Blue Cross and Blue Shield of Kansas City v. Bell

• Citation: 798 F.2d 1331
• Decision Date: 15 August 1986
• Docket Number: No. 84-2700,84-2700
• Parties: BLUE CROSS AND BLUE SHIELD OF KANSAS CITY, Plaintiff-Appellant, v. Fletcher BELL, Commissioner of Insurance of the State of Kansas, Defendant- Appellee, and Kansas Optometric Association, Inc., Kansas Association of Professional Psychologists, and Kansas Chiropractic Association, Kansas Podiatry Association, Defendants-Intervenors-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1331

798 F.2d 1331

BLUE CROSS AND BLUE SHIELD OF KANSAS CITY, Plaintiff-Appellant, v. Fletcher BELL, Commissioner of Insurance of the State of Kansas, Defendant- Appellee and Kansas Optometric Association, Inc., Kansas Association of Professional Psychologists, and Kansas Chiropractic Association, Kansas Podiatry Association Defendants-Intervenors-Appellees.

No. 84-2700.

United States Court of Appeals Tenth Circuit.

Aug. 15, 1986.

Max O. Bagby, of Bagby, Jacob & Iliff, Kansas City, Mo. (J. Nick Badgerow, of McAnany, Van Cleave & Phillips, P.A., Kansas City, Kan., with him on briefs), for plaintiff-appellant.

Ted F. Fay, of the Kansas Ins. Dept., Topeka, Kan. (Pamela Sjoholm, Sp. Asst. Atty. Gen., Kansas Ins. Dept., Topeka, Kan., with him on brief), for defendant-appellee.

Larry L. Luttjohann, of Waggener, Arterburn & Luttjohann, Topeka, Kan., on brief for defendants-intervenors-appellees Kansas Optometric, Ass'n, Inc., Kansas Podiatry Ass'n, and Kansas Ass'n of Professional Psychologists.

Steven M. Dickson, of Dickson & Pope, P.A., Topeka, Kan., on brief for defendant-intervenor-appellee Kansas Chiropractic Ass'n.

Paul Scott Kelly, Jr. and John J. Yates of Gage & Tucker, Kansas City, Mo., and Daniel G. Galant, of the Office of the General Counsel, General Motors Corp., Detroit, Mich., filed an amicus curiae brief for General Motors Corp.

Before LOGAN, MOORE and ANDERSON, Circuit Judges.

JOHN P. MOORE, Circuit Judge.

Appellant Blue Cross and Blue Shield of Kansas City, Missouri (Blue Cross), initiated this action challenging the constitutionality of a recently enacted Kansas insurance statute. The district court denied the requested injunctive and declaratory relief. Blue Cross and Blue Shield of Kansas City v. Bell, 596 F.Supp. 1053 (D.Kan.1984). During the interval between the perfecting of the appeal and the oral argument, the Supreme Court decided Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), which settled two of the issues appellant raised in this case. Our review of the remaining issues affirms the correctness of the trial court's order.

I.

Blue Cross may be described as a nonprofit health service corporation, ¹ incorporated in Missouri, and authorized to transact business in Kansas. Its group insurance policies are sold to employers in thirty northern Missouri counties, as well as two Kansas counties, Wyandotte and Johnson, which comprise the Kansas side of the metropolitan Kansas City area. The policies at issue provide coverage to Kansas residents employed in Kansas or Missouri and to Missouri residents employed in Kansas. The policies are issued to employee welfare benefit plans, as defined in ERISA, 29 U.S.C. Sec. 1002(1).

At issue is a recently enacted Kansas statute, Act of May 9, 1984, ch. 168, 1984 Kan.Sess. Laws 804 (codified at Kan.Stat.Ann. Sec. 40-2,103 (Supp.1985)) (HB 3064), which broadens the applicability of statutory provisions for mandated-benefits and mandated-providers. See Kan.Stat.Ann. Secs. 40-2,100, -2,101, -2,102, -2,104 (1981). A mandated-benefit statute requires an insurer to include coverage for certain medical conditions, in this case, newborn infants from the date of birth. Mandated-provider laws, often called "freedom of choice" laws, require an insurer to pay for the services of specific providers. HB 3064 amended Kan.Stat.Ann. Sec. 40-2,103 to include "all insurance policies, subscriber contracts or certificates of insurance delivered, renewed or issued by delivery within or outside of this state or used within this state by or for an individual who resides or is employed in this state" for purposes of the following coverage:

Section 40-2,100: reimbursement or indemnity for services performed by an optometrist, dentist or podiatrist;

Section 40-2,101: reimbursement or indemnity for any service within the scope of practice licensed under the Kansas healing arts act when rendered by any such licensed practitioner;

Section 40-2,104: reimbursement for the services performed by a certified psychologist; and

Section 40-2,102: insurance coverage for newly born children.

