Washington Physicians Service Ass'n v. Gregoire

• Decision Date: 02 May 1997
• Docket Number: No. C96-5850FDB.,C96-5850FDB.
• Parties: 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 Organization; Qualmed Washington Health Plan, Inc., a Health Maintenance Organization; 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 Contract; Pierce County Medical Bureau Inc., a Health Care Service Contractor; and King County Medical Blue Shield, a Health Care Service Contractor, Plaintiffs, v. Christine O. GREGOIRE, in her capacity as Attorney General for the State of Washington; and Deborah Senn, in her capacity as Insurance Commissioner of the State of Washington, Defendants.
• Court: U.S. District Court — Western District of Washington

967 F.Supp. 424

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 Organization; Qualmed Washington Health Plan, Inc., a Health Maintenance Organization; 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 Contract; Pierce County Medical Bureau Inc., a Health Care Service Contractor; and King County Medical Blue Shield, a Health Care Service Contractor, Plaintiffs, v. Christine O. GREGOIRE, in her capacity as Attorney General for the State of Washington; and Deborah Senn, in her capacity as Insurance Commissioner of the State of Washington, Defendants.

No. C96-5850FDB.

United States District Court, W.D. Washington, At Tacoma.

May 2, 1997.

Order Denying Reconsideration July 23, 1997.

Richard J. Birmingham, Lee Arthur Thorson, Birmingham Thorson & Barnett, Seattle, WA, for plaintiffs.

Sara J. Finlay, John G. Hennen, Atty. Gen. Office, Social & Health Services, Olympia, WA, William H. Song, Davies, Roberts & Reid, Seattle, WA, for defendants.

ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

BURGESS, District Judge.

INTRODUCTION

This matter comes before the Court on cross motions for summary judgment. Neither party argues that there exist material issues of fact requiring a trial.

Plaintiffs, a consortium of health care contractors and service providers, initiated the case by filing a complaint for declaratory and injunctive relief on September 19, 1996. Defendants are Christine Gregoire, as Attorney General, and Deborah Senn, in her capacity as Insurance Commissioner of the State of Washington.

At issue is whether the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., preempts RCW 48.43.045, the Alternative Provider Statute and the State's interpretation of the Statute (the Act), or whether ERISA's insurance savings clause, 29 U.S.C. § 1144(a), (b)(2)(A), allows the State to enforce its recently enacted law which mandates the use of all state-certified health care providers by health carriers. The ultimate question is whether the State can require plaintiffs to provide for their subscribers the services of licensed alternative health care providers, including the services of chiropractors, acupuncturists and other non-traditional providers.

This Court holds that the Act is preempted by ERISA, and that the Act does not fall within the exemption provided by ERISA's "Savings Clause"; RCW 48.43.045 is therefore, not a valid exercise of the State's authority to regulate health service entities.

LEGAL BACKGROUND

ERISA Preemption

Congress enacted ERISA in order to establish basic uniform laws for employee benefit plans in specified areas. Earlier ERISA preemption cases held that in determining whether a federal statute preempts a state law, Congress' intent controls. See FMC Corp. v. Holliday, 498 U.S. 52, 56, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990). "If the intent of Congress is clear, that is the end of the matter; for the court ... must give effect to the unambiguously express intent of Congress." Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984). Fearful of a patchwork of state and local regulatory requirements, Congress designed ERISA with a broad preemption provision at its core. FMC Corp. v. Holliday, 498 U.S. at 56, 111 S.Ct. at 407. Recently, however, the Supreme Court indicated that hence forward courts should decide whether ERISA preempts state law not by asking whether the language requires it or whether Congress intended it but by asking whether preemption makes sense as a matter of ERISA policy. See New York State Conference of Blue Cross/Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995).

The Insurance Savings Clause

Generally speaking, ERISA's preemption clause applies to all state laws that "relate to" employee welfare benefit plans governed by ERISA. However, not all regulations purporting to relate to employee welfare benefit plans are preempted. Congress carved out an exception, called the "savings clause," 29 U.S.C. § 1144(b)(2)(A), ERISA § 514(b)(2)(A), which exempts from preemption those laws that regulate insurance, banking or securities. This exception for insurance regulation is itself limited, however, by the provision that an employee welfare benefit plan may not "be deemed to be an insurance company or other insurer." See ERISA § 514(b)(2)(B), 29 U.S.C. § 1104(b)(2)(B).

