There’s a very interesting subrogation opinion just issued by the Eastern District of Pennsylvania: Benefit Concepts v. Carmelann Macera. The facts of the case are as follows:
The plaintiff was an administrator of a self-funded health plan and was also a fiduciary of the plan, and the plan document contained a standard subrogation clause. When the defendant was injured in an automobile accident, she filed suit against the party involved in the automobile accident and the suit was settled for $60,000. The subrogation agent for the plan administrator of the health plan which had paid for part of the defendant’s medical bills incurred in the accident demanded that the defendant reimburse the plan for the medical expenses which the plan had paid. (Before the plan paid the defendant’s medical bills, the defendant had signed a Subrogation Agreement in which she agreed to abide by the plan’s subrogation clause, but the defendant had added language to the effect that the defendant recognized the plan’s claim only “to the extent allowed by Act VI [the Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”)] and all other laws regarding payment of reasonable expenses.”)
The plan administrator brought suit seeking to enforce the plan’s subrogation rights and the defendant asserted a counterclaim alleging that the plan administrator breached its fiduciary duties by overpaying her medical providers, arguing that the plan administrator should not have paid the medical bills in full due to section 1797(a) of the MVFRL. That provision provided statutorily specified limitations on how much could be paid to medical providers under the MVFRL.
Preemption Analysis: The court held that section 1797(a) was preempted by ERISA under the “deemer clause” of ERISA because the plan was a self-funded plan. However, before reaching the “deemer clause” analysis, the court first analyzed whether the provision would be “saved” from preemption as a law regulating insurance under the “savings clause” of ERISA, utilizing the two-part test promulgated by the U.S. Supreme Court case of Kentucky Ass’n of Health Plans v. Miller , 538 U.S. 329, 341-42, 123 S. Ct. 1471, 1479 (2003) (read about the Miller case here and here):
For a state law to “regulate insurance,” and thus be saved from preemption, it must (1) “be specifically directed toward entities engaged in insurance”; and (2) “substantially affect the risk pooling arrangement between the insurer and the insured.”
The court went on to hold that the provision met the Miller test, and was thus saved from preemption under the “savings clause.” With respect to the first prong of the test, the court reasoned that Section 1797(a) is specifically directed toward the insurance industry because it was enacted “to reduce the rising cost of purchasing motor vehicle insurance.” With respect to the second prong of the test, the court opined that Section 1797(a) substantially affects the risk pooling arrangement between insurers and their insureds because it limits the rates that medical providers can charge insurers, thus reducing insurers’ actuarial risk and in turn permitting them to pass the cost savings onto the insureds.
However, the court then stated that since the Plan was a self-funded employee benefit plan, “the deemer clause forecloses any possibility that Section 1797(a) could apply”, noting in footnote 8:
To the extent that Section 1797(a) regulates entities other than self-funded employee benefit plans, such as automobile insurance companies, the deemer clause does not apply, and ERISA does not preempt the application of Section 1797(a) to those entities.
Comment: Under the court’s analysis, it would appear that fully insured health plans would also likely be included as entities which would be subject to section 1797(a) of the MVFRL which leads to this query: How would the court have ruled on the fiduciary breach issue if the plan had not been self-funded? (The court did not reach a decision on that issue since the provision was preempted under the “deemer clause.”) Could fiduciaries of insured health plans be deemed personally liable for failure to comply with section 1797(a) of the MVFRL?
Read more about the case in this article from Law.com: “ERISA Found to Pre-empt Motor Vehicle Law’s Medical Caps.”
Also, remember the U.S. Supreme Court case of FMC Corporation v. Cynthia Ann Holliday, 498 U.S. 52, 111 S. Ct. 403, 112 L.Ed. 356 (1990), which held that ERISA preempted the application of section 1720 of Pennsylvania’s MVFRL under a pre-Miller analysis.