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An Overview of FEHBA and the
Power of Its Preemption
While the healthcare industry is dominated by a growing number of acronyms, practitioners and clients alike are
often unfamiliar with one that has been around for more than 45 years: FEHBA. Originally enacted in 1959, the
Federal Employee Health Benefits Act (“FEHBA”) established a program to provide federal employees, federal
retirees, and their eligible family members (collectively “enrollees”) with subsidized healthcare benefits. See 5
U.S.C. §§ 8901-8913. With more than nine million participating Americans today, FEHBA is the largest employersponsored group health insurance program in the world.3
By Fred A. Smith, III,1 and David M. Goldhaber2
1974 (“ERISA”). Despite the restrictions set forth by FEHBA, claimants
who are dissatisfied with the limitation
on their ability to recover damages are
increasingly trying to avoid preemption
to litigate their claims under more liberal state laws and expand the amount
of recovery available.
Given the similarity between the
preemption clauses found in ERISA
and FEHBA and the limited case
law discussing FEHBA preemption,
courts often look to ERISA preemption
decisions for guidance.4 While some
claimants have successfully avoided
FEHBA preemption in the past, claimants will likely encounter increased
difficulties in circumventing the limited
judicial review allowed by FEHBA in
light of the United States Supreme
Court’s decision in Aetna Health, Inc.
v. Davila, the new seminal case on
ERISA preemption.5 Indeed, at least
one Illinois federal court has now
relied, at least in part, on Davila
to hold that a cause of action pled as
a medical malpractice or mixed treatment/eligibility case was completely
preempted by FEHBA.
This article provides a comprehensive
overview of FEHBA and addresses how
courts will likely respond to claimants’
| Sedgwick, Detert, Moran & Arnold LLP
attempts to avoid its sweeping preemption scheme.
An Overview of FEHBA
Congress first enacted FEHBA after
recognizing that a viable solution
was needed for the rising costs of
medical care in the United States.
FEHBA’s stated goal was to provide
“a measure of protection for civilian
Government employees against the
high, unbudgetable, and, therefore,
financially burdensome costs of medical services through a comprehensive
government-wide program of insurance for federal employees . . . the
costs of which will be shared by the
Government, as employer, and its
employees.”6 A broad class of individuals are allowed to enroll in FEHB
health plans.7 The Office of Personnel
Management (“OPM”), which serves
as the federal government’s humanresource agency, is tasked with the
overall responsibility for running and
enforcing this program.
Under FEHBA, the United States does
not serve as a healthcare insurer. Rather, the United States, through the OPM,
contracts with various private insurers
— referred to as “carriers” in the Statute
— on behalf of enrollees to provide
healthcare plans with various coverages
and costs.8 FEHBA requires contracts
between the carriers and OPM to
contain a detailed Statement of Benefits
that includes maximums, limitations and
other terms related to benefits.9 The
Statement of Benefits section is in turn
incorporated into the federal contract
and serves as the official description of
benefits and plan terms.10
The term “carrier” is broadly defined
in FEHBA.11 Consequently, various
private insurers and other health care
entities, including health maintenance
organizations (“HMO’s), participate in
this program. In fact, there are currently
more than 350 health plans for program
enrollees to choose from.12 The OPM
subsidizes the federal program by “contributing 60% of the average premium.”13
The health plans’ contracts are typically
for a one-year term and negotiated annually. Enrollees are permitted to switch
plans during each open enrollment
period.14 Individual policies or contracts
are not issued to program enrollees.
FEHBA itself does not outline the
specific methods of dispute resolution
This article was published in the American Bar Association Health Law Section’s The Health Lawyer.
FEHBA is a comprehensive statutory
and regulatory scheme that establishes the Federal Health Benefits
Program and indictates how claim decisions are to be resolved. In doing so,
it provides only limited judicial review,
with a broad preemption clause that is
similar to the one found in the Employee Retirement Income Security Act of
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An Over view of FEHBA and the Power of Its Preemption Continued
or set out what remedies are available
under the statute. Instead, FEHBA
vested the OPM with the power to promulgate the necessary regulations to
carry out the congressional mandate.15
The OPM in turn created a detailed
regulatory scheme for handling claims
and resolving disputes over benefit determinations. See 5 C.F.R. 890.101, et
seq. The OPM regulations provide the
specific procedures for how medical
benefit claims are to be administered.
