High court punches another hole in the federal law shielding HMOs

A decision on Kentucky's "any-willing-provider" law further weakens health plans' ERISA armor.

By Tanya Albert, amednews staff. April 21, 2003.

For the third time in four years, the U.S. Supreme Court has ruled that federal law doesn't automatically safeguard health plans from state insurance laws that might offer protection to physicians and patients -- and this time the justices said it unanimously.

The high court ruled this month that the Employee Retirement Income Security Act of 1974 does not preempt a Kentucky law that requires health plans to include doctors, pharmacists or other health professionals in networks if they meet the plans' criteria.

Case at a glance
Links
See related content
Region: South

In addition to Kentucky's statute, commonly known as the "any-willing-provider" law, Idaho, Illinois, Indiana, Virginia and Wyoming also have laws that apply directly to physicians. Even more states have laws that apply to other health professionals.

The Supreme Court decision lets Kentucky continue its open network policy, which was designed to ensure patients' access to the physicians they wanted and to give qualified physicians a guarantee that their businesses wouldn't be jeopardized because a health plan refused to make them part of a network.

But even more significant, many say, is the fact that the U.S. Supreme Court again ruled that ERISA doesn't shield health plans from state laws. For years, the court has allowed the federal law to preempt state statutes.

"The states and physicians in the states can try to improve quality of care and public health issues and not have that lost because of ERISA," said Saul Morse, general counsel for the Illinois State Medical Society.

AMA President-elect Donald J. Palmisano, MD, said the decision was a victory that "adds clarity to patient protections established by state lawmakers against the abuses of managed care." The AMA joined the Kentucky Medical Assn. and several other medical societies in a friend-of-the-court brief that said health plans should have to abide by state laws that regulate insurance, as the any-willing-provider law does.

Some experts say the decision is a sign that the whole atmosphere for managed care companies is changing, with the states having more control over how companies operating in their borders do business.

"Early Supreme Court decisions leaned in favor of preemption, giving states less power," said health lawyer James P. McElligott, a partner with McGuire Woods in Virginia whose practice focuses on ERISA law. "But we have seen the pendulum moving back the other way, with the court saying states can regulate insurance."

Court makes "a clean break"

The first shift in opinion came in 2000, when the high court opened the door to the idea that "mixed decisions," in which benefit decisions were intertwined with medical judgment, could be subject to state laws that traditionally govern insurance and medicine.

Last year, the U.S. Supreme Court said a health plan was subject to an Illinois independent review law that health plans argued ERISA should preempt. Now, the court in Kentucky Assn. of Health Plans v. Miller said Kentucky's law is one that regulates insurance and that states have the right to pass laws that are aimed at regulating insurance.

The Kentucky Assn. of Health Plans argued that the Kentucky any-willing-provider law fell outside state insurance regulation because it was not specifically directed at the insurance industry and it did not regulate an insurance practice. But the Supreme Court disagreed with that argument and in the last paragraph of its ruling said it was making a "clean break" from previous factors that had been used when considering whether a law qualified as one that "regulates insurance."

"First, the state law must be directed toward entities engaged in insurance," the justices stated. "Second ... the state law must substantially affect the risk pooling arrangement between the insurer and the insured. Kentucky's law satisfies each of these requirements."

Karen Ignagni, president and CEO of the American Assn. of Health Plans, said the court's ruling made it even more important for state lawmakers to carefully evaluate legislation before they pass it. She noted that California and Massachusetts now have review commissions that look at laws aimed at health insurers to make sure they are in the best interest of consumers.

The last paragraph of the ruling "is an acknowledgement that insurance has been regulated at the state level, and that it will continue to be regulated that way," Ignagni said.

States react

While ERISA experts study what the opinion means for the federal law, the Kentucky health plan group said it was disappointed with the court ruling because it keeps the any-willing-provider law in place.

When plans are forced to include all doctors and other health professionals in a network, costs increase, and those costs are passed on to employers and consumers, said Melodie Shrader, the group's executive director.

"The unintended consequences of this decision will be that fewer employers will be able to afford health insurance for their employees in the future," she said.

But Ignani said that on the national level, the decision changes little. States are no longer passing these laws. Also, as the industry has matured since the 1994 Kentucky law was passed, health plans already have responded to members' requests for more options and choices.

State medical association President-elect Andrew Pulito, MD, said the court's decision keeps a good consumer-protection law intact in Kentucky. Before the law, patients who switched to a health plan that their doctor of many years was not a part of were forced to choose between a new physician or to pay out-of-network prices to see their current doctors.

"It can only help physicians and patients," said Dr. Pulito, a pediatric surgeon. "It gives them more choices and continuity of care."

ADDITIONAL INFORMATION:

Case at a glance

Kentucky Assn. of Health Plans Inc. et al. v. Janie A. Miller, commissioner, Kentucky Dept. of Insurance

Venue: U.S. Supreme Court
At issue: Whether the Employee Retirement Income Security Act of 1974 preempts a Kentucky law that requires health plans to accept any physician, pharmacist or other health professional who meets contract criteria. The court said no.
Potential impact: The ruling keeps physician networks open in Kentucky and a handful of other states. But even more important, many legal experts say, the high court has again ruled that ERISA doesn't automatically preempt state laws regulating insurance.

Weblink

U.S. Supreme Court opinion in Kentucky Assn. of Health Plans Inc. et al. v. Janie A. Miller, commissioner, Kentucky Dept. of Insurance, in pdf (http://www.supremecourtus.gov/opinions/02pdf/00-1471.pdf)