Syllabus
SUPREME COURT OF THE UNITED STATES
RUSH PRUDENTIAL HMO, INC. v. MORAN et al.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE SEVENTH CIRCUIT
No. 00—1021. Argued January 16, 2002–Decided June
20, 2002
Petitioner Rush Prudential HMO, Inc., a health maintenance organization
(HMO) that contracts to provide medical services for employee welfare
benefits plans covered by the Employee Retirement Income Security Act
of 1974 (ERISA), denied respondent Moran’s request to have surgery by
an unaffiliated specialist on the ground that the procedure was not medically
necessary. Moran made a written demand for an independent medical review
of her claim, as guaranteed by §4—10 of Illinois’s HMO Act, which further
provides that “[i]n the event that the reviewing physician determines
the covered service to be medically necessary,” the HMO “shall provide”
the service. Rush refused her demand, and Moran sued in state court to
compel compliance with the Act. That court ordered the review, which
found the treatment necessary, but Rush again denied the claim. While
the suit was pending, Moran had the surgery and amended her complaint
to seek reimbursement. Rush removed the case to federal court, arguing
that the amended complaint stated a claim for ERISA benefits. The District
Court treated Moran’s claim as a suit under ERISA and denied it on the
ground that ERISA preempted §4—10. The Seventh Circuit reversed. It found
Moran’s reimbursement claim preempted by ERISA so as to place the case
in federal court, but it concluded that the state Act was not preempted
as a state law that “relates to” an employee benefit plan, 29 U.S. C.
§1144(a), because it also “regulates insurance” under ERISA’s saving
clause, §1144(b)(2)(a).
Held: ERISA does not preempt the Illinois HMO Act. Pp. 6—31.
(a) In deciding whether a law regulates insurance, this Court starts
with a commonsense view of the matter, Metropolitan Life Ins. Co. v. Massachusetts, 471
U.S. 724, 740, which requires a law to “be specifically directed toward”
the insurance industry, Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 50. It then tests the results of the commonsense enquiry by
employing the three factors used to point to insurance laws spared from
federal preemption under the McCarran-Ferguson Act. Pp. 6—18.
(1) The Illinois HMO Act is directed toward the insurance industry, and
thus is an insurance regulation under a commonsense view. Although an
HMO provides healthcare in addition to insurance, nothing in the saving
clause requires an either-or choice between healthcare and insurance.
Congress recognized, the year before passing ERISA, that HMOs are risk-bearing
organizations subject to state insurance regulation. That conception
has not changed in the intervening years. States have been adopting their
own HMO enabling Acts, and at least 40, including Illinois, regulate
HMOs primarily through state insurance departments. Rush cannot submerge
HMOs’ insurance features beneath an exclusive characterization of HMOs
as health care providers. And the argument of Rush and its amici that
§4—10 sweeps beyond the insurance industry, capturing organizations that
provide no insurance and regulating noninsurance activities of HMOs that
do, is based on unsound assumptions. Pp. 9—16.
(2) The McCarran-Ferguson factors confirm this conclusion. A state law
does not have to satisfy all three factors to survive preemption, and
§4—10 clearly satisfies two. The independent review requirement satisfies
the factor that a provision regulate “an integral part of the policy
relationship between the insurer and the insured.” Union Labor Life
Ins. Co. v. Pireno, 458 U.S. 119, 129. Illinois adds an
extra review layer when there is an internal disagreement about an HMO’s
denial of coverage, and the reviewer both applies a medical care standard
and construes policy terms. Thus, the review affects a policy relationship
by translating the relationship under the HMO agreement into concrete
terms of specific obligation or freedom from duty. The factor that the
law be aimed at a practice “limited to entities within the insurance
industry,” ibid., is satisfied for many of the same reasons
that the law passes the commonsense test: It regulates application of
HMO contracts and provides for review of claim denials; once it is established
that HMO contracts are contracts for insurance, it is clear that §4—10
does not apply to entities outside the insurance industry. Pp. 16—18.
