NYS Health Maintenance Organization Conference v. Curiale
| Decision Date | 30 August 1995 |
| Docket Number | D,2861,Nos. 2297,s. 2297 |
| Citation | 64 F.3d 794 |
| Parties | , 19 Employee Benefits Cas. 1777, Pens. Plan Guide P 23914N NYS HEALTH MAINTENANCE ORGANIZATION CONFERENCE; Capital Areas Community Health Plan, Inc. Cap; Capital District Physicians Health Plan; Choicecare Long Island, Inc. Health Care Plan, Inc.; Health Services Medical Corporation of Central New York, Inc.; Independent Health Association, Inc.; Mid-Hudson Health Plan; Mohawk Valley Physicians Health Plan, Inc.; Oxford Health Plan; Patients' Choice Inc.; Physicians Health Services; Preferred Care, Inc.; Wellcare of New York, Inc.; Leaktex, Inc., doing business as Greentex Company; Miller Printing & Litho, Inc.; U.S. Healthcare, Inc., Plaintiffs-Appellees, v. Salvatore R. CURIALE, in his official capacity as Superintendent of Insurance of the State of New York, Defendant-Appellant, New York State Conference of Blue Cross & Blue Shield Plans, Intervenor-Appellant. ockets 94-7435, 94-7441. Second Circuit |
| Court | U.S. Court of Appeals — Second Circuit |
Harold N. Iselin, Albany, NY (Couch, White, Brenner, Howard & Feigenbaum, Albany, NY, of counsel) for plaintiffs-appellees.
Alan J. Davis, Philadelphia, PA (Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, of counsel), for plaintiff-appellee U.S. Healthcare, Inc..
Eileen M. Considine, Albany, NY (Hinman, Straub, Pigors & Manning, Albany, NY, of counsel), for intervenor-appellant.
Jennifer S. Brand, New York City (Attorney General's Office, New York, of counsel), for defendant-appellant.
Judith D. Heimlich, Washington, DC (U.S. Department of Labor, Washington, DC, of counsel), for movant.
Before: WINTER and LEVAL, Circuit Judges, and BURNS, District Judge.
Defendant-Appellant Salvatore B. Curiale, in his official capacity as the Superintendent of Insurance for the State of New York ("the State"), and intervenor-defendant New York Conference of Blue Cross & Blue Shield Plans ("the Blues") appeal from a judgment of the Southern District of New York (Mukasey, J.) granting summary judgment in favor of plaintiff-appellees, NYS Health Maintenance Organization Conference ("HMOs"). NYS Health v. Curiale, Nos. 93 Civ. 1298 & 93 Civ. 1487 (S.D.N.Y. Mar. 30, 1994). Appellants claim that the District Court erred when it enjoined the State from enforcing Regulation 146, 11 N.Y.C.R.R. Sec. 361.1 (1992) ("Regulation 146"), on the ground that Regulation 146 is preempted by the Employee Retirement Income Security Act of 1974, 88 Stat. 829, as amended, 29 U.S.C. Sec. 1001, et seq. ("ERISA"). Because we find that Regulation 146 is not preempted by ERISA, we vacate the District Court's decision and remand for further findings.
The New York State Legislature enacted Chapter 501 of the Laws of 1992 in response to the state's growing health insurance problems. According to the Governor's Approval Memorandum, Chapter 501's overall purpose is to "provide [New York's] residents with a health insurance system in which all who apply must be accepted and offered a rate that cannot vary because of their age, sex, occupation or medical condition." Joint App. 353. Another purpose--perhaps more immediate--is to rescue the failing non-profit insurance organizations, particularly Empire Blue Cross and Blue Shield, from financial failure by stabilizing the insurance market. 1
The non-profits' financial disintegration is due, in part, to commercial insurers' use of experience rating to price insurance premiums, 2 rather than open enrollment and community rating, the method utilized by the Blues. 3 Although HMOs also community rate, they fail to attract--or devise to avoid 4--poorer insurance risks such as the very old and the very sick. Consequently, non-profit insurers, such as the Blues, tend to insure the sickest members of the population without the benefit of a healthy subscribers' pool to offset costs.
Appellants argue that the cure for this discrepancy (and ultimately the Blues' financial predicament) is found in the combined effects of Secs. 4317 and 3233 (Secs. 14 and 6 of Chapter 501). Under Sec. 4317, all insurers doing business in New York's individual and small group markets, including HMOs, 5 must engage in open enrollment and community rating. 6 Presumably, with the field so leveled, individuals and small groups with higher risk factors--those who otherwise would be insured only by non-profit carriers--will choose to enroll for coverage with commercial insurers and HMOs, thereby reducing the financial strain on the Blues.