The Administration of
FEHBA Claims
Under FEHBA, carriers are empowered to make claim decisions pursuant
to the terms of their plans. The carriers
often subcontract with third-party
administrators (“TPA”s) to perform the
claims handling on their behalf. In
resolving claims, the carriers or TPAs
determine issues such as medical
necessity, length of hospital stay,
whether services are covered under
the enrollee’s plan and whether the
claim should be denied. When a car-
the OPM. The statute’s legislative
history notes that Congress intended
that the OPM’s review process would
provide an “adequate administrative remedy” for enrollees and would
prevent them from being “forced into
courts” to recover the benefits they
are due.19 If an enrollee believes that
the FEHBA insurer, or its TPA, has
wrongfully denied medical benefits or
simply failed to respond to the claim,
the individual may ask the OPM to
review the claim’s handling and/or the
insurer’s decision.20
Thus, under FEHBA, if a plan enrollee
challenges a carrier’s final claim decision, he/she must first submit the claim
to the OPM for a “review process.”21
The enrollee must request an OPM
review within: (1) 90 days after the
carrier’s decision; (2) 120 days after
the request for benefits to the carrier if
it fails to respond; or (3) 120 days after
a carrier requests additional information from the enrollee but fails to act
on it.22 The OPM is in turn required to
provide the claimant with a written no-
Congress first enacted FEHBA after recognizing that a viable solution
was needed for the rising costs of medical care in the United States.
FEHBA’s stated goal was to provide “a measure of protection for civilian
Government employees against the high, unbudgetable, and, therefore,
financially burdensome costs of medical services.”
rier denies a claim, an individual has
six months in which to seek “reconsideration.”16 A carrier then has 30 days to
either: (1) affirm the denial; (2) pay the
bill; or (3) request additional information in order to reconsider the claim.17
If the plan requests additional information, it must reach its decision within 30
days from receipt of that information.18
FEHBA also calls for a mandatory
administrative review process through
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tice of its decision within 90 days after
his/her request for the review.23 After
reviewing the claim, the OPM may either: (1) request additional information
to further evaluate the claim; (2) obtain
an advisory opinion from an independent physician; or (3) reach a decision
based solely on the information provided by the individual.24 Interestingly,
the OPM also has the right to reopen
its review process if new evidence
becomes available at a later time.25
FEHBA expressly requires participating carriers to comply with the OPM’s
interpretation of their plans. This enables the OPM to develop a consistent
application of the participating health
plans. FEHBA also vests the OPM with
the authority to compel a carrier to
pay an enrollee if the OPM resolves a
benefits dispute in his/her favor.26
Limited Judicial Review
What options are available to an
enrollee if a carrier denies a claim and
the OPM agrees with the denial? If the
claimant still disagrees with the OPM’s
denial, the claimant may then sue the
OPM to obtain judicial review of the
OPM’s decision. However, this judicial
review is quite limited.
First, judicial review is only allowed
after an individual exhausts the review
process of both the carrier and the
OPM.27 Second, an individual requesting judicial review may only challenge
a “final action” from the OPM concerning the denial of a benefit.28 There is
no challenge of the insurer’s determination. Third, in light of the restriction
only allowing review of “final action” by
the OPM, lawsuits can only be brought
against the OPM.29 Neither participating insurers nor their TPAs are proper
parties in these actions. Finally, judicial
relief is strictly limited to evaluating
whether the OPM should require the
carrier to pay the benefits in dispute or
confirm that the denial was proper.30
A claimant must initiate a lawsuit
against the OPM within three years
of when the medical care or service
was provided.31 The United States
District Courts have original jurisdiction over the suits. When reviewing the
OPM claim decision, courts are strictly
limited to the record that existed when
the OPM rendered its final decision.32
Because FEHBA does not specifically
provide otherwise, the Administrative Procedure Act, 5 U.S.C. §§ 500
through 706, governs judicial review of
OPM decisions.33 Under the Administrative Procedure Act, the court must
afford considerable deference to the
OPM’s findings and set aside an action
only if it was “arbitrary, capricious, an
abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C.
§ 706(2)(A). But, unlike the procedures provided for successful ERISA
claims, a successful FEHBA litigant
cannot recover attorneys fees or
costs.34 As discussed below, state law
remedies are also preempted.
This limited judicial review scheme
effectively prevents claimants from
pursuing medical benefit claims
against the carriers and their subcontracting TPAs. See, e.g., Botsford v.
Blue Cross and Blue Shield of Montana, Inc., 314 F.3d 390, 397 (9th Cir.
2002) (allowing suits against parties
other than the OPM would undermine
the federal scheme: “We conclude that
Congress intended to limit the defendant in suits involving disputes over
FEHBA benefits to the United States.”).
However, attorneys for claimants have
long attempted to look for and create
ways to avoid FEHBA’s limited judicial
review and preemption clause to take
advantage of the broader remedies
available under various state laws.
