Washington Physicians Service Ass'n v. Gregoire

• Citation: 147 F.3d 1039
• Decision Date: 24 August 1998
• Docket Number: No. 97-35536,97-35536
• Parties: 22 Employee Benefits Cas. 1297, 98 Cal. Daily Op. Serv. 4676, 98 Daily Journal D.A.R. 6641 WASHINGTON PHYSICIANS SERVICE ASSOCIATION; Medical Service Corporation of Eastern Washington, a health care service contractor; Good Health Plan of Washington, a health maintenance organization; Pacificare of Washington, a health care service contractor; Selectcare Health Plans, a health maintenance; Qualmed Washington Health Plan, Inc., a health maintenance; Kaiser Foundation Health Plan of the Northwest, a health maintenance organization; Blue Cross and Blue Shield of Oregon, a health care service contractor; Group Health Cooperative of Puget Sound, a health maintenance organization; Blue Cross of Washington and Alaska, a health care service; Pierce County Medical Bureau, Inc., a health care service; King County Medical Blue Shield, a health care service, Plaintiffs-Appellees, v. Christine O. GREGOIRE, in her official capacity as Attorney General for the State of Washington; Deborah Senn, in her official capacity as Insurance Commissioner of the State of Washington, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1039

147 F.3d 1039

22 Employee Benefits Cas. 1297, 98 Cal. Daily

Op. Serv. 4676,

98 Daily Journal D.A.R. 6641

WASHINGTON PHYSICIANS SERVICE ASSOCIATION; Medical Service Corporation of Eastern Washington, a health care service contractor; Good Health Plan of Washington, a health maintenance organization; Pacificare of Washington, a health care service contractor; Selectcare Health Plans, a health maintenance; Qualmed Washington Health Plan, Inc., a health maintenance; Kaiser Foundation Health Plan of the Northwest, a health maintenance organization; Blue Cross and Blue Shield of Oregon, a health care service contractor Group Health Cooperative of Puget Sound, a health maintenance organization; Blue Cross of Washington and Alaska, a health care service; Pierce County Medical Bureau, Inc., a health care service; King County Medical Blue Shield, a health care service, Plaintiffs-Appellees, v. Christine O. GREGOIRE, in her official capacity as Attorney General for the State of Washington; Deborah Senn, in her official capacity as Insurance Commissioner of the State of Washington, Defendants-Appellants.

No. 97-35536.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 7, 1998.

Decided June 18, 1998.

As Amended on Denial of Rehearing and Suggestion for

Rehearing En Banc Aug. 24, 1998.

Christine O. Gregoire, Attorney General of Washington, H. Lee Roussel, Assistant Attorney General, Olympia, WA, for defendants-appellants.

Richard J. Birmingham, Birmingham Thorson & Barnett, P.C., Seattle, WA, for plaintiffs-appellees.

Paul C. Adair, United States Department of Labor, Office of the Solicitor, Washington, DC, for amicus curiae United States Secretary of Labor.

Arthur N. Lerner, Michaels Wishner & Bonner, P.C., Washington, DC, for amicus curiae American Association of Health Plans, Inc.

Jonathan P. Meier, Sirianni & Youtz, Seattle, WA, for amici curiae Washington Association of Naturopathic Physicians and Washington State Chiropractic Association.

Gregory B. Stites, Kansas City, MO, for amicus curiae National Association of Insurance Commissioners.

Appeal from the United States District Court for the Western District of Washington; Franklin D. Burgess, District Judge, Presiding. D.C. No. CV 96-5850 FDB.

Before: THOMPSON and TASHIMA, Circuit Judges, and STAGG, District Judge. ^*

TASHIMA, Circuit Judge.

More than a decade ago, the Supreme Court acknowledged the growing trend among the states to require health insurers to offer certain benefits as part of every health insurance policy they sell. See Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 728-29, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). In Metropolitan Life, the Court upheld Massachusetts' once-controversial requirement that insurers offer some limited form of mental-health protection. That trend continues and continues to generate controversy. In this case, we must decide whether Washington's so-called Alternative Provider Statute is preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The Alternative Provider Statute, or "every category of provider" law, requires that health maintenance organizations ("HMOs") and health care service contractors ("HCSCs") cover acupuncture, massage therapy, naturopathy, chiropractic services, and a variety of other "alternative" medical treatments. We conclude that the Washington law is merely the latest variation in an oft-repeated theme, and we reject ERISA preemption.

I.