Likewise, Sec. 3233 is intended to stabilize the insurance market, particularly upon the impact of Sec. 4317, by reallocating resources and risks among insurers. 7 Specifically Sec. 3233 directs the Superintendent of Insurance to draft a regulation which "include[s] reinsurance or a pooling process involving insurer contributions to, or receipts from, a fund which shall be designed to share the risk of or equalize high cost claims, claims of high cost persons, cost variations among insurers and health maintenance organizations based upon demographic factors of the persons insured which correlate with such cost variations designed to protect insurers from disproportionate adverse risks of offering coverage to all applicants...." N.Y.Ins.Law Sec. 3233(c). 8 This provision is the legal root of Regulation 146 9 and the basis for the parties' dispute.
Pursuant to Sec. 3233's pooling requirement, Regulation 146, effective on April 1, 1993, establishes two market stabilization mechanisms: a regional demographic pool and a regional high cost medical condition pool. See N.Y.Comp.R. & Regs. tit. 11, Sec. 361. The demographic pool relies upon an age/sex morbidity table to determine whether the carrier's subscribers are, for example, older or younger than the average for the region in question. 10 A carrier which has a regionally younger population contributes a weighted amount to the pool; a carrier with a regionally older population collects a proportionally weighted sum from the pool. The demographic averages are recalculated quarterly to reflect changes in the insurer's subscribers.
Similarly, each carrier also contributes a pre-set amount per subscriber to the high-risk medical pool. Funds are redistributed by the pool's administrator based upon a carrier's population of high-risk subscribers. The medical conditions meriting a refund and the amount consequently refunded are pre-set by the Superintendent.
Regulation 146 also expressly permits carriers that contribute money into the demographic pool to raise their premium rates based upon the increased expense. N.Y.Comp.Codes R. & Regs. tit. 11, Sec. 361.1(e)(1). According to appellees, most HMOs have obtained rate increases based, in part, on this provision. These rate increases, passed on to the consumer--particularly employee benefit plans--are at the core of appellees' arguments.
Appellees filed suit against the State in March, 1993, claiming that Regulation 146 is preempted by ERISA because it relates to employee benefit plans and is not exempted from preemption by ERISA's savings clause. 11 The Blues intervened as defendants shortly thereafter.
In their two count complaint, 12 appellees requested an injunction against the regulation's enforcement. The court granted appellees' motion for a preliminary injunction on April 6, 1993, but required the parties to make pool payments into an escrow account rather than to the pool administrator. Joint App. 387.
On February 25, 1994, the district court issued an oral decision, holding that Regulation 146 is preempted by ERISA and permanently enjoining the enforcement of that regulation. According to the court, the "only question [was] whether the regulation comes within the savings clause." Finding initially that the regulation failed the common sense test for divining whether the regulation regulates the business of insurance, see Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 740, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985), the court then concluded that the regulation failed the tri-part standard for determining whether a practice constitutes the "business of insurance," as articulated in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982).
[T]he regulation in question does not spread any risk, it merely shifts costs[;] [n]or does it affect the policy relationship between the insurer and the insured, except insofar as it might have an indirect effect on price[; and,] it is certainly not limited to entities within the insurance industry ... because of its impact on HMO[s].
Joint App. 755-56. Appellants appeal from this decision. Review by this Court is de novo.
I. ERISA'S PREEMPTION CLAUSE
A federal statute preempts a state law if the intent "to occupy the field to the exclusion of the States," Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 209, 105 S.Ct. 1904, 1910, 85 L.Ed.2d 206 (1985), "was the clear and manifest purpose of Congress." Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977).
The federal ERISA statute "comprehensively regulates employee pension and welfare plans." Metropolitan Life, 471 U.S. at 732, 105 S.Ct. at 2385. Its preemption clause, widely noted as "conspicuous for its breadth," FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990), reaches "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." ERISA Sec. 514(a), 29 U.S.C. Sec. 1144(a). Clearly, Congress intended to "establish pension plan regulation as exclusively a federal concern." Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981).
In light of Congress's intent, the Supreme Court favors a broad reading of the "relate to" standard. Consequently, a law relates to an employee benefit plan, "in the normal sense of the phrase, if it has a...
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