Preemption Under FEHBA
Under well-established jurisprudence,
a claim may arise under federal law if
a federal statute preempts state law
in a particular field.35 Courts typically
commence their preemption analysis
with a review of the allegations set forth
in the complaint — often referred to as
the “well-pleaded complaint” rule — to
determine whether a federal question is
presented by the pleadings. However,
the “complete preemption” doctrine
serves as an exception to that rule.
See, e.g., Jass v. Prudential Health
Care Plan Inc, 88 F.3d 1482, 1487 (7th
Cir. 1996) (recognizing that a claim pled
as a state law claim is properly “recharacterized” as a complaint arising under
federal law when Congress has legislatively displaced the claim). Consequently, federal subject matter jurisdiction exists if the complaint concerns an
area of law “completely preempted” by
federal law, even if the complaint fails to
mention a federal basis of jurisdiction.36
FEHBA is intended to be one such
statute and should therefore completely
preempt certain state law claims.
In 1978, Congress amended FEHBA
to include a preemption clause. The
policy underlying the amendment was
clause was to “supersede and preempt
any State or local law, or any regulation issued under such law relating to
health insurance or plans, to the extent
that such law or regulation is inconsistent with the provisions of the Federal
employees’ health benefits contract.”38
Notwithstanding the legislative history,
the preemption clause only specified
that state and local laws and regulations were preempted where they were
“inconsistent with such contractual
provisions” established under FEHBA.39
This allowed Courts to reject FEHBA
preemption if the state laws were found
to be “consistent” with the FEHBA benefit contract provisions. Court decisions
on the extent and scope of FEHBA
preemption varied from jurisdiction
to jurisdiction, and a split in authority developed.40 Some courts relied
In 1978, Congress amended FEHBA to include a preemption clause.
The policy underlying the amendment was to ensure uniformity in the
administration of FEHBA plan benefits.
to ensure uniformity in the administration of FEHBA plan benefits.37 The
1978 preemption section stated:
The provisions of any contract
under this chapter which relate to
the nature or extent of coverage or
benefits (including payments with
respect to benefits) shall supersede
and preempt any State or local law,
or any regulation issued thereunder,
which relates to health insurance or
plans to the extent that such law or
regulation is inconsistent with such
contractual provisions.
upon the preemption clause to thwart
state law claims.41 Many others found
exceptions to preemption and allowed
plaintiffs to have their day in state court
to pursue their state law claims.42 In
another attempt to get around preemption, plaintiffs also argued that their
state law claims were not preempted by
§ 8902(m)(1) because they only related
to the manner in which the benefit claim
was processed (arguing improper claim
handling) rather than the “nature and
extent of coverage.” While few courts
have been faced with this argument, at
least one court has rejected it.43
Act of Sept. 17, 1978, Pub. L. No.
95-368, § 1, 92 Stat. 606 (amended
1998). Congressional legislative history reveals that the purpose of this
Given the scarcity of cases analyzing
FEHBA preemption, courts also looked
to the body of case law interpreting the
ERISA preemption clause for guid-
Sedgwick, Detert, Moran & Arnold LLP
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An Over view of FEHBA and the Power of Its Preemption Continued
ance.44 However, this case law also
varied by jurisdiction, and inconsistencies between circuits emerged. This
inconsistent case law also helped fuel
uncertainty over preemption of FEHBA
cases in certain courts. Some authors
even called on Congress to amend
§ 8902(m)(1) to provide a more clear
statement as to the scope of FEHBA
preemption.45 All of these factors led to
the amendment of the FEHBA preemption provision to clarify its reach.
In 1998, Congress amended the preemption clause to expand federal ju-
more uniform application of FEHBA and
its regulatory scheme. This in turn allows the OPM to control the cost of the
program and avoid a “patchwork quilt of
benefits” that vary among the states.48
With this amendment, the FEHBA
preemption clause now more closely
resembles its counterpart in ERISA.49
While ERISA preemption decisions
often receive a great deal of attention
in the courts and media, little is heard
about preemption under FEHBA since
the claims are not as prevalent.
Congress amended FEHBA’s preemption clause to expand federal
jurisdiction over FEHBA claims and cure the inconsistent results in
the courts.
risdiction over FEHBA claims and cure
the inconsistent results in the courts.
The broader provision now states:
The terms of any contract under this
chapter which relate to the nature,
provision or extent of coverage or
benefits (including payments with respect to benefits) shall supersede and
preempt any State or local law, or any
regulation issued thereunder, which
relates to health insurance or plans.
