Kentucky Assoc. of Health Plans, Inc., et al. v. Miller, Janie, Comm., KY Dept. of Insur. (04/02/2003)

Questions presented: Whether Kentucky's "any willing provider" law, which requires each health maintenance organization (HMO) in the State to make available to its subscribers the services of any medical provider in its geographical region that agrees to the terms and conditions offered by the HMO, is saved from preemption as a law that "regulates insurance" under the Employee Retirement Income Security Act of 1974.

BY JEFF SCHOGOL, MEDILL NEWS SERVICE

In the aftermath of President Bill Clinton's failed efforts in 1993 to reform health care in the United States, a number of states experimented with comprehensive changes in their health care systems. Among the most dramatic were Kentucky, Minnesota and Washington.

In April 1994, the Kentucky General Assembly passed a measure that, among other things, redefined the state's insurance market and altered the financing of health care for the poor.

Specifically, the Kentucky Health Care Reform Act contained an "any willing provider" provision stating: "A health insurer shall not discriminate against any provider who is located within the geographical coverage area of the health benefit plan and who is willing to meet the terms and conditions for participation established by the health insurer ...."

Supporters of "any willing provider" laws, like Kentuckys contend that such laws make it easier for patients to have access to providers of their choice, while opponents counter that they lead to increased costs by limiting the ability of insurers to guarantee a high volume of patients to providers in return for lower charges.

In April of 1997, shortly after the law was amended, seven health maintenance organizations (HMOs) and the Kentucky Association of Health Plans, Inc., a non-profit association organized to promote the business interest of its HMO members, filed suit in federal court in Kentucky, claiming that the "any willing provider" provisions should be invalidated because they are preempted by the Employee Retirement Income Security Act of 1974.

ERISA was enacted by Congress to protect employee benefit plans, and to do so, provided expressly that state laws that related to such plans would be preempted by ERISA unless they were those that regulate insurance.

The federal judge ruled in September 1998 that while the Kentucky provisions were related to employee benefit plans under ERISA, they regulated the business of insurance and therefore fell under the federal laws saving clause.

On Sept. 7, 2000, a divided 6th Circuit Court of Appeals panel affirmed, finding that the provisions apply to a self-insured plan permitted by ERISA and were specifically directed at the insurance industry

"The fact that it includes within its reach HMOs as well as traditional insurance companies does not take it out of the realm of insurance regulation," wrote John Holschuh, emphasizing that in the end, HMOs function the same way as a traditional health insurer.

The majority also held that the "any willing provider" provisions constituted the "business of insurance," in that they spread the cost component of the policyholder's risk among all the insureds, instead of requiring the policyholder to shoulder all or part of this cost when seeking care or treatment from an excluded doctor or hospital of his or her choice.

In underscoring the connection to insurance, Holschuh also wrote that the Kentucky provisions "affect restrictions by the insurers on the number of health care providers available to the insureds under such plans; they increase benefits to the insureds by giving them greater freedom to chose health care providers under the plans; and they are aimed at regulating this insurance relationship."

Judge Cornelia Kennedy dissented, concluding that Kentucky's law has "little to do with insurance" and "clearly target[s] more than just members of the insurance industry." As an example, she noted that the law is not "limited to entities within the insurance" because it "not only regulates entities that fall outside the traditional definition of insurer," but also "extends to include entities in no way involved in underwriting risks," such as HMOs that administer ERISA-exempt self-insured plans.

On June 25, 2001, as the case was awaiting consideration by the U.S. Supreme Court, the Court invited the U.S. Solicitor General to file a brief expressing the views of the United States.

In its amicus brief, the Solicitor General advised the Court to hold the petition for review until it decided Rush Prudential HMO, Inc. v. Moran, a case about whether ERISA preempts a provision of Illinois HMO Act.

On June 20, 2002, the Court, divided 5-4 along ideological lines, held that states do not violate ERISA by enabling patients to get second opinions when their HMOs deny coverage.

In its argument to convince the Court to accept this case for review, the Kentucky Association of Health Plans Inc. argued that the "any willing provider" laws do not regulate the "business of insurance" because they do not alter the relationship between the insurer and insured.

"Rather, the only contracts directly affected by the law[s] are those existing between insurers and third parties (i.e. medical providers)," the association argued, quoting Judge Kennedys dissent.

The association cited the Supreme Courts 1979 opinion in Group Life & Health Ins. Co. v. Royal Drug Co., in which the Court ruled that when a prescription drug company contracted with pharmacies to sell drugs for $2, it was not in the "business of insurance" and thus not exempt from federal antitrust laws.

"The proper question is simply whether contracts between an insurer and a network of third-party providers is part of the business of insurance," the association wrote. "Royal Drug explicitly answers that question no, and that answer must govern here."

But the Solicitor General wrote in its amicus brief that the 6th Circuit Court was correct in ruling that "any willing provider" law "fundamentally changes the underlying insurance promise between the insurer and insured" by "changing the network of providers available to the insured from a limited, closed one to an open one."

"In contrast to the private agreements at issue in Royal Drug, state AWP laws do not merely set the rate at which an insurer will reimburse a provider who already is a part of the provider network...," the Solicitor Generals brief argued.

The Solicitor General noted, though, that the Court might consider reviewing the Kentucky case because the 6th Circuit Courts opinion appears to conflict with decisions of two other courts of appeals holding similar state "any willing provider" statutes to be preempted.

Under the 8th and 5th Circuit decisions, "the Kentucky law at issue in this case would have been held to be preempted," the Solicitor General advised. "It has a broad coverage provision that extends to a number of self-insured entities ... Because the Kentucky law likewise appears to cover the same self-insured entities-i.e., those, like church and government plans, that are not covered by ERISA-it would thus be preempted under the Eighth Circuit's analysis.It likewise would be preempted under Fifth Circuit precedent."

On June 28, 2002, eight days after it issued its opinion in Rush Prudential HMO, Inc. v. Moran, the Court accepted the Kentucky case for review.

On April 2, 2003, a unanimous Court affirmed, holding that Kentucky's "any willing provider" statutes, relating to potential HMO providers, are laws which regulate insurance, and, therefore, saved from ERISA preemption.

Justice Antonin Scalia wrote the Court's opinion.