C.A. 1144(b)(2)(A) (1974).

6. 15 U.S.C. 1012.

7. KRS 304.17A-270 (1994).

8. Id.

9. KRS 304.17A171(2) (1994).

10. T. Albert, "High Court Punches Another Hole in the Federal Law Shielding HMO's," AMNews, at < http://www.amaassn.org/sci-pubs/amnews/avantgo/content/g10421.htm> (last visited April 22, 2003). See also M. Freudenheim, "Industry Says Decision Won't Set Back Managed Care," New York Times, April 3, 2003, at A17.

11. L. Greenhouse, "States Can Force H.M.O.'s to Accept Any Qualified Doctor, Supreme Court Rules," New York Times, April 3, 2003, at A17.

12. Id.

13. Freudenheim, supra note 10.

14. Kentucky Ass'n of Health Plans, Inc. v. Nichols, 227 F.3d 352, 366 (Ky. 2000).

15. Id., citing 15 U.S.C. 1012. The Sixth Circuit found that all three of the required factors were met.

16. See Prudential Ins. Co. of America v. National Park Medical Center, Inc., 154 F.3d 812 (1998).

17. See Miller, 123 S.Ct. 1471 at 1474.

18. Id.

19. Id. at 1475.

20. Id. at 1476.

21. Albert, supra note 10.

22. Miller, 123 S.Ct. 1471 at 1478.

23. See id.

24. Id. at 1479.

25. Id. at 1477.

26. Id.

27. Id. at 1478.

28. Freudenheim, supra note 10.

29. Id.

30. Id.

31. Id.

32. Id.

33. Alliance of American Insurers, Alliance Disappointed with Supreme Court Ruling on HMOs, at <http://www.allianceai.org/SearchPublic display.asp?docpath=/documents/ NewsReleases/html/BUNEWS-03-77.htm> (last visited April 21, 2003).

34. Id.

35. A. Gardner, "No Fast Changes Seen in High Court Ruling on HMOs," Principal Health News, at <http:// www.principalhealthnews.com/article/ hscoutn/103426286> (last visited April 21, 2003).

36. Alliance of American Insurers, supra note 33.

37. Albert, supra note 10.

38. Id.

39. Freudenheim, supra note 10.