See 5 U.S.C. § 8902(m)(1). This
amended section eliminated the
language concerning “inconsistent
state laws.” Congress designed the
new provision to “strengthen the ability of national plans to offer uniform
benefits and rates to enrollees regardless of where they may live.”46 It also
intended to “strengthen the case for
trying FEHBA program claims disputes
in federal courts rather than state
courts.”47 Finally, the broader preemption clause is designed to keep cases
in federal courts where there will be a
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Preemption Decisions
Following the 1998 amendment to
§ 8902(m)(1), courts almost universally
have recognized its broad application.50 These decisions, and the FEHBA
preemption scheme, however, did not
stop claimants from trying to advance
certain state law claims. The preemption clause is therefore still one of the
more litigated aspects of FEHBA.
Medical benefit claimants have historically had some success in avoiding preemption by characterizing their claims
as involving both questions of eligibility
for benefits and the appropriateness of
medical care. Such matters have been
termed mixed eligibility and treatment
cases. The legal authority most often
cited by claimants to support these
claims has been the Supreme Court’s
decision in Pegram v. Herdrich.51
In Pegram, an HMO plan participant
consulted a physician for stomach pain
resulting from an inflamed abdomen.
The physician required the beneficiary
to wait eight days for an ultrasound to
be performed at a facility staffed by
HMO physicians more than 50 miles
away. During the waiting period, the
participant’s appendix ruptured, causing peritonitis. The plan participant
then sued the HMO and her treating
physician in state court alleging medical malpractice and fraud. Asserting
ERISA preemption, the defendants
removed the case to federal court and
sought a dismissal of the claims in favor of the relief provided under ERISA.
In analyzing ERISA preemption, the
Supreme Court held that mixed eligibility and treatment decisions made
by the HMO, through its physician
employee(s), were not fiduciary decisions under ERISA. The state medical
malpractice claims therefore survived.
Some courts subsequently relied upon
the holding in Pegram to carve out
medical malpractice and quality of care
exceptions to FEHBA preemption.
One example occurred in Roach v.
Mail Handlers Benefit Plan.52 There a
federal employee allegedly received
improper medical treatment from her
plan which required her to have ankle
surgery. She sued her health plan
and its subcontractor in state court
alleging medical malpractice, breach
of contract and other state law claims.
While the employee alleged traditional
malpractice claims in her complaint,
she also alleged a denial of medical
treatment certification under her medical benefits plan. Asserting complete
preemption of the claims under
FEHBA, the defendants removed the
case to federal court and secured a
summary judgment.
On appeal, the plaintiff argued that the
district court erred by characterizing
her medical malpractice claim as a denial of benefits preempted by FEHBA.
After evaluating the factual record, the
U.S. Court of Appeals for the Ninth
Circuit agreed and held that FEHBA
did not preempt the participating health
plan participant’s medical malpractice
claim.53 The Ninth Circuit explained
that FEHBA preemption must be
interpreted “to protect both the federal
interest in the uniform administration of
FEHBA benefits and a state’s interest
in the quality of medical care.”54 The
court concluded that the mere reference to the existence of a benefit plan
in a state law claim, without more,
does not endanger the uniform federal
interpretation of a FEHBA plan.55 Other
cases followed the holding in Roach.56
The import of such mixed eligibility/
treatment decisions has now been significantly limited by Aetna Health, Inc.
v. Davila. In Davila, the U.S. Supreme
Court reversed two decisions rendered
by the Fifth Circuit. In these cases,
the Fifth Circuit had rejected ERISA
preemption and allowed plan participants to sue their healthcare plans for
negligent denial of benefits under the
Texas Healthcare Liability Act (“THLA”).
Passed in 1997, the THLA allowed
patients to sue their HMOs for negligent denial of benefits and provided
for compensatory and punitive damages against HMOs for their coverage
decisions. At least nine other states,
including Arizona, California, Georgia,
Maine, New Jersey, North Carolina,
Oklahoma, Washington and West Virginia, had enacted similar laws.57
In one of the consolidated cases
in Davila, the plaintiff suffered from
bleeding ulcers. He contended that this
condition resulted from the plan’s decision to restrict his treatment. While
the plaintiff’s physician had prescribed
Vioxx to treat arthritis pain, his HMO
plan required two less expensive medications, covered by the plan’s formu-
lary, to be used before Vioxx could be
approved. Plaintiff maintained that this
caused his adverse medical condition;
he then sued the plan under the THLA.
In the second case, the plaintiff developed post-surgical complications
from a hysterectomy which required a
second hospital admission. The claimant maintained that this was caused
when the nurse from her HMO originally
only approved a one-day hospital stay
despite her physician’s recommendation that she recuperate in the hospital
for several days. The plaintiff there, too,
brought an action under the THLA.