Upon the unanimous passage of HB 3064, Blue Cross filed suit for a preliminary injunction. Relief was denied, and the matter was later heard on the merits. Blue Cross alleged HB 3064 regulates employee-benefit plans and is, thus, preempted by ERISA, 29 U.S.C. Sec. 1144(a); violates the right to contract and denies due process; and unduly burdens interstate commerce.

The district court entered judgment in favor of defendants, Fletcher Bell, the Commissioner of Insurance of Kansas, and professional organizations of optometrists, chiropractors, psychologists, and podiatrists. The district court found that Blue Cross issues insurance contracts to employers in Kansas and Missouri and that as an employer, Blue Cross employs residents of Kansas and Missouri who receive health care benefits through allegedly self-insured plans. ² Finally, the court found enforcement of HB 3064 would increase the actual cost of service benefits and the administration of claims. The district court concluded, as a matter of law, although Blue Cross has standing to assert constitutional claims, it did not prove standing to assert a claim under ERISA, 29 U.S.C. Sec. 1132, because Blue Cross is not a participant, beneficiary, or fiduciary of a plan. Hence, the district court did not address the issue of ERISA preemption. The district court held HB 3064 did not violate the contract clause, commerce clause, or due process clause of the Fourteenth Amendment. Blue Cross and Blue Shield of Kansas City v. Bell, 596 F.Supp. at 1058-60. Blue Cross appealed the trial court's asserted misapprehension of its right to invoke standing under ERISA, along with the other constitutional claims.

The recent decision in Metropolitan Life, 105 S.Ct. at 2380, disposes of a portion of the appellant's ERISA preemption claim. Metropolitan Life held that the challenged Massachusetts mandated-benefit law constitutes "the business of insurance" and, therefore, is exempt from ERISA preemption under 29 U.S.C. Sec. 1144(b)(2)(B), the "deemer clause." Two issues raised by this appeal remain. Left unresolved by the Supreme Court in Metropolitan Life is the status of mandated-provider laws. Blue Cross contends a mandated-provider law does not directly relate to the substantive content of insurance contracts, is not "the business of insurance," and is preempted by ERISA. Second, Blue Cross insists that HB 3064 fails to meet a threshold due process requirement of "significant contact" with the forum state to permit its extraterritorial application.

II.

To resolve whether the mandated-provider law at issue constitutes the "business of insurance" as defined in the McCarran-Ferguson Act, ³ we rely on the analysis in Metropolitan Life. Although HB 3064 may relate to employee-benefit plans governed by ERISA, the "deemer clause," 29 U.S.C. Sec. 1144(b)(2)(B), "makes explicit Congress's intention to include laws that regulate insurance contracts within the scope of the insurance laws preserved by the saving clause." ⁴ Metropolitan Life, 105 S.Ct. at 2390. In response to the argument that the subject mandated-benefit law was not a traditional insurance law but really a health law, the Metropolitan Life court applied three criteria identified under the McCarran-Ferguson Act to determine whether the particular practice qualifies as the "business of insurance." First, the practice must have the effect of transferring or spreading a policyholder's risk. Second, the practice must be an integral part of the policy relationship between the insurer and the insured. Third, the practice must be limited to entities within the insurance industry. Id. at 2391 (citations omitted). Applying this analysis to the Massachusetts law requiring coverage of the treatment of mental illness, the Court concluded the law is "the very kind of regulation ... identified as a law that relates to the regulation of the business of insurance as defined in the McCarran-Ferguson Act." Id.

Does the applicability of HB 3064 to the mandated-provider statutes equally regulate the substantive content of insurance contracts within the scope of the insurance saving clause of ERISA? Stated more specifically, does the insured's freedom to choose any practitioner licensed to practice under the Kansas Healing Arts Act, Kan.Stat.Ann. Sec. 65-2801, et seq., have the effect of transferring or spreading the policyholder's risk; become an integral part of the policy relationship between the insurer and the insured; and relate only to entities within the insurance industry? Although the Court has held that certain provider agreements do not satisfy these criteria, ⁵ we believe the mandated-provider laws at issue fall within the requirements of the McCarran-Ferguson Act. ⁶ We look to basic principles of insurance for direction.

Risk, "an abstract concept with no physical counterpart," is the essence of the bargain evidenced by an insurance contract. R.E. Keeton, Insurance Law Sec. 1.2(b) (1971). "Insurance is an arrangement for transferring and distributing risk." Id. at Sec. 1.2(a). Consequently, the insurance policy defines the scope of risk assumed by the contracting parties. Id. at Sec. 5.1(a). In reference to the Supreme Court's analysis of the "business of insurance," the insured's right to choose the type of practitioner to fulfill the agreed upon coverage must figure into, and play a part in, "the spreading and underwriting of a policyholder's risk." Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 211, 99 S.Ct. 1067, 1073, 59 L.Ed.2d 261 (1979).

For example, the risk that an individual may need back care may be transferred to Blue Cross by means of the policy. The policy determines the scope of coverage, that is, whether Blue Cross has assumed the risk of the entire loss. Implicit in the coverage of back care is the...