Am.'s Health Ins. Plans v. Hudgens

• Citation: 915 F.Supp.2d 1340
• Decision Date: 31 December 2012
• Docket Number: No. 1:12–cv–2978–WSD.,1:12–cv–2978–WSD.
• Court: U.S. District Court — Northern District of Georgia
• Parties: AMERICA'S HEALTH INSURANCE PLANS, Plaintiff, v. Ralph T. HUDGENS, in his official capacity as Georgia Insurance and Safety Fire Commissioner, Defendant.

915 F.Supp.2d 1340

AMERICA'S HEALTH INSURANCE PLANS, Plaintiff,

v.Ralph T. HUDGENS, in his official capacity as Georgia Insurance and Safety Fire Commissioner, Defendant.

No. 1:12–cv–2978–WSD.

United States District Court,

N.D. Georgia,

Atlanta Division.

Dec. 31, 2012.

Validity Called into Doubt

West's Ga.Code Ann. §§ 33–23–100, 33–24–59.5, 33–24–59.14.

Bruce P. Brown, Bruce P. Brown Law, James A. Washburn, McKenna Long & Aldridge, Atlanta, GA, Geoffrey Sigler, Miguel A. Estrada, Nikesh Jindal, Gibson Dunn & Crutcher LLP, Washington, DC, for Plaintiff.

Isaac Byrd, Daniel S. Walsh, Office of State Attorney General, Atlanta, GA, Robin Ginsburg Cohen, Samuel Scott Olens, Alex F. Sponseller, State of Georgia Law Department, Atlanta, GA, for Defendant.

OPINION AND ORDER

WILLIAM S. DUFFEY, JR., District Judge.

This matter is before the Court on Plaintiff's Motion for a Preliminary Injunction [4] and Defendant's Motion to Dismiss Complaint [22].

I. BACKGROUND

Plaintiff America's Health Insurance Plans (“AHIP”) challenges the validity of certain provisions of Georgia statutes, regulating the timeliness of the payment of claims submitted to “self-funded” employer health benefit plans, on the ground that the statutes are preempted by the federal Employee Retirement Income Security Act of 1974 (“ERISA”). Defendant Ralph T. Hudgens (“Commissioner”), the Georgia Insurance and Fire Safety Commissioner, is sued in his official capacity because he is charged with the enforcement of the challenged statutes.

A. Overview of ERISA and Employer Self–Funded Health Plans

ERISA is a comprehensive statute that “subjects to federal regulation plans providing employees with fringe benefits.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). See generally ERISA, Pub. L. No. 93–406, 88 Stat. 829 (1974) (codified as amended at 29 U.S.C. §§ 1001–3058). ERISA governs both “pension plans” and “welfare plans,” and it is “designed to promote the interests of employees and their beneficiaries in employee benefit plans.” Shaw, 463 U.S. at 90, 103 S.Ct. 2890. It achieves its purpose by “set[ting] various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility, for both pension and welfare plans.” See id. at 91.

Among the “welfare plans” governed by ERISA are health benefit plans (i.e., employer-offered health insurance). See29 U.S.C. § 1002(1) (2006). There are two general types of employer health benefit plans: “insured” plans and “self-funded” plans. In insured plans, employers purchase a health insurance policy to cover the plan's members. In self-funded plans, employers pay the plan members' claims. See generally David Goldin, Survey, External Review Process Options for Self–Funded Health Insurance Plans, 2011 Colum. Bus. L.Rev. 429, 440–41. ERISA plans are administered by a “fiduciary,” which exercises “discretionary authority” over the plan. See29 U.S.C. § 1002(21)(A). In most cases, the employer offering the plan acts as the “fiduciary.” See Baker v. Big Star Div. of the Grand Union Co., 893 F.2d 288, 290 (11th Cir.1989). An employer who offers a self-funded plan usually contracts with a third-party administrator (“TPA”), often an insurance company, to provide administrative or non-fiduciary services to the plan. Goldin, supra, at 440.

B. Overview of Challenged Statutes

Under the traditional health insurance model, patient-insureds pay premiums, medical providers treat patients and then submit treatment claims to health insurers, and the insurers pay the claims. See Michael Flynn, The Check Isn't in the Mail: The Inadequacy of State Prompt Pay Statutes, 10 DePaul J. Health Care L. 397, 401 (2007). As the doctor-patient relationship became increasingly dependent on this health insurance model, commentators noted increasing abuses in claim processing by insurers-from denying claims outright, to paying less on the amounts submitted, to simply ignoring claims. See id. at 399–400. One such abuse is the delay in paying claims, by months and even years. See id. at 400. When an insurer delays payment on a claim, it can “gain money on the float.” Id. In other words, the longer an insurer withholds paying a claim, the longer the insurer can invest and make use of the amounts it owes on the claim. See id. This practice takes a toll on providers, sometimes to the extent of forcing doctors to take out loans to keep their offices open or requiring them to seek bankruptcy protection. See id. at 402.

