Anglin v. Blue Shield of Virginia

• Decision Date: 10 November 1982
• Docket Number: No. 81-1246,81-1246
• Citation: 693 F.2d 315
• Parties: 1982-83 Trade Cases 65,031 Donald L. ANGLIN, Appellant, v. BLUE SHIELD OF VIRGINIA and Blue Cross of Virginia, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 315

693 F.2d 315

1982-83 Trade Cases 65,031

Donald L. ANGLIN, Appellant, v. BLUE SHIELD OF VIRGINIA and Blue Cross of Virginia, Appellees.

No. 81-1246.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 8, 1981.

Decided Nov. 10, 1982.

Craig T. Redinger, Charlottesville, Va. (Lowe, Gordon, Jacobs & Redinger, Charlottesville, Va., on brief), for appellant.

R. Gordon Smith, Richmond, Va. (J. Robert Brame, III, Gilbert E. Schill, Jr., James H. Walsh, R. Brian Ball, McGuire, Woods & Battle, Richmond, Va., on brief), for appellees.

Before BUTZNER, RUSSELL and WIDENER, Circuit Judges.

WIDENER, Circuit Judge:

The plaintiff in this action is an individual who sought to purchase a health insurance policy from the defendants for himself and a minor son. The plaintiff did not wish coverage for his wife who had other health insurance as a result of her employment. The defendants offer only a policy that would cover plaintiff, his wife, and son. Under defendant's rule, plaintiff must enroll according to his marital status. ¹ Plaintiff brought suit alleging that requiring him to purchase a policy to include his wife resulted from violations of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. Secs. 1, 2. The district court, 510 F.Supp. 75, granted defendant's motion to dismiss made under Federal Rule of Civil Procedure 12(b)(6), and we affirm.

Defendants are non-stock Virginia corporations known commonly as the "Blues." They are organized under Title 38.1 of the Virginia Code, styled "Insurance," Secs. 38.1-810 to 834, to provide hospital and medical and surgical services through the sale of prepaid subscriber contracts to individuals and groups. Blue Cross has member hospitals, while Blue Shield has member physicians providing services. Id. Secs. 38.1-810, 811. While the entities are legally distinct, they offer joint coverage, and the administration for both programs is handled by Blue Cross. Id. Sec. 38.1-812. The defendants assert that they are immune from the suit at bar under the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1013, which exempts State regulated aspects of "the business of insurance" from federal antitrust law. ²

We consider two principal issues in deciding whether the plaintiff's complaint concerns the "business of insurance." First, there is the issue of whether or not Blue Cross/Blue Shield may ever be considered to be carrying on the business of insurance. If that issue is answered affirmatively, then we must consider whether the particular relationship at hand between the plaintiff and defendants concerns the business of insurance.

The question of whether various aspects of Blue Cross/Blue Shield operations come within the McCarran-Ferguson Act has been litigated many times. E.g., Group Health & Life Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979); Virginia Academy of Clinical Psychologists v. Blue Shield, 624 F.2d 476 (4th Cir.1980), cert. denied, 450 U.S. 916, 101 S.Ct. 1360, 67 L.Ed.2d 342 (1981); Travelers Insurance Co. v. Blue Cross of Western Pennsylvania, 481 F.2d 80 (3d Cir.), cert. denied, 414 U.S. 1093, 94 S.Ct. 724, 38 L.Ed.2d 550 (1973). Until recently some decisions had almost assumed that under certain circumstances Blue Cross/Blue Shield could be characterized as carrying on the business of insurance. See Travelers Insurance Co., 481 F.2d at 83; Nankin Hospital v. Michigan Hospital Service, 361 F.Supp. 1199, 1211 (E.D.Mich.1973). The Supreme Court opinion in Royal Drug, however, altered the efficacy of that position, for it reasoned that the particular relationship being questioned had to be examined in each case.

The alleged underlying antitrust violation in Royal Drug was Texas Blue Shield's policy of limiting reimbursement to cost plus $2 for prescriptions filled by pharmacies which had not entered into a Pharmacy Agreement with Blue Shield. 440 U.S. at 209, 99 S.Ct. at 1072. Blue Shield argued that scrutiny of the policy was beyond the reach of federal antitrust statutes because the Pharmacy Agreements were part of the "business of insurance" within the meaning of McCarran-Ferguson. Id. at 210, 99 S.Ct. at 1072. The Supreme Court analyzed the history of McCarran-Ferguson and concluded that the exemption provided by the Act was narrow and that it did not apply to the contracts between Blue Shield and the pharmacies. Id. at 231-33, 99 S.Ct. at 1083-84 (applied in Virginia Academy of Clinical Psychologists, supra, to the payment of bills of clinical psychologists).