The Fifth Circuit found that ERISA
did not preempt the THLA and ruled
that these plaintiffs could pursue their
state law claims. The Supreme Court
reversed. It held that plaintiffs’ actions
against their respective HMOs for alleged failures to exercise ordinary care
in handling coverage decisions were
completely preempted by ERISA and
removable to federal court. It reasoned
that any state law cause of action that
based on the “labels affixed to them”
by litigants as this would “elevate form
over substance and allow parties to
evade” preemption.58 Significantly, the
Supreme Court clarified, and expressly
limited, its prior holding in Pegram v.
Hendrich. It stated: “. . . the reasoning in Pegram ‘only make[s] sense
where the underlying negligence also
plausibly constitutes medical treatment
by a party who can be deemed to be a
treating physician or such a physician’s
employer.”59 Consequently, pursuant to
Davila, the recipients of medical benefits can only pursue a “mixed eligibility/treatment” malpractice case against
a party who is the treating physician or
that physician’s employer.
It did not take long for a court to look
to Davila for guidance in deciding
a FEHBA preemption decision in a
purported mixed eligibility/treatment
case. In McCoy v. Unicare Life and
Health Ins. Co., a Northern District of
Illinois federal court held that FEHBA
“completely preempted” a medical
Medical benefit claimants have historically had some success in avoiding
preemption by characterizing their claims as involving both questions
of eligibility for benefits and the appropriateness of medical care. Such
matters have been termed mixed eligibility and treatment cases.
duplicates, supplements or supplants
ERISA’s civil enforcement remedies
conflicts with the congressional intent
to make ERISA remedies exclusive,
and any such state law cause of action
would be preempted. By its decision, the
Supreme Court made it clear that states
cannot enact statutes like the THLA in
order to circumvent ERISA preemption.
The Supreme Court also cautioned
courts not to distinguish between
preempted and non-preempted claims
malpractice action originally pled as a
mixed eligibility/treatment case under
Pegram.60 In denying the plaintiff’s
motion to remand the case back to
state court, the court referenced the
Davila decision and ruled that the
plaintiff’s claims against the HMO and
its contracting Independent Physician
Association (“IPA”) were completely
preempted by FEHBA. This was the
first reported decision to apply FEHBA
preemption following the Supreme
Court’s Davila ruling. It is also one of
Sedgwick, Detert, Moran & Arnold LLP
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only a few reported cases finding that
FEHBA completely preempts a complaint with medical malpractice or mixed
treatment/eligibility causes of action.
The plaintiff in McCoy filed a medical malpractice lawsuit in the Circuit
Court of Cook County, Illinois, against
his HMO and the IPA that contracted
with the HMO to deliver benefits. He
alleged that these defendants denied
certain medical benefits for his burn
injuries. He contended that the managed care defendants were negligent
by preventing him from obtaining
treatment at the burn center of his
choice and refusing to approve and/or
cover the costs for certain treatment
and occupational therapies. Plaintiff
maintained that this prevented him
from achieving a full recovery.
court denied plaintiff’s motion for remand, finding that FEHBA “completely
preempts” plaintiff’s claim against the
HMO and IPA.62 In so holding, the
court recognized that:
A plaintiff cannot circumvent the
clear intent of Congress to completely preempt an area of law by
phrasing allegations so that they
appear to be malpractice allegations
and by omitting any reference to the
FEHBA. Regardless of titles and
jargon included in a complaint, if it
is clear from the facts in the action
that the allegations are essentially
contesting the eligibility of benefits
rather than treatment decisions,
then the claims should properly be
deemed what they truly are and the
court should not proceed under the
Pursuant to Davila, the recipients of medical benefits can only pursue
a “mixed eligibility/treatment” malpractice case against a party who
is the treating physician or that physician’s employer.
plicable to situations “where a referring
physician is making treatment decisions
while simultaneously owning or operating the health plan which is also making
eligibility determinations.”64 In the end,
the federal court in McCoy concluded
that the plaintiff “cannot artfully attempt
to plead around FEHBA, particularly
when, as in this instance, Congress has
indicated that the complete preemption
doctrine is applicable.”65
At least one other court, Benoti v. First
Health, has looked to the decision in
McCoy for guidance when conducting a FEHBA preemption analysis.66
Consequently, it would appear that the
uncertainty surrounding preemption
under FEHBA that once existed for
certain claims may now be a thing of
the past. Based on the holding of
Davila, and the reasoning set forth
in McCoy, it is anticipated that courts
facing certain FEHBA preemption challenges in the future are likely to reject
them and follow the analysis in McCoy.
Conclusion
The defendants removed the case
to federal court on the grounds that
FEHBA completely preempted and
barred plaintiff’s state law claims. In
response, plaintiff moved to remand
and argued that his amended complaint alleged facts sufficient to
establish a mixed eligibility/treatment
decision that could proceed in state
court under Pegram. The defendants
responded that FEHBA completely preempts the judicial review of all medical
benefit claims and argued that plaintiff
had improperly characterized his suit
as a medical malpractice action.