(b) This Court rejects Rush’s contention that, even though ERISA’s saving
clause ostensibly forecloses preemption, congressional intent to the
contrary is so clear that it overrides the statutory provision. Pp. 18—30.
(1) The Court has recognized an overpowering federal policy of exclusivity
in ERISA’s civil enforcement provisions located at 29 U.S.C. § 1132(a);
and it has anticipated that in a conflict between congressional polices
of exclusively federal remedies and the States’ regulation of insurance,
the state regulation would lose out if it allows remedies that Congress
rejected in ERISA, Pilot Life, 481 U.S., at 54. Rush argues
that §4—10 is preempted for creating the kind of alternative remedy that
this Court disparaged in Pilot Life, one that subverts congressional
intent, clearly expressed through ERISA’s structure and legislative history,
that the federal remedy displace state causes of action. Rush overstates Pilot
Life’s rule. The enquiry into state processes alleged to “supplemen[t]
or supplan[t]” ERISA remedies, id., at 56, has, up to now, been
more straightforward than it is here. Pilot Life, Massachusetts Mut.
Life Ins. Co. v. Russell, 473 U.S. 134, and Ingersoll-Rand
Co. v. McClendon, 498 U.S. 133, all involved an additional
claim or remedy that ERISA did not authorize. In contrast, the review
here may settle a benefit claim’s fate, but the state statute does not
enlarge the claim beyond the benefits available in any §1132(a) action.
And although the reviewer’s determination would presumably replace the
HMO’s as to what is medically necessary, the ultimate relief available
would still be what ERISA authorizes in a §1132(a) suit for benefits.
This case therefore resembles the claims-procedure rule that the Court
sustained in UNUM Life Ins. Co. of America v. Ward, 526
U.S. 358. Section 4—10’s procedure does not fall within Pilot Life’s
categorical preemption. Pp. 20—24.
(2) Nor does §4—10’s procedural imposition interfere unreasonably with
Congress’s intention to provide a uniform federal regime of “rights and
obligations” under ERISA. Although this Court has recognized a limited
exception from the saving clause for alternative causes of action and
alternative remedies, further limits on insurance regulation preserved
by ERISA are unlikely to deserve recognition. A State might provide for
a type of review that would so resemble an adjudication as to fall within Pilot
Life’s categorical bar, but that is not the case here. Section 4—10
is significantly different from common arbitration. The independent reviewer
has no free-ranging power to construe contract terms, but instead confines
review to the single phrase “medically necessary.” That reviewer must
be a physician with credentials similar to those of the primary care
physician and is expected to exercise independent medical judgment, based
on medical records submitted by the parties, in deciding what medical
necessity requires. This process does not resemble either contract interpretation
or evidentiary litigation before a neutral arbiter as much as it looks
like the practice of obtaining a second opinion. In addition, §4—10 does
not clash with any deferential standard for reviewing benefit denials
in judicial proceedings. ERISA itself says nothing about a standard.
It simply requires plans to afford a beneficiary some mechanism for internal
review of a benefit denial and provides a right to a subsequent judicial
forum for a claim to recover benefits. Although certain “discretionary”
plan interpretations may receive deference from a reviewing court, see Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, nothing
in ERISA requires that medical necessity decisions be “discretionary”
in the first place. Pp. 24—30.
230 F.3d 959, affirmed.
Souter, J., delivered the opinion of the Court, in which Stevens,
O’Connor, Ginsburg, and Breyer, JJ., joined. Thomas, J., filed a
dissenting opinion, in which Rehnquist, C. J., and Scalia and Kennedy,
JJ., joined.
Opinion of the Court
SUPREME COURT OF THE UNITED STATES
No. 00—1021
RUSH PRUDENTIAL HMO, INC., PETITIONER v.
DEBRA C. MORAN et al.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SEVENTH CIRCUIT
[June 20, 2002]
Justice Souter delivered the opinion of the Court.
Section 4—10 of Illinois’s Health Maintenance Organization Act, 215 Ill.
