14 F.3d 708 (2nd Cir. 1993), 93-7134, Travelers Ins. Co. v. Cuomo

Docket Nº:93-7134CON, 93-7148CON and 93-7194XAP.
Citation:14 F.3d 708
Party Name:The TRAVELERS INSURANCE COMPANY, Plaintiff-Appellee-Cross-Appellant, Health Insurance Association of America, American Council of Life Insurance, Life Insurance Council of New York, Inc., Aetna Life Insurance Co., Aetna Health Plans of New York, Inc., Mutual of Omaha Insurance Company, The Union Labor Life Insurance Company, Professional Insurance
Case Date:October 25, 1993
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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14 F.3d 708 (2nd Cir. 1993)

The TRAVELERS INSURANCE COMPANY, Plaintiff-Appellee-Cross-Appellant,

Health Insurance Association of America, American Council of

Life Insurance, Life Insurance Council of New York, Inc.,

Aetna Life Insurance Co., Aetna Health Plans of New York,

Inc., Mutual of Omaha Insurance Company, The Union Labor

Life Insurance Company, Professional Insurance Agents of New

York, Inc. Trust, Plaintiffs-Appellees,

New York State Health Maintenance Organization Conference

and Health Services Medical Corporation, MVP Health Plan,

Wellcare of New York, Mid-Hudson Health Plan, Oxford Health

Plan, Capital District Physicians Health Plan, Choicecare

Long Island, Independent Health, Travelers of New York,

Physicians Health Services, Preferred Care and U.S.

Healthcare, Plaintiffs-Intervenors-Appellees,

v.

Mario M. CUOMO, in his official capacity as Governor of the

State of New York, Mark Chassin, M.D., in his official

capacity as Commissioner of Health for the State of New

York, Salvatore R. Curiale, in his official capacity as

Superintendent of Insurance of the State of New York,

Mary Jo Bane, in her official capacity as Commissioner of

Social Services of the State of New York, Robert Abrams, in

his official capacity as Attorney General of the State of

New York, Defendants-Appellants-Cross-Appellees,

New York State Conference of Blue Cross & Blue Shield Plans,

Empire Blue Cross and Blue Shield, Hospital

Association of New York State,

Intervenors-Defendants-

Appellants-Cross-Appellees.

Nos. 1514, 1515, 1516 and 1667, Dockets 93-7132L,

93-7134CON, 93-7148CON and 93-7194XAP.

United States Court of Appeals, Second Circuit

October 25, 1993

        Argued May 20, 1993.

        Opinion Amended Jan. 14, 1994.

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[Copyrighted Material Omitted]

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        M. Patricia Smith, Asst. Atty. Gen., New York City (Robert Abrams, Atty. Gen. of the State of New York, Jane Lauer Barker, Asst. Atty. Gen. in Charge of Labor Bureau, of counsel), for defendants-appellants-cross-appellees.

        Robert A. Bicks, New York City (James J. Sabella, Patricia Anne Kuhn, Breed, Abbott & Morgan, New York City, Bartley J. Costello III, Eileen M. Considine, David J. Oakley, Hinman, Straub, Pigors & Manning, P.C., Albany, NY, of counsel), for intervenors-defendants-appellants-cross-appellees Empire Blue Cross & Blue Shield and The New York State Conference of Blue Cross & Blue Shield Plans.

        Jeffrey J. Sherrin, Albany, NY (Philip Rosenberg, Sherrin & Glasel, of counsel), for intervenor-defendant-appellant-cross-appellee Hospital Ass'n of New York State.

        Craig P. Murphy, New York City (Darrell M. Joseph, David B. Kostman, Windels, Marx, Davies & Ives, New York City, Clifford D. Stromberg, David Hensler, A. Lee Bentley, III, Hogan & Hartson, David M. Ermer, Brad W. Spencer, Gordon & Barnett, Washington, DC, of counsel), for plaintiff-appellee-cross-appellant The Travelers Ins. Co., and plaintiffs-appellees Health Ins. Ass'n of America, American Council of Life Ins., Life Ins. Council of New York, Inc., Mutual of Omaha Ins. Co., The Union Labor Life Ins. Co., Aetna Life Ins. Co. and Aetna Health Plans of New York, Inc. and Professional Ins. Agents of New York, Inc. Trust.

        Harold N. Iselin, Albany, NY (Barbara S. Brenner, Steve T. Engelman, Couch, White, Brenner, Howard & Feigenbaum, of counsel), for plaintiffs-intervenors-appellees New York State Health Maintenance Organization Conference, Capital District Physicians' Health Plan, Inc., Choicecare Long Island, Inc., Health Services Medical Corp. of Central New York, Inc., Independent Health Ass'n, Inc., Mid-Hudson Health Plan, Inc., Mohawk Valley Physicians' Health Plan, Inc., Oxford Health Plans, Inc., Physicians Health Services of New York, Inc., Preferred Care, Inc., Travelers Health Network of New York,

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Inc., U.S. Healthcare, Inc., and Wellcare of New York, Inc.

        Stuart E. Schiffer, Acting Asst. Atty. Gen., Washington, DC (Roger S. Hayes, U.S. Atty., Anthony J. Steinmeyer, Scott R. McIntosh, Appellate Staff, Civ. Div., Dept. of Justice, of counsel), filed a brief on behalf of the U.S. as amicus curiae.