The Illinois federal court recognized
a lower court split on the issue of the
applicability of the complete preemption doctrine to FEHBA.61 However, the
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pretense that the allegations are
legitimate malpractice claims.
McCoy, 2004 WL 2358277 at *5. The
court concluded that plaintiff’s claims
against the HMO, and the IPA that
contracted with the HMO to deliver
benefits, were completely preempted
by FEHBA.
The court also specifically responded
to plaintiff’s attempt to characterize his
claim as one involving mixed plan eligibility and treatment issues under the
Pegram decision. The court rejected
that contention since the Supreme
Court limited the ability of a claimant to
state a mixed eligibility and treatment
claim in Davila.63 The court recognized
that a “mixed issues” claim is only ap-
FEHBA has established the largest
employer-sponsored group health insurance program in the world. As such,
there are millions of plan participants
who must carefully navigate FEHBA’s
statutory scheme and the OPM regulations to recover medical benefits
denied by participating carriers. Plan
participants have previously had some
success in being allowed to pursue
more expansive state law claims relying upon the holding in Pegram by
characterizing their causes of action as
mixed eligibility/treatment claims. This
often allowed them to avoid the limited
judicial relief set forth under FEHBA.
However, the Supreme Court in Davila
has now severely limited the ability to
circumvent preemption. Davila restricts
the right of recipients of medical benefits to pursue a “mixed eligibility treatment” malpractice case only against
the patient’s treating physician or that
physician’s employer.
While the Davila decision interprets
preemption under ERISA, at least two
courts have found that the Supreme
Court’s preemption analysis applies
equally to FEHBA matters. This proposition is supported by the fact that the
preemption clauses in ERISA and
FEHBA are nearly identical and serve
similar purposes. FEHBA’s underlying legislative rationale also supports
complete preemption. As illustrated by
the decision of the Northern District of
Illinois in McCoy, courts have already
started to rely on Davila, at least in
part, to hold that a cause of action pled
as a medical malpractice or mixed
treatment/eligibility case is completely
preempted by FEHBA. It is anticipated
that others courts are likely to follow
this trend. Thus, when FEHBA insurers
and their subcontracting claims handlers make decision about claims, they
should be immune from suits for state
law medical negligence. Consequently,
claimants who are dissatisfied with
the level of recovery they can achieve
under their FEHBA plan in the future
will likely need to find new ways to
avoid the broad reach of FEHBA and
the power of its preemption.
Footnotes
1
Fred A. Smith is a partner in the Chicago
office of Sedgwick, Detert, Moran & Arnold. He
is a member of the firm’s Healthcare Practice
Group, and his areas of specialty include
healthcare, ERISA, medical device and medical
malpractice litigation. He has defended healthcare clients in a variety of settings including
class actions, products liability, physician termination litigation and reimbursement disputes.
Before his legal career, Mr. Smith was the
Director of the Department of Respiratory Ther-
apy at the University of Chicago Hospitals and
Clinics. Besides his clinical practice, he was
involved in risk management with that allied
health field. He is a member of the American,
Illinois State and Chicago Bar Associations,
the Illinois Association of Healthcare Attorneys
and the Defense Research Institute (DRI). Fred
Smith can be reached at [email protected]
or (312) 641-9050.
2
David M. Goldhaber is special counsel in
Sedgwick’s Chicago office and a member of
the firm’s Healthcare Practice Group. In the
healthcare arena, he represents hospitals,
MCOs, healthcare professionals and life,
health and disability insurers in litigation matters and related insurance coverage issues.
Mr. Goldhaber has successfully defended life,
health and disability claims, privilege disputes
and malpractice actions against physicians,
plan administrators and MCOs. He is a member
of the ABA Health Law Section, DRI, and the
Chicago Bar Association, where he served as a
Legislative Liaison for its Health Law Committee. He can be reached at (312) 849-1961 or
[email protected].
3
OFFICE OF PERSONNEL MANAGEMENT, FEHB
HANDBOOK (available at http://www.opm.gov/insure/handbook) (last visited June 7, 2005).
4
See Botsford v. Blue Cross and Blue Shield
of Montana, Inc., 314 F.3d 390, 394 (9th Cir.
2002); Hayes v. Prudential Ins. Co. of America,
819 F.2d 921, 922 (9th Cir. 1987).
5
See Aetna Health, Inc. v. Davila, 542 U.S.
200, 124 S.Ct. 2488 (2004).
6
H.R. Rep. No. 86-957, at 1 (1959), reprinted
in 1959 U.S.C.C.A.N. 2913, 2914.
7
See 5 U.S.C. § 8901.