Comp. Stat., ch. 125, §4—10 (2000), provides recipients of health coverage
by such organizations with a right to independent medical review of certain
denials of benefits. The issue in this case is whether the statute, as
applied to health benefits provided by a health maintenance organization
under contract with an employee welfare benefit plan, is preempted by
the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat.
832, as amended, 29 U.S.C. § 1001 et seq. We hold it is not.
I
Petitioner, Rush Prudential HMO, Inc., is a health maintenance organization
(HMO) that contracts to provide medical services for employee welfare
benefit plans covered by ERISA. Respondent Debra Moran is a beneficiary
under one such plan, sponsored by her husband’s employer. Rush’s “Certificate
of Group Coverage,” issued to employees who participate in employer-sponsored
plans, promises that Rush will provide them with “medically necessary”
services. The terms of the certificate give Rush the “broadest possible
discretion” to determine whether a medical service claimed by a beneficiary
is covered under the certificate. The certificate specifies that a service
is covered as “medically necessary” if Rush finds:
“(a) [The service] is furnished or authorized by a Participating Doctor
for the diagnosis or the treatment of a Sickness or Injury or for the
maintenance of a person’s good health.
“(b) The prevailing opinion within the appropriate specialty of the United
States medical profession is that [the service] is safe and effective
for its intended use, and that its omission would adversely affect the
person’s medical condition.
“(c) It is furnished by a provider with appropriate training, experience,
staff and facilities to furnish that particular service or supply.” Record,
Plaintiff’s Exh. A, p. 21.
As the certificate explains, Rush contracts with physicians “to arrange
for or provide services and supplies for medical care and treatment”
of covered persons. Each covered person selects a primary care physician
from those under contract to Rush, while Rush will pay for medical services
by an unaffiliated physician only if the services have been “authorized”
both by the primary care physician and Rush’s medical director. See id., at
11, 16.
In 1996, when Moran began to have pain and numbness in her right shoulder,
Dr. Arthur LaMarre, her primary care physician, unsuccessfully administered
“conservative” treatments such as physiotherapy. In October 1997, Dr.
LaMarre recommended that Rush approve surgery by an unaffiliated specialist,
Dr. Julia Terzis, who had developed an unconventional treatment for Moran’s
condition. Although Dr. LaMarre said that Moran would be “best served”
by that procedure, Rush denied the request and, after Moran’s internal
appeals, affirmed the denial on the ground that the procedure was not
“medically necessary.” 230 F.3d 959, 963 (CA7 2000). Rush instead proposed
that Moran undergo standard surgery, performed by a physician affiliated
with Rush.
In January 1998, Moran made a written demand for an independent medical
review of her claim, as guaranteed by §4—10 of Illinois’s HMO Act, 215
Ill. Comp. Stat., ch. 125, §4—10 et seq. (2000), which provides:
“Each Health Maintenance Organization shall provide a mechanism for the
timely review by a physician holding the same class of license as the
primary care physician, who is unaffiliated with the Health Maintenance
Organization, jointly selected by the patient … , primary care physician
and the Health Maintenance Organization in the event of a dispute between
the primary care physician and the Health Maintenance Organization regarding
the medical necessity of a covered service proposed by a primary care
physician. In the event that the reviewing physician determines the covered
service to be medically necessary, the Health Maintenance Organization
shall provide the covered service.”
The Act defines a “Health Maintenance Organization” as
“any organization formed under the laws of this or another state to provide
or arrange for one or more health care plans under a system which causes
any part of the risk of health care delivery to be borne by the organization
or its providers.” Ch. 125, §1—2. [1]
When Rush failed to provide the independent review, Moran sued in an
Illinois state court to compel compliance with the state Act. Rush removed
the suit to Federal District Court, arguing that the cause of action
was “completely preempted” under ERISA. 230 F.3d, at 964.
While the suit was pending, Moran had surgery by Dr. Terzis at her own
expense and submitted a $94,841.27 reimbursement claim to Rush. Rush
treated the claim as a renewed request for benefits and began a new inquiry
to determine coverage. The three doctors consulted by Rush said the surgery
had been medically unnecessary.