        Susan M. Green, Trial Atty., U.S. Dept. of Labor, Washington, DC (Judith E. Kramer, Deputy Sol. of Labor, Marc I. Machiz, Associate Sol., Plan Ben. Sec. Div., Karen L. Handorf, Counsel for Decentralized and Special Litigation, Eric G. Serron, Trial Atty., of counsel), filed a brief on behalf of the Secretary of Labor as amicus curiae.

        Hugh Barber, Asst. Atty. Gen., Hartford, CT (Richard Blumenthal, Atty. Gen. of the State of Conn., Richard J. Lynch, Arnold I. Menchel, Paul J. Lahey, Phyllis E. Hyman, Asst. Attys. Gen., of counsel), filed a brief on behalf of the State of Connecticut as amicus curiae.

        Benjamin W. Boley, Washington, DC (William H. Dempsey, Shea & Gardner, of counsel), filed a brief on behalf of the National Carriers' Conference Committee as amicus curiae.

        Edward J. Groarke, Garden City, NY (Colleran, O'Hara & Mills, of counsel), filed a brief on behalf of Trustees of and The Pension, Hospitalization Ben. Plan of the Elec. Industry and Trustees of and United Food and Commercial Workers Local 174 Health Care Fund, Trustees of and United Food and Commercial Workers Local 174 Retail Welfare Fund, and Trustees of and United Food and Commercial Workers Local 174 Commercial Health Care Fund as amici curiae.

        Before: LUMBARD, CARDAMONE, and McLAUGHLIN, Circuit Judges.

        McLAUGHLIN, Circuit Judge:

        Defendants Mario Cuomo et al. ("the State") and intervenors-defendants New York Conference of Blue Cross and Blue Shield Plans et al. appeal from a judgment of the United States District Court for the Southern District of New York (Louis J. Freeh, Judge ), granting plaintiffs' motions for summary judgment in part and denying defendants' motions and cross-motions for summary judgment. Travelers Ins. Co. v. Cuomo, 813 F.Supp. 996 (S.D.N.Y.1993).

        The district court held that certain components of New York's inpatient hospital reimbursement system are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1461 (1988 & Supp. IV 1992), and the Federal Employees Health Benefits Act ("FEHBA"), 5 U.S.C. Secs. 8901-8914 (1988 & Supp. IV 1992). In particular, the district court invalidated three subsections of New York Public Health Law Sec. 2807-c (McKinney Supp.1993) imposing surcharges on the hospital rates for certain categories of payors, and not others. The district court also held that ERISA preempts pp 1, 2, 3, and 5 of Actuarial Letter No. 5, issued by New York's Department of Insurance.

        The Travelers Insurance Company ("Travelers") cross-appeals, contending that the district court should also have granted its motion for summary judgment as to p 4 of the Actuarial Letter, as well. We agree with Travelers and reverse that portion of the judgment which held that p 4 is not preempted by ERISA. In all other respects, we affirm.

        BACKGROUND

        Eighty-eight percent of non-elderly Americans have private health care insurance through their employee welfare benefit plans. ERISA is the governing statute. ERISA plans provide health coverage to employees in various ways, including: (1) the purchase of commercial health insurance from an insurer; (2) self-insurance, whereby the plan is directly responsible for health care bills and usually carries excess liability coverage known as "stop-loss" coverage; (3) subscription to a health maintenance organization ("HMO"); and (4) coverage through non-profit health service corporations, such as Blue Cross/Blue Shield plans (the "Blues").

        Whereas ERISA regulates employee benefit plans of private employers, FEHBA establishes a comprehensive program to provide federal employees, their families, and

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federal retirees (collectively, "enrollees") with subsidized health care benefits. Under FEHBA, the United States does not act as an insurer, but, through the Office of Personnel Management ("OPM"), contracts with various insurance carriers to develop health care plans with varying coverages and costs. 5 U.S.C. Sec. 8902. Prospective enrollees can select coverage from any one of the participating carriers in their region. 5 U.S.C. Sec. 8905. Among the numerous plaintiffs in this action, only Mutual of Omaha Insurance Company underwrites and administers a FEHBA health benefit plan covering federal enrollees who receive inpatient hospital care in New York.

        Any patient entering a hospital is placed in a category known as a diagnosis-related group ("DRG"), based on his symptoms and probable cost of treatment. The amount the hospital may charge for the patient's care is based on the DRG, not the actual cost of treatment. New York law provides that the DRG amount charged to a particular patient is then increased by a "payor factor," depending on the type of health care coverage the patient has. This, of course, results in a "differential" in the charges, depending on which type of health care coverage the patient has.

        Since its enactment in 1988, New York Public Health Law Sec. 2807-c(1)(b) has required that insurance carriers of patients covered by any form of health plan other than the Blues, an HMO, or government insurance such as Medicaid must pay 13% above the DRG rate. The 13% differential, which is kept by the hospital, was enacted to contain hospital costs and to increase the availability of hospital insurance coverage to needy New Yorkers. In particular, the differential was meant to " 'level [the] playing field' " for the Blues "in their competition with commercial insurers." Joint Appendix at 649; Clyne Aff. p 15. The hope was that this would encourage more...

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