8
See Hayes v. Prudential Ins. Co. of America,
819 F.2d 921, 922 (9th Cir. 1987).
9
Blue Cross and Blue Shield of Illinois v. Cruz,
396 F.3d 793, 795 (7th Cir. 2005).
10
Id.
11
Pursuant to 5 U.S.C. § 8901(7), “’Carrier’
means a voluntary association, corporation,
partnership, or other nongovernmental organization which is lawfully engaged in providing,
paying for, or reimbursing the cost of, health
services under group insurance policies or
contracts, medical or hospital service agreements, membership or subscription contracts,
or similar group arrangements, in consideration
of premiums or other periodic charges payable
to the carrier, including a health benefits plan
duly sponsored or underwritten by an employee
organization.”
12
OFFICE OF PERSONNEL MANAGEMENT, FEHB
HANDBOOK, supra note 3.
13
The Health Maintenance Organization of
New Jersey, Inc. v. Whitman, 72 F.3d 1123,
1130 (3rd Cir. 1995) (citing 5 U.S.C. § 8906
(1994)).
14
See Hayes v. Prudential Ins. Co. of America,
819 F.2d 921, 922 (9th Cir. 1987) (“After OPM
negotiates changes with the carriers all federal
enrollees are permitted to switch enrollment
from one plan to another, regardless of their
state of health, during a period called ‘open
season.’ Each enrollee thus may obtain the
most beneficial plan but is not guaranteed the
same coverage in future years that had been
available the preceding year.”).
15
5 U.S.C. § 8913(a).
16
5 C.F.R. § 890.105(b) (1998).
17
Id. § 890.105(b)(2).
18
Id.
19
H.R. Rep. No. 459 (1983).
20
5 C.F.R. §§ 890.105(a)(1), (3) (1998).
21
See id. § 890.105(a).
22
Id. § 890.105(e)(1).
23
Id. § 890.105(e)(4).
24
Id. § 890.105(e)(2).
25
See id. § 890.105(e)(5). Such actions are
not typically taken by private carriers.
26
See 5 U.S.C. § 8902(j).
27
See 5 C.F.R. § 890.105(a)(1) (1998).
28
See id. § 890.107(c).
29
See id. § 890.107(c).
30
See id. §§ 890.107(c), (d).
31
See id. § 890.107(d).
32
See id. § 890.107(c).
33
See Harris v. Mutual of Omaha Cos., 992
F.2d 74, 79 (7th Cir. 1993)(concluding the
Administrative Procedure Act governs review
of final OPM decisions); Caudill v. Blue Cross
& Blue Shield, 999 F.2d 74, 79 (4th Cir.
1993)(same).
34
See, e.g., Bryan v. Office of Personnel
Management, 165 F.3d 1315 (10th Cir. 1999)
(affirming the district court’s denial of attorneys
fees to a claimant).
35
See, e.g., Metro. Life Ins. Co. v. Taylor, 481
U.S. 58, 62-64, 107 S.Ct. 1542 (1987) (holding
that employee’s state law claims were preempted by ERISA and were therefore federal
causes of action).
36
Id.
37
H.R. Rep. No. 282, at 4 (1977).
38
Id.
39
5 U.S.C. § 8902(m)(1) (amended 1998).
40
See Haller v. Kaiser Found. Health Plan of
the Northwest, 184 F.Supp.2d 1040, 1046-48
(D. Or. 2001) (explaining that there is a spit
among the district courts and citing various
cases for both positions).
41
See, e.g., Blue Cross & Blue Shield of
Florida, Inc. v. Departmet of Banking and
Sedgwick, Detert, Moran & Arnold LLP
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This article first appeared in the American
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Health Lawyer (vol. 18, no. 1, October
2005). Copyright © 2005 American Bar
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Reproduced with permission. All rights
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Id.
Id. at 850.
55
Id. at 851.
56
See, e.g., Kincade v. Group Health Services
of Oklahoma, 945 P.2d 485 (Okla. 1997).
57
Linda Greenhouse, Justices Hear Arguments
About H.M.O. Malpractice Lawsuits, THE NEW
YORK TIMES (March 24, 2004).
58
Aetna Health, Inc. v. Davila, 542 U.S. 200,
331, 124 S.Ct. 2488 (2004).
59
Id. at 335.
60
See McCoy v. Unicare Life and Health Ins.
Co., 2004 WL 2358277, 34 Employee Benefits
Cas. 2047 (N.D.Ill. October 14, 2004).
61
The court cited Haller v. Kaiser Found. Health
Plan of the Northwest, 184 F.Supp.2d 1040,
1046-48 (D. Or. 2001 (explaining that there is a
spit among the district courts and citing various
cases for both positions).