Meanwhile, the federal court remanded the case back to state court on
Moran’s motion, concluding that because Moran’s request for independent
review under §4—10 would not require interpretation of the terms of an
ERISA plan, the claim was not “completely preempted” so as to permit
removal under 28 U.S.C. § 1441. [2] 230 F.3d, at 964.
The state court enforced the state statute and ordered Rush to submit
to review by an independent physician. The doctor selected was a reconstructive
surgeon at Johns Hopkins Medical Center, Dr. A. Lee Dellon. Dr. Dellon
decided that Dr. Terzis’s treatment had been medically necessary, based
on the definition of medical necessity in Rush’s Certificate of Group
Coverage, as well as his own medical judgment. Rush’s medical director,
however, refused to concede that the surgery had been medically necessary,
and denied Moran’s claim in January 1999.
Moran amended her complaint in state court to seek reimbursement for
the surgery as “medically necessary” under Illinois’s HMO Act, and Rush
again removed to federal court, arguing that Moran’s amended complaint
stated a claim for ERISA benefits and was thus completely preempted by
ERISA’s civil enforcement provisions, 29 U.S.C. § 1132(a), as construed
by this Court in Metropolitan Life Ins. Co. v. Taylor,
481 U.S. 58 (1987). The District Court treated Moran’s claim as a suit
under ERISA, and denied the claim on the ground that ERISA preempted
Illinois’s independent review statute. [3]
The Court of Appeals for the Seventh Circuit reversed. 230 F.3d 959 (2000).
Although it found Moran’s state-law reimbursement claim completely preempted
by ERISA so as to place the case in federal court, the Seventh Circuit
did not agree that the substantive provisions of Illinois’s HMO Act were
so preempted. The court noted that although ERISA broadly preempts any
state laws that “relate to” employee benefit plans, 29 U.S.C. § 1144(a),
state laws that “regulat[e] insurance” are saved from preemption, §1144(b)(2)(A).
The court held that the Illinois HMO Act was such a law, the independent
review requirement being little different from a state-mandated contractual
term of the sort this Court had held to survive ERISA preemption. See230
F.3d, at 972 (citing UNUM Life Ins. Co. of America v. Ward,
526 U.S. 358, 375—376 (1999)). The Seventh Circuit rejected the contention
that Illinois’s independent review requirement constituted a forbidden
“alternative remedy” under this Court’s holding in Pilot Life Ins.
Co. v. Dedeaux, 481 U.S. 41 (1987), and emphasized that
§4—10 does not authorize any particular form of relief in state courts;
rather, with respect to any ERISA health plan, the judgment of the independent
reviewer is only enforceable in an action brought under ERISA’s civil
enforcement scheme, 29 U.S.C. § 1132(a). 230 F.3d, at 971.
Because the decision of the Court of Appeals conflicted with the Fifth
Circuit’s treatment of a similar provision of Texas law in Corporate
Health Ins., Inc. v. Texas Dept. of Ins., 215 F.3d 526
(2000), we granted certiorari, 533 U.S. 948 (2001). We now affirm.
II
To “safeguar[d] … the establishment, operation, and administration” of
employee benefit plans, ERISA sets “minimum standards … assuring the
equitable character of such plans and their financial soundness,” 29
U.S.C. § 1001(a), and contains an express preemption provision that ERISA
“shall supersede any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan … .” §1144(a). A saving clause then
reclaims a substantial amount of ground with its provision that “nothing
in this subchapter shall be construed to exempt or relieve any person
from any law of any State which regulates insurance, banking, or securities.”