RCW 48.43.045

In 1995, the Washington State legislature enacted a statute that directs health carriers to make available all categories of state-licensed health care providers to their subscribers. The statute, RCW 48.43.045, reads in part:

Every health plan delivered, issued for delivery, or renewed by a health carrier on or after January 1, 1996, shall ... [p]ermit every category of health care provider to provide health services or care for conditions included in the basic health plan services.

Both parties agree the Act requires health carriers (health maintenance organizations, health care services contractors, etc.) to reimburse providers (doctors, dentists, etc.) for all types of licensed care, including alternative care. The parties disagree as to the validity of the Act. Plaintiffs contend that: 1) a health carrier's business is not in the nature of insurance and is, therefore, outside the realm of ERISA preemption; and 2) the Act is preempted under ERISA's so-called "relates to" doctrine. Defendants maintain that because the law acts to spread the risk from policyholder to health carrier and satisfies the tests for inclusion under the insurance savings clause, it is not preempted.

ANALYSIS

I. ERISA Preemption — "Relate To" Test

Defendants argue that the Act regulates matters traditionally within the police powers of the state to assure the health and safety of the people of the state. Also, the plan regulates only the insurer not the benefit plan and it does not bind administrators to any particular choice, particularly with areas requiring uniformity, eligibility of claimants, making disbursements, monitoring funds availability, and record keeping. Defendants' argument lacks the force and logic of that presented by Plaintiffs.

There is ERISA preemption if the state law attempts to regulate: (i) the structure, (ii) the content, (iii) the method of administration, or (iv) plan requirements that vary from state to state. Travelers, 514 U.S. at 655-59, 115 S.Ct. at 1677-78. ERISA supersedes "any and all state laws insofar as they may now or hereafter relate to any employee benefit plan." See ERISA § 514(a), 29 U.S.C. § 1144(a). ERISA not only preempts state laws and regulations that are directed at employee benefit laws, but also those laws or regulations that have a "connection with" or a "reference to" such plans. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-2900, 77 L.Ed.2d 490 (1983); and, e.g., Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525, 101 S.Ct. 1895, 1907, 68 L.Ed.2d 402 (1981).

The Act "relates to" benefit plans in several ways. The Act "relates to" the administration of employee benefit plans because it interferes with the plan administrators' discretion of whom to contract with and whom to pay. The Act "relates to" the structure of employee benefit plans because it prohibits ERISA plans from selecting an arrangement that does not cover every category of provider. See, e.g., Blue Cross and Blue Shield of Alabama v. Peacock's Apothecary, Inc., 567 F.Supp. 1258, 1276 (N.D.Ala.1983)(interference with the structure of contractual relationships with participating pharmacies "relates to" plans). The Act "relates to" content because a health plan is required to cover provider services that it did not cover previously. Accord CIGNA Healthplan of Louisiana, Inc. v. State of Louisiana, 82 F.3d 642, 648 (5th Cir.1996)("any willing provider" statute "relates to" ERISA); Stuart Circle Hospital Corp. v. Aetna Health Management, 995 F.2d 500, 502 (4th Cir.1993) (statute that restricts the ability of an insurance company to limit choice of providers "relates to" an employee benefit plan); Blue Cross and Blue Shield of Alabama v. Nielsen, 917 F.Supp. 1532, 1536-37(N.D.Ala.1996)(statute requiring coverage of any licensed dentist and prohibiting payor's review of quality or utilization "related to" employee benefit plan).

There is also the risk of conflicting and inconsistent state and local regulation, as, for example, an Oregon employer who contracts with a health carrier in Washington to cover employees in Washington would have to comply with the Act even if there were no such mandate for the employer in Oregon.

The "relate to" test of ERISA preemption has been satisfied, and the State Alternative Provider Mandate Statute and State Interpretations are preempted unless saved from preemption as a law "regulating insurance."

II. ERISA Preemption — The Savings Clause

In determining whether the Act comes within the Savings Clause as regulating insurance, a two-step analysis is employed as set forth in Metropolitan Life Insurance Company v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). The first step is a "common sense" view analyzing whether the law at issue is specifically directed at the insurance industry, and thus, logically falls within the scope of the "regulates insurance" language of the Savings Clause. Next, a court must analyze...