Beginning in the early 1980s, state legislatures responded to these insurer late payment tactics with various types of “prompt pay” legislation, including by requiring insurers to pay claims within prescribed time periods or face various penalties.¹See id. at 403–07. In 1999, the Georgia General Assembly enacted its “Prompt Pay Statute” (the “1999 Prompt Pay Statute”). See Act of April 19, 1999, No. 263, § 2, 1999 Ga. Laws 289, 290–91 (codified as amended at O.C.G.A. § 33–24–59.5 (2005)). It applied to both claims for direct payment by medical providers and claims for reimbursement by insureds. SeeO.C.G.A. § 33–24–59.5(b)(1) (2005). It specifically provided that (i) benefits under a “health benefit plan” are payable by the “insurer” obligated under the plan and (ii) after receiving all necessary documentation relevant to the claim, the “insurer” has “15 working days within which to process and either mail payment for the claim or a letter or notice denying it.” Id. Failure to process and pay (or deny) the claim in the time required obligated the “insurer” to pay 18 percent per annum interest on the outstanding balance. Id. § 33–24–59.5(c).

An “insurer” under the 1999 Prompt Pay Statute included “accident and sickness insurers,” and thus applied to the health insurance companies issuing policies to ERISA-regulated insured health plans. See id.§ 33–24–59.5(a)(3), (b)(1).² The 1999 Prompt Pay Statute's definition of “insurer” expressly excluded ERISA-regulated self-funded plans. See id. Thus, the 1999 Prompt Pay Statute applied to insured ERISA plans but not to self-funded ERISA plans. Seeid.

The evidence submitted with the pending motions shows that, from the enactment of the 1999 Prompt Pay Statute to 2011, the percentage of workers covered nationwide by self-funded plans increased from 44% to 60%. (Comm'r's Ex. B[21] at 41; Med. Ass'ns' Ex. C [18–3] at 3.) In Georgia, the percentage now may be as high as 65%. (Med. Ass'ns' Ex. B [18–2] ¶ 19, at 6.) This trend has significantly eroded the number of plans that are subject to the requirements of the 1999 Prompt Pay Statute. ( See id.)

In April 2011, to address the eroded application of the 1999 Prompt Pay Statute to payors of healthcare claims, the General Assembly enacted the Insurance Delivery Enhancement Act of 2011 (“IDEA”). IDEA amends a variety of Georgia statutes governing health insurance, including the 1999 Prompt Pay Statute. See Insurance Delivery Enhancement Act of 2011, No. 196, 2011 Ga. Laws 595 [hereinafter IDEA]; see also H.B. 167, 151st Gen. Assemb., Reg. Sess. (Ga. 2011) (showing line-by-line amendments), available at http:// www. legis. ga. gov/ Legislation/ 20112012/ 116210. pdf. Several provisions of Sections 4, 5, and 6 of IDEA, which take effect on January 1, 2013, extend the requirements of the 1999 Prompt Pay Statute to self-funded health plans. See IDEA §§ 4–6, 7(b), 2011 Ga. Laws at 596–600.³

Section 4 of IDEA amends Section 33–23–100 of the Georgia Code, a statute governing the licensure of insurance “administrators.” The Act expands the definition of “administrator” to include entities that provide claims processing services “on behalf of a single or multiple employer self-insurance health plan.” H.B. 167 § 4 (amending O.C.G.A. § 33–23–100(a)(1)). It deletes a provision exempting from licensure an “entity that acts solely as an administrator of one or more bona fide employee benefit plans established by an employer or an employee organization, or both, for whom the insurance laws of this state are preempted pursuant to [ERISA].” Id. (amending O.C.G.A. § 33–23–100(b)(12)). Section 4 adds a new subsection to the licensure statute providing that “administrators” are subject to the 1999 Prompt Pay Statute, as amended. Id. (adding § 33–23–100(f)).⁴

Section 5 of IDEA specifically amends the 1999 Prompt Pay Statute (O.C.G.A. § 33–24–59.5). Section 5 changes the substantive requirements of the statute by establishing a deadline, of 15 days for electronic claims and 30 days for paper claims, for processing and paying (or denying) a claim. See id.§ 5 (amending O.C.G.A. § 33–24–59.5(b)(1)). It also reduces, from 18 to 12 percent, the interest rate on untimely payments. See id.§ 5 (amending O.C.G.A. § 33–24–59.5(c)). It adds a provision authorizing the Commissioner to impose “administrative penalties” on insurers that fail to timely process at least 95 percent of claims in a quarter. See id. (adding O.C.G.A. § 33–24–59.5(d)).

Section 5 also amends certain statutory definitions. It amends the definition of “health benefit plan” to include a “self insured plan.” Id.§ 5 (amending O.C.G.A. § 33–24–59.5(a)(2)).⁵ It changes the definition of “insurer” by (i) deleting the express exemption for ERISA-regulated self-funded plans, (ii) adding “the plan administrator of any health plan” and “any other administrator as defined in ... Code Section 33–23–100,” and (iii) specifically including “any self-insured health benefit plan” and any entity that “provides for the financing or delivery of health care services through a health benefit plan.” Id. (amending O.C.G.A. § 33–24–59.5(a)(3)).⁶

Section 6 of IDEA creates a new section of the Georgia Code: O.C.G.A. § 33–24–59.14 (“Section 59.14”). See H.B. 167 § 6. The new section is nearly, but not completely,identical to the 1999 Prompt Pay Statute, as amended by IDEA (O.C.G.A. § 33–24–59.5) (“Section 59.5”). Section 59.14 expressly adopts Section 59.5's definitions of “be...