§1144(b)(2)(A). The “unhelpful” drafting of these antiphonal clauses, New
York State Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645, 656 (1995), occupies a substantial share
of this Court’s time, see, e.g., Egelhoff v. Egelhoff,
532 U.S. 141 (2001); UNUM Life Ins. Co. of America v. Ward, supra; California
Div. of Labor Standards Enforcement v. Dillingham Constr., N. A.,
Inc., 519 U.S. 316 (1997); Metropolitan Life Ins. Co. v. Massachusetts,
471 U.S. 724 (1985). In trying to extrapolate congressional intent in
a case like this, when congressional language seems simultaneously to
preempt everything and hardly anything, we “have no choice” but to temper
the assumption that “ ‘the ordinary meaning … accurately expresses the
legislative purpose,’ ” id., at 740 (quoting Park ’N Fly v. Dollar
Park and Fly, Inc., 469 U.S. 189, 194 (1985)), with the qualification
“ ‘that the historic police powers of the States were not [meant] to
be superseded by the Federal Act unless that was the clear and manifest
purpose of Congress.’ ” Travelers, supra, at 655 (quoting Rice v. Santa Fe
Elevator Corp., 331 U.S. 218, 230 (1947)).
It is beyond serious dispute that under existing precedent §4—10 of the
Illinois HMO Act “relates to” employee benefit plans within the meaning
of §1144(a). The state law bears “indirectly but substantially on all
insured benefit plans,” Metropolitan Life, 471 U.S., at 739,
by requiring them to submit to an extra layer of review for certain benefit
denials if they purchase medical coverage from any of the common types
of health care organizations covered by the state law’s definition of
HMO. As a law that “relates to” ERISA plans under §1144(a), §4—10 is
saved from preemption only if it also “regulates insurance” under §1144(b)(2)(A).
Rush insists that the Act is not such a law.
A
In Metropolitan Life, we said that in deciding whether a law
“regulates insurance” under ERISA’s saving clause, we start with a “common-sense
view of the matter,” 471 U.S., at 740, under which “a law must not just
have an impact on the insurance industry, but must be specifically directed
toward that industry.” Pilot Life Ins. Co. v. Dedeaux, supra, at
50. We then test the results of the common-sense enquiry by employing
the three factors used to point to insurance laws spared from federal
preemption under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. [4]
Although this is not the place to plot the exact perimeter of the saving
clause, it is generally fair to think of the combined “common-sense”
and McCarran-Ferguson factors as parsing the “who” and the “what”: when
insurers are regulated with respect to their insurance practices, the
state law survives ERISA. Cf. Group Life & Health Ins. Co. v. Royal
Drug Co., 440 U.S. 205, 211 (1979) (explaining that the “business
of insurance” is not coextensive with the “business of insurers”).
1
The common-sense enquiry focuses on “primary elements of an insurance
contract[, which] are the spreading and underwriting of a policyholder’s
risk.” Id., at 211. The Illinois statute addresses these elements
by defining “health maintenance organization” by reference to the risk
that it bears. See 215 Ill. Comp. Stat., ch. 125, §1—2(9) (2000) (an
HMO “provide[s] or arrange[s] for … health care plans under a system
which causes any part of the risk of health care delivery to be borne
by the organization or its providers”).
Rush contends that seeing an HMO as an insurer distorts the nature of
an HMO, which is, after all, a health care provider, too. This, Rush
argues, should determine its characterization, with the consequence that
regulation of an HMO is not insurance regulation within the meaning of
ERISA.
The answer to Rush is, of course, that an HMO is both: it provides health
care, and it does so as an insurer. Nothing in the saving clause requires
an either-or choice between health care and insurance in deciding a preemption
question, and as long as providing insurance fairly accounts for the
application of state law, the saving clause may apply. There is no serious
question about that here, for it would ignore the whole purpose of the
HMO-style of organization to conceive of HMOs (even in the traditional
sense, see n. 1, supra) without their insurance element.
“The defining feature of an HMO is receipt of a fixed fee for each patient
enrolled under the terms of a contract to provide specified health care
if needed.” Pegram v. Herdrich, 530 U.S. 211, 218 (2000).
