United Healthcare Ins. Co. v. Davis

• Decision Date: 31 March 2010
• Docket Number: No. 08-30001.,08-30001.
• Citation: 602 F.3d 618
• Parties: UNITED HEALTHCARE INSURANCE CO., Plaintiff-Intervenor Defendant-Appellee-Cross-Appellant, v. Angele DAVIS, Commissioner, Defendant-Appellant-Cross-Appellee, v. Vantage Health Plan, Inc.; Preston Taylor; Gloria Taylor; Leon Price; Sherra Fertitta Hicks, Intervenor Plaintiffs-Appellants-Cross-Appellees, v. Humana Insurance Company; Humana Health Benefit Plan of Louisiana, Inc., Intervenor Defendants-Appellees-Cross-Appellants. Humana Insurance Company; Humana Health Benefit Plan of Louisiana, Inc., Plaintiffs-Appellees-Cross-Appellants, v. Angele Davis; Tommy D. Teague, Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

602 F.3d 618

UNITED HEALTHCARE INSURANCE CO., Plaintiff-Intervenor Defendant-Appellee-Cross-Appellant, v. Angele DAVIS, Commissioner, Defendant-Appellant-Cross-Appellee, v. Vantage Health Plan, Inc.; Preston Taylor; Gloria Taylor; Leon Price; Sherra Fertitta Hicks, Intervenor Plaintiffs-Appellants-Cross-Appellees, v. Humana Insurance Company; Humana Health Benefit Plan of Louisiana, Inc., Intervenor Defendants-Appellees-Cross-Appellants.

Humana Insurance Company; Humana Health Benefit Plan of Louisiana, Inc., Plaintiffs-Appellees-Cross-Appellants, v. Angele Davis; Tommy D. Teague, Defendants-Appellants-Cross-Appellees.

No. 08-30001.

United States Court of Appeals, Fifth Circuit.

March 31, 2010.

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Harry Alston Johnson, III, Michael D. Hunt, Kimberly R. LaHaye, Phelps Dunbar, L.L.P., Baton Rouge, LA, Paula Denney, Scott M. McElhaney (argued), Jackson Walker, L.L.P., Houston, TX, for United Healthcare Ins. Co.

Sheri Marcus Morris (argued), Carlton Jones, III, Roedel, Parsons, Koch, Blache, Balhoff & McCollister, A.L.C., Baton Rouge, LA, for Angele Davis, Tommy D. Teague.

V. Thomas Clark, Jr., Robert Lewis Rieger, Jr., William David Shea, Mary Edwards Taylor, Adams & Reese, L.L.P., Baton Rouge, LA, Louis C. LaCour, Jr. (argued), Adams & Reese, L.L.P., New Orleans, LA, for Humana Ins. Co., Humana Health Ben. Plan of La., Inc.

Michael Reese Davis, Sr. (argued), Hymel Davis & Petersen, L.L.C., Sonia A. Mallett, Middleberg, Riddle & Gianna, Baton Rouge, LA, for Vantage Health Plan, Inc.

James Rodney Chastain, Jr. (argued), Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, L.L.P., Baton Rouge, LA, Robert Joseph Bozeman, Monroe, LA, for Preston Taylor, Gloria Taylor, Sherra Fertitta Hicks, Leon Price.

Before JOLLY and DENNIS, Circuit Judges, and JORDAN, District Judge.^*

E. GRADY JOLLY, Circuit Judge:

This appeal presents questions relating to the dormant Commerce Clause and the Contract Clause of the United States Constitution. The district court granted a permanent injunction enjoining the implementation of La. R.S. § 42:802.1 ("Act 479" or "the Act"), on the basis that it violated the dormant Commerce Clause, because it effectively favored Louisiana insurance companies in bidding for health insurance coverage for state employees. However, the district court held that the Act did not violate the Contract Clause by interfering with the plaintiffs' contracts with the State. Thus everybody now appeals something. Defendants, Angele Davis and Tommy D. Teague (the "State"),¹ and Intervenors, Vantage Health Plan ("Vantage") and the Covered persons, appeal the permanent injunction and the ruling on the dormant Commerce Clause. Plaintiffs, United Healthcare Insurance Company ("UHC") and Humana Insurance Company ("Humana"), cross-appeal the district court's holding that the Act did not violate the Contract or Due Process Clauses. We conclude that the district court erred on both issues. Because the State, by choosing with whom it did business, was acting as a participant in—and not a regulator of—the insurance market, the Act fell within the market participant exception, and the dormant Commerce Clause was therefore not a bar to its actions. However, the Act was invalid, as applied, because it interfered with the plaintiffs' current contracts in violation of the Contract Clause. Accordingly, we reverse the district court's judgment in favor of the plaintiffs declaring the Act invalid under the Commerce Clause, vacate the district court's permanent injunction enjoining implementation of the Act, and remand for further proceedings not inconsistent with this opinion.

I.