62
The court followed the reasoning set forth
in Doyle v. Blue Cross Blue Shield of Illinois,
149 F.Supp.2d 427 (N.D. Ill. 2001) and Rievley
v. Blue Cross Blue Shield of Tennessee, 69
F.Supp.2d 1028 (E.D. Tenn. 1999). In both
cases, the courts analyzed the expansive
language included in FEHBA and noted that the
1998 amendment to the preemption clause.
63
Davila, 542 U.S. 200.
64
McCoy, 2004 WL 2358277 at 1.
65
Id. at 5.
66
Benotti v. First Health, No. DC-5853-04 (N.J.
Super. L. Div.) (finding the rationale expressed
in McCoy for complete preemption under
FEHBA to be persuasive).
53
Los Angeles
Fred A. Smith can be reached at:
provision of this subchapter . . . 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).
50
See, e.g., Botsford v. Blue Cross and Blue
Shield of Montana, Inc., 314 F.3d 390, 397 (9th
Cir. 2002) (instructing the district court to dismiss
plaintiff’s claim under the Montana Unfair Trade
Practices Act with prejudice after concluding
that FEHBA completely preempted the state
law claim); Doyle v. Blue Cross Blue Shield of
Illinois, 149 F.Supp.2d 427, 432 (N.D. Ill. 2001)
(concluding that Congress clearly intended for
the terms of FEHBA plan contracts to completely preempt state law causes of action relating to
health insurance or plans); Blue Cross and Blue
Shield of Illinois v. Cruz, 2003 WL 22715815
(N.D. Ill. 2003) (recognizing FEHBA preemption
for coverage and benefit claims); Kight v. Kaiser
Foundation Health Plan of the Mid-Atlantic
States, Inc., 34 F.Supp.2d 334, 337-340 (E.D.
Va. 1999) (recognizing that “[c]onsidering the
language of the statute and the legislative history,” there can be no question that “Congress
has clearly manifested an intent to preempt
state law regarding the terms and benefits of
FEHBA plans” and holding that challenges to
benefit determinations, even when cast as state
law claims, fall within FEHBA’s civil enforcement
provisions); Rievely v. Blue Cross Blue Shield
of Tennessee, 69 F.Supp.2d 1028, 1032-36
(E.D. Tenn. 1999) (denying motion to remand
and finding removal proper based on FEHBA’s
preemption of state law claims).
51
See Pegram v. Herdrich, 530 U.S. 211, 120
S.Ct. 2143 (2000).
52
See Roach v. Mail Handlers Benefit Plan, 298
F.3d 847 (9th Cir. 2002).
London
Fin., 791 F.2d 1501 (11th Cir. 1986) (Florida’s
Unclaimed Property Act preempted to the extent
it conflicts with federal employee benefit plan);
Myers v. United States, 767 F.2d 1072, 1074
(4th Cir. 1985) (state law which purports to allow
recovery of additional benefits not contemplated
by a federal insurance contract must be deemed
inconsistent with and preempted by FEHBA);
and Tackitt v. Prudential Ins. Co., 758 F.2d
1572, 1575 (11th Cir. 1985) (“the interpretation
of health insurance contracts is controlled by
federal, not state, law”).
42
See, e.g., Howard v. Group Hosp. Serv., 739
F.2d 1508, 1510-12 (10th Cir. 1984) (approving
state law interpretation of FEHBA plan); Eidler
v. Blue Cross Blue Shield United of Wisconsin,
671 F.Supp. 1213 (E.D. Wisc. 1987) (holding
that plaintiff’s state tort claim of bad faith is not
barred by FEHBA).
43
See, e.g., Hayes v. Prudential Ins. Co. of
America, 819 F.2d 921 (9th Cir. 1987).
44
See id. at 926; Blue Cross & Blue Shield, Inc.
v. Department of Banking & Fin., 791 F.2d 1501
(11th Cir. 1986).
45
See Brian Harr, Legislative Reform: FEHBA’s
Preemption Clause: Is It a Model for Private
Employers’ Subsidized Health Care?, 22 J.
LEGIS. 267, 273 (1996) (“Since the courts have
been unable to agree upon what Congress’ true
intent was, Congress should amend section
8902(m)(1).”).
46
H.R. Rep. No. 105-374, at 9 (1998).
47
Id.
48
Wormack v. Southeastern Mutual Ins. Co.,
907 S.W.2d 163, 166 (Ky. Ct. App. 1995)
(quoting Caudill v. Blue Cross and Blue Shield
of North Carolina, 99 F.2d 74, 78-79 (4th Cir.
1993)).
49
ERISA’s preemption clause states: “the
Dallas
An Over view of FEHBA and the Power of Its Preemption Continued