“The HMO thus assumes the financial risk of providing the benefits promised:
if a participant never gets sick, the HMO keeps the money regardless,
and if a participant becomes expensively ill, the HMO is responsible
for the treatment … .” Id., at 218—219. The HMO design goes
beyond the simple truism that all contracts are, in some sense, insurance
against future fluctuations in price, R. Posner, Economic Analysis of
Law 104 (4th ed. 1992), because HMOs actually underwrite and spread risk
among their participants, see, e.g., R. Shouldice, Introduction
to Managed Care 450—462 (1991), a feature distinctive to insurance, see,
e.g., SEC v. Variable Annuity Life Ins. Co. of America,
359 U.S. 65, 73 (1959) (underwriting of risk is an “earmark of insurance
as it has commonly been conceived of in popular understanding and usage”); Royal
Drug, supra, at 215, n. 12 (“[U]nless there is some element
of spreading risk more widely, there is no underwriting of risk”).
So Congress has understood from the start, when the phrase “Health Maintenance
Organization” was established and defined in the HMO Act of 1973. The
Act was intended to encourage the development of HMOs as a new form of
health care delivery system, see S. Rep. No. 93—129, pp. 7—9 (1973),
and when Congress set the standards that the new health delivery organizations
would have to meet to get certain federal benefits, the terms included
requirements that the organizations bear and manage risk. See, e.g.,
Health Maintenance Organization Act of 1973, §1301(c), 87 Stat. 916,
as amended, 42 U.S.C. § 300e(c) (1994 ed.); S. Rep. No. 93—129, at 14
(explaining that HMOs necessarily bear some of the risk of providing
service, and requiring that a qualifying HMO “assum[e] direct financial
responsibility, without benefit of reinsurance, for care … in excess
of the first five thousand dollars per enrollee per year”). The Senate
Committee Report explained that federally qualified HMOs would be required
to provide “a basic package of benefits, consistent with existing health
insurance patterns,” id., at 10, and the very text of the Act
assumed that state insurance laws would apply to HMOs; it provided that
to the extent state insurance capitalization and reserve requirements
were too stringent to permit the formation of HMOs, “qualified” HMOs
would be exempt from such limiting regulation. See §1311, 42 U.S.C. §
300e—10. This congressional understanding that it was promoting a novel
form of insurance was made explicit in the Senate Report’s reference
to the practices of “health insurers to charge premium rates based upon
the actual claims experience of a particular group of subscribers,” thus
“raising costs and diminishing the availability of health insurance for
those suffering from costly illnesses,” S. Rep. No. 93—129, at 29—30.
The federal Act responded to this insurance practice by requiring qualifying
HMOs to adopt uniform capitation rates, see §1301(b), 42 U.S.C. § 300e(b),
and it was because of that mandate “pos[ing] substantial competitive
problems to newly emerging HMOs,” S. Rep. No. 93—129, at 30, that Congress
authorized funding subsidies, see §1304, 42 U.S.C. § 300e—4. The Senate
explanation left no doubt that it viewed an HMO as an insurer; the subsidy
was justified because “the same stringent requirements do not apply to
other indemnity or service benefits insurance plans.” S. Rep. No. 93—129,
at 30. In other words, one year before it passed ERISA, Congress itself
defined HMOs in part by reference to risk, set minimum standards for
managing the risk, showed awareness that States regulated HMOs as insurers,
and compared HMOs to “indemnity or service benefits insurance plans.”
This conception has not changed in the intervening years. Since passage
of the federal Act, States have been adopting their own HMO enabling
Acts, and today, at least 40 of them, including Illinois, regulate HMOs
primarily through the States’ insurance departments, see Aspen Health
Law and Compliance Center, Managed Care Law Manual 31—32 (Supp. 6, Nov.