Relevant to the matter at hand is the Court's discussion in Royal Drug of Congress' reasoning behind the exemption of the business of insurance from antitrust laws. ³ The Court read the legislative history of the Act to indicate that Congress understood the business of insurance to consist of the underwriting and spreading of risk. 440 U.S. at 220-21, 99 S.Ct. at 1077-78. It contrasted such risk taking with the operation of organizations providing prepaid health care services to their members. The Court concluded that at the time Congress passed McCarran-Ferguson such organizations were not considered to be insurance companies and therefore they were not engaged in the "business of insurance" under the Act. Id. at 225-27, 99 S.Ct. at 1080-81. ⁴ The case cited approvingly a D.C. Circuit case which had discussed the differences between risk taking insurers and prepaid health care plans.

Although Group Health's [the prepaid health plan] activities may be considered in one aspect as creating security against loss from illness and accident, more truly they constitute the quantity purchase of well-rounded, continuous medical service by its members. Group Health is in fact and in function a consumer cooperative. The functions of such an organization are not identical with those of insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk.... On the other hand, the cooperative is concerned principally with getting service rendered to its members and doing so at lower prices made possible by quantity purchasing and economies in operation.

440 U.S. at 228, 99 S.Ct. at 1081, quoting Jordan v. Group Health Ass'n, 107 F.2d 239, 247 (D.C.Cir.1939) (emphasis appeared in Royal Drug quotation).

Furthermore, the Court in Royal Drug noted that some courts have held Blue Cross/Blue Shield organizations not to be insurance companies ⁵ and, in some circumstances, Blue Cross/Blue Shield has argued that it is not an insurance company. ⁶ Nevertheless, the Court did not conclude that Blue Shield is never properly considered an insurer and, to the contrary, in a statement applicable to the instant case, the Court said:

This is not to say that the contracts offered by Blue Shield to its policyholders, as distinguished from its provider agreements with participating pharmacies, may not be the "business of insurance" within the meaning of the Act.

440 U.S. at 230, n. 37, 99 S.Ct. at 1082, n. 37.

It is clear from the complaint here that the plaintiff's complaint involves the contracts offered by Blue Shield to its policyholders. While some of the plaintiff's allegations of antitrust illegality may concern the defendants' relations with their members and with insurers and related organizations, the plaintiff's alleged injury concerns only Blue Cross/Blue Shield's relations with policyholders. For the plaintiff, Blue Cross/Blue Shield operates in essentially the same manner as a private insurer. The holder of a Blue Cross/Blue Shield service contract pays a fee to the organizations and can then seek service from a variety of member physicians or hospitals of his own choosing. A principal difference for the policyholder between the defendants and private insurers is that the physician or hospital usually bills the defendants directly rather than having the policyholder seek payment from the insurer. But, for the policyholder of ordinary private insurance who signs the customary assignment of benefits of insurance to a physician or hospital, there is little difference at all except, perhaps, the extent of coverage. For the patient, the Blue Cross/Blue Shield system is different from prepaid benefits organizations such as the health maintenance organization (HMO) in Group Health. In that HMO, benefits subscribers received service at the HMO's own facility, or, if necessary, at home. The subscribers have no choice as to what physician they will see, and the physicians work for the HMO. The subscriber, in paying his HMO fee, buys a right to treatment by the organization, not the right to have the organization pay for his treatment. See Virginia Academy of Clinical Psychologists, 624 F.2d at 480, which characterizes HMO's as buyer cooperatives but Blue Cross/Blue Shield as agents of physician and hospital members.

Another indication that Blue Cross and Blue Shield are properly considered insurers under certain circumstances is the Virginia statutory scheme for regulating the organizations. While the Virginia Code exempts the defendants from certain laws pertaining to insurers, other insurance laws specifically regulate them. Va.Code Sec. 38.1-818. Laws that are inapplicable to the defendants, for example, include those pertaining to the kinds of insurance companies which may be licensed in the Commonwealth, id. Sec. 38.1-25; special insurance company antitrust laws, id. Secs. 38.1-58 to 62, which regulate investment of one insurance company in the stock of another and interlocking directors, ⁷ and certain of the laws pertaining to organization, admission, and licensing of companies. See, for example, Sec. 38.1-71 (stock companies), Sec. 38.1-74 (mutual companies), and Sec. 38.1-85 (licensing). But, as we mention below, Va.Code Sec. 38.1-813.1 provides for the organization of Blue Cross/Blue Shield.

An abstract of some of the Virginia insurance laws pertaining to the defendants will illustrate the extent of general regulation of Blue...