The State of Louisiana offers health care to its employees and retirees and their dependents ("enrollees"). The Office of Governmental Benefits (OGB), an executive branch state agency, arranges for the coverage of the State's enrollees by contracting with health insurance companies; it also contributes approximately 75% of the premiums for its enrollees. In the past, the OGB has offered both self-funded/self-insured plans (those for which the OGB pays benefits itself and carries the risk of the claims) and fully-funded/fully-insured plans (those for which the insurance company pays the benefits and carries the risk of the claims). In 2006, the OGB undertook actuarial studies that indicated that the State would save significant costs by offering only self-insured plans (with the exception of a fully-insured Medicare plan for state retirees). Accordingly, in August of 2006 the OGB issued a Notice of Intent to Contract (NIC) to several health insurance firms seeking Administrative Services Only (ASO) contracts for its Exclusive Provider Organization (EPO) and HMO plans, and an NIC for a Medicare Advantage plan (MAPD). After the bidding process, OGB awarded an ASO contract to Humana for a self-insured HMO plan, and one to UHC for a self-insured EPO plan. It also awarded a separate contract to Humana to administer the MAPD plan. The ASO contracts were for one year (July 2007-July 2008) but included an option exercisable by OGB for two one-year renewals. The Humana MAPD agreement was for three years, to terminate in July 2010.

Incorporated into each final agreement were the contract itself, the NIC, and the proposal submitted by the insurance company in response to the NIC. Under the contracts, the insurance companies were to provide services including enrolling participants, preparing and distributing informational materials to participants, issuing identification cards, determining claim eligibility and paying eligible claims, reviewing appeals and grievances, and reporting to the OGB. Among other administrative responsibilities, the insurance companies agreed to follow certain procedures for an annual enrollment period, the time during which employees could select their plans for the year, change their coverage, or add eligible dependents. The cost for the enrollment drive was to be paid by the insurance companies. Other than payment for services, OGB's responsibilities included determining the eligibility of employees and regularly updating the insurance company with eligibility changes (which occurred due to an employee beginning or ending employment or acquiring a new spouse or dependent). The insurance companies were to be paid on a fee-per-covered-employee-per-month basis.

Vantage is a Louisiana HMO that in previous years had contracted with OGB to offer a fully funded HMO to state employees in one region of the state. When OGB decided to switch to only self-insured plans, Vantage did not submit a bid in response to the NIC because it could not offer self-insured ASO services. It wrote a letter to OGB requesting an NIC for a fully insured plan, but OGB declined to issue one.

Act 479 was signed into law in July, 2007. The Act mandates that the OGB solicit proposals in each region of the state from "Louisiana HMOs" and that the OGB must contract with any Louisiana HMO in each region (up to three) that submitted a "competitive" bid for a fully funded HMO plan. The Act defines a "Louisiana HMO" as one that

(1) Offers fully insured commercial and/or Medicare Advantage products; (2) Is domiciled, licensed, and operating within the state; (3) Maintains its primary corporate office and at least seventy percent of its employees in the state; and (4) Maintains within the state its core business functions which include utilization review services, claim payment processes, customer service call centers, enrollment services, information technology services, and provider relations.

La. R.S. § 42:802.1. It was enacted shortly after the beginning of the 2007-2008 fiscal year (which runs from July to July) but became effective for that fiscal year, and required that OGB hold an extraordinary enrollment period for the 2007-2008 year (in addition to the annual enrollment period that had already been held pursuant to its UHC and Humana contracts). The Act does not require the OGB "to utilize any insurance product that increases costs to the plan of benefits as determined by the independent actuarial process," but requires that "the comparison shall be based on at least twelve months experience beginning no earlier than January 1, 2008."

On August 1, 2007, as required by the Act, the OGB issued an NIC for a fully funded plan. The NIC was limited to Louisiana HMOs, though the Act did not require that it be so limited. Vantage submitted a bid in response to the NIC, but the parties never entered a contract. UHC and Humana filed federal suits seeking declaratory and injunctive relief, challenging the Act under the Commerce Clause, Contract Clause, and Due Process Clause of the federal Constitution; their suits were consolidated in the district court. Vantage then intervened, as did four individuals (the "Covered Individuals"). The district court issued a Temporary Restraining Order (TRO) enjoining implementation of the Act, stating that it likely violated the Contract Clause. On October 31, 2007, after a hearing, the Court granted UHC's and Humana's motions for a permanent injunction, concluding that the Act violated the dormant Commerce Clause, but not the Contract or Due Process Clauses. Vantage and the Covered Persons ("Intervenors") filed a Motion for New Trial or to Alter or Amend Judgment, which UHC and Humana opposed. The district court denied the Intervenors' motions. The Intervenors and the State now appeal the district court's determination that the Act violated the Commerce Clause. Humana and UHC cross-appeal the court's determination that the Act did not violate the Contract or Due Process Clauses.

II.

We review the district court's conclusions of constitutional law de novo, and any subsidiary factual findings for clear error. Allstate Ins. Co. v. Abbott, 495 F.3d 151, 160 (5th Cir.2007).

A.

We first address the plaintiffs' appeal of the district court's dormant Commerce Clause holding.² The...