1997), although they may be treated differently from traditional insurers,
owing to their additional role as health care providers, [5]
see, e.g., Alaska Ins. Code §21.86.010 (2000) (health department
reviews HMO before insurance commissioner grants a certificate of authority);
Ohio Rev. Code Ann. §1742.21 (West 1994) (health department may inspect
HMO). Finally, this view shared by Congress and the States has passed
into common understanding. HMOs (broadly defined) have “grown explosively
in the past decade and [are] now the dominant form of health plan coverage
for privately insured individuals.” Gold & Hurley, The Role of Managed
Care “Products” in Managed Care “Plans,” in Contemporary Managed Care
47 (M. Gold ed. 1998). While the original form of the HMO was a single
corporation employing its own physicians, the 1980s saw a variety of
other types of structures develop even as traditional insurers altered
their own plans by adopting HMO-like cost-control measures. See Weiner & de
Lissovoy, Razing a Tower of Babel: A Taxonomy for Managed Care and Health
Insurance Plans, 18 J. of Health Politics, Policy and Law 75, 83 (Spring
1993). The dominant feature is the combination of insurer and provider,
see Gold & Hurley, supra, at 47, and “an observer may be
hard pressed to uncover the differences among products that bill themselves
as HMOs, [preferred provider organizations], or managed care overlays
to health insurance.” Managed Care Law Manual, supra, at 1.
Thus, virtually all commentators on the American health care system describe
HMOs as a combination of insurer and provider, and observe that in recent
years, traditional “indemnity” insurance has fallen out of favor. See,
e.g., Weiner & de Lissovoy, supra, at 77 (“A common
characteristic of the new managed care plans was the degree to which
the roles of insurer and provider became integrated”); Gold, Understanding
the Roots: Health Maintenance Organizations in Historical Context, in
Contemporary Managed Care, supra, at 7, 8, 13; Managed Care
Law Manual, supra, at 1; R. Rosenblatt, S. Law, & S. Rosenbaum,
Law and the American Health Care System 552 (1997); Shouldice, Introduction
to Managed Care, at 13, 20. Rush cannot checkmate common sense by trying
to submerge HMOs’ insurance features beneath an exclusive characterization
of HMOs as providers of health care.
2
On a second tack, Rush and its amici dispute that §4—10 is aimed
specifically at the insurance industry. They say the law sweeps too broadly
with definitions capturing organizations that provide no insurance, and
by regulating noninsurance activities of HMOs that do. Rush points out
that Illinois law defines HMOs to include organizations that cause the
risk of health care delivery to be borne by the organization itself,
or by “its providers.” 215 Ill. Comp. Stat., ch. 125, §1—2(9) (2000).
In Rush’s view, the reference to “its providers” suggests that an organization
may be an HMO under state law (and subject to §4—10) even if it does
not bear risk itself, either because it has “devolve[d]” the risk of
health care delivery onto others, or because it has contracted only to
provide “administrative” or other services for self-funded plans. Brief
for Petitioner 38.
These arguments, however, are built on unsound assumptions. Rush’s first
contention assumes that an HMO is no longer an insurer when it arranges
to limit its exposure, as when an HMO arranges for capitated contracts
to compensate its affiliated physicians with a set fee for each HMO patient
regardless of the treatment provided. Under such an arrangement, Rush
claims, the risk is not borne by the HMO at all. In a similar vein, Rush
points out that HMOs may contract with third-party insurers to protect
themselves against large claims.
The problem with Rush’s argument is simply that a reinsurance contract
does not take the primary insurer out of the insurance business, cf.
Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993)
(applying McCarran-Ferguson to a dispute involving primary insurers and
reinsurers); id., at 772—773 (“[P]rimary insurers … usually
purchase insurance to cover a portion of the risk they assume from the
consumer”), and capitation contracts do not relieve the HMO of its obligations
to the beneficiary. The HMO is still bound to provide medical care to
its members, and this is so regardless of the ability of physicians or
third-party insurers to honor their contracts with the HMO.
Nor do we see anything standing in the way of applying the saving clause
if we assume that the general state definition of HMO would include a
contractor that provides only administrative services for a self-funded
plan. [6] Rush points out that the general definition
of HMO under Illinois law includes not only organizations that “provide”
health care plans, but those that “arrange for” them to be provided,
so long as “any part of the risk of health care delivery” rests upon
“the organization or its providers.” 215 Ill. Comp. Stat., ch. 125, §1—2(9)
(2000). See Brief for Petitioner 38. Rush hypothesizes a sort of medical
matchmaker, bringing together ERISA plans and medical care providers;
even if the latter bear all the risks, the matchmaker would be an HMO
under the Illinois definition. Rush would conclude from this that §4—10
covers noninsurers, and so is not directed specifically to the insurance
industry. Ergo, ERISA’s saving clause would not apply.