In 1995, the Washington legislature effected sweeping changes to the state's regulation of health insurance, and the Alternative Provider Statute (the "Act") is one part of that reform. The Act itself is relatively short:

Every health plan delivered, issued for delivery, or renewed by a health carrier on and after January 1, 1996, shall:

(1) Permit every category of health care provider to provide health services or care for conditions included in the basic health plan services to the extent that:

(a) The provision of such health services or care is within the health care providers' permitted scope of practice; and

(b) The providers agree to abide by standards related to:

(i) Provision, utilization review, and cost containment of health services;

(ii) Management and administrative procedures; and

(iii) Provision of cost-effective and clinically efficacious health services.

RCW 48.43.045(1).

The terms used in the Act are mostly defined in RCW 48.43.005 ("Definitions"). In particular, a "health carrier" or "carrier" means a disability insurer, a health care service contractor, or a health maintenance organization. RCW 48.43.005(8). And a "health plan" or "health benefit plan" means "any policy, contract, or agreement offered by a health carrier to provide, arrange, reimburse, or pay for health care service," subject to a few exceptions. RCW 48.43.005(9). "Provider" is undefined in the statute, but refers to a doctor, dentist, acupuncturist, or other health care provider.

Thus, the Act forces every carrier (HMOs, disability insurers) to allow every insured to choose from an expanded list of providers (acupuncturists, massage therapists) for medical conditions covered by the insured's policy. The Act does not force any carrier to contract with any particular provider (e.g., John Smith, M.D.) but merely forbids a carrier from excluding an entire category of licensed providers (e.g., all chiropractors or all naturopaths) from its policy.

The plaintiffs, a collection of HMOs and HCSCs, sought a declaratory judgment that the Act is preempted by ERISA and an injunction against its further enforcement. On cross motions for summary judgment, the district court ruled for the plaintiffs, finding that the Act "relates to" an employee benefit plan under ERISA, and that it is not saved as a regulation of insurance. Washington Physicians Serv. Ass'n v. Gregoire, 967 F.Supp. 424, 427-31 (W.D.Wash.1997). The state appeals, and we reverse.

II.

ERISA provides for the federal regulation of employee welfare benefit plans. New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 650-51, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). To ensure that such regulation would remain "exclusively a federal concern," Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981), Congress enacted a broad preemption provision, which states that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan...." 29 U.S.C. § 1144(a). An exception is contained in 29 U.S.C. § 1144(b)(2)(A): "[N]othing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities."

Thus, our ERISA inquiry is a two-step process. We first ask whether the Act "relates to" an employee benefit plan; and if it does, we then decide whether it is exempted from preemption by the savings clause in § 1144(b)(2)(A). We conclude that the Act escapes ERISA preemption at the first step, but since we also think it would be saved as a regulation of insurance, we explain the second step as well.

A. Relates To

In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983), the Supreme Court explained that "[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Id. at 96-97, 103 S.Ct. 2890. The Court has since elaborated that in determining whether a "connection" exists between a state law and an ERISA plan, courts must consider whether the law requires particular benefit structures or imposes administrative burdens on a plan. Travelers, 514 U.S. at 658, 115 S.Ct. 1671. A law does not "relate to" an ERISA plan merely because it produces indirect economic effects that happen to influence the shopping choices that the benefit plan must make. Id. at 661, 115 S.Ct. 1671. Rather, a generally applicable state law that does not specifically target ERISA plans is preempted only if it produces such acute economic effects "as to force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers...." Id. at 668, 115 S.Ct. 1671.

We can dispense with the most obvious way in which the Washington law might "relate to" an employee benefit plan, namely, by referring to and acting directly upon such plans. The statute operates directly upon "health plans," but it also makes clear that this term refers to the plan offered by the health carrier (e.g., an HMO), not the benefit plan offered by the employer. RCW 48.43.005(9)(i). Further narrowing the law's application is the definition of a "health carrier" to include only a disability insurer, an HCSC or an HMO, and to exclude employer-sponsored, self-funded health plans. RCW 48.43.005(9). In plain English, if an HMO wants to sell health insurance in Washington, it must comply with the Act regardless of to whom it sells insurance. Thus, if ABC Corp. wishes to offer its employees health insurance by purchasing an HMO plan, it will find that all of the options available to it in the market cover alternative medicine because it is simply not legal for an HMO to offer any other kind of plan. By contrast, if ABC Corp. were itself the health self-insurer for its employees, the Act would not apply at all, and ABC Corp. could structure its benefits in any way it chose. Accordingly, the Act does not operate directly on the ERISA plan, but only indirectly by limiting the options available in the market--if the plan should choose to purchase health insurance on the market, rather than providing it itself or not providing it at all.

Arguably, there is a textual ambiguity in the Act about whether its definition of "health plan" inadvertently includes some specialized kinds of ERISA plans. We say "inadvertently" because the exclusion of self-funded...