It is far from clear, though, that the terms of §4—10 would even theoretically
apply to the matchmaker, for the requirement that the HMO “provide” the
covered service if the independent reviewer finds it medically necessary
seems to assume that the HMO in question is a provider, not the mere
arranger mentioned in the general definition of an HMO. Even on the most
generous reading of Rush’s argument, however, it boils down to the bare
possibility (not the likelihood) of some overbreadth in the application
of §4—10 beyond orthodox HMOs, and there is no reason to think Congress
would have meant such minimal application to noninsurers to remove a
state law entirely from the category of insurance regulation saved from
preemption.
In sum, prior to ERISA’s passage, Congress demonstrated an awareness
of HMOs as risk-bearing organizations subject to state insurance regulation,
the state Act defines HMOs by reference to risk bearing, HMOs have taken
over much business formerly performed by traditional indemnity insurers,
and they are almost universally regulated as insurers under state law.
That HMOs are not traditional “indemnity” insurers is no matter; “we
would not undertake to freeze the concepts of ‘insurance’ … into the
mold they fitted when these Federal Acts were passed.” SEC v. Variable
Annuity Life Ins. Co. of America, 359 U.S., at 71. Thus, the Illinois
HMO Act is a law “directed toward” the insurance industry, and an “insurance
regulation” under a “commonsense” view.
B
The McCarran-Ferguson factors confirm our conclusion. A law regulating
insurance for McCarran-Ferguson purposes targets practices or provisions
that “ha[ve] the effect of transferring or spreading a policyholder’s
risk; … [that are] an integral part of the policy relationship between
the insurer and the insured; and [are] limited to entities within the
insurance industry.” Union Labor Life Ins. Co. v. Pireno,
458 U.S. 119, 129 (1982). Because the factors are guideposts, a state
law is not required to satisfy all three McCarran-Ferguson criteria to
survive preemption,see UNUM Life Ins. Co. v. Ward,
526 U.S., at 373, and so we follow our precedent and leave open whether
the review mandated here may be described as going to a practice that
“spread[s] a policyholder’s risk.” For in any event, the second and third
factors are clearly satisfied by §4—10.
It is obvious enough that the independent review requirement regulates
“an integral part of the policy relationship between the insurer and
the insured.” Illinois adds an extra layer of review when there is internal
disagreement about an HMO’s denial of coverage. The reviewer applies
both a standard of medical care (medical necessity) and characteristically,
as in this case, construes policy terms. Cf. Pegram v. Herdrich,
530 U.S., at 228—229. The review affects the “policy relationship” between
HMO and covered persons by translating the relationship under the HMO
agreement into concrete terms of specific obligation or freedom from
duty. Hence our repeated statements that the interpretation of insurance
contracts is at the “core” of the business of insurance. E.g., SEC v. National
Securities, Inc., 393 U.S. 453, 460 (1969).
Rush says otherwise, citing Union Labor Life Ins. Co. v. Pireno, supra, and
insisting that that case holds external review of coverage decisions
to be outside the “policy relationship.” But Rush misreads Pireno.
We held there that an insurer’s use of a “peer review” committee to gauge
the necessity of particular treatments was not a practice integral to
the policy relationship for the purposes of McCarran-Ferguson. 458 U.S.,
at 131—132. We emphasized, however, that the insurer’s resort to peer
review was simply the insurer’s unilateral choice to seek advice if and
when it cared to do so. The policy said nothing on the matter. The insurer’s
contract for advice from a third party was no concern of the insured,
who was not bound by the peer review committee’s recommendation any more,
for that matter, than the insurer was. Thus it was not too much of an
exaggeration to conclude that the practice was “a matter of indifference
to the policyholder,” id., at 132. Section 4—10, by contrast,
is different on all counts, providing as it does a legal right to the
insured, enforceable against the HMO, to obtain an authoritative determination
of the HMO’s medical obligations.
The final factor, that the law be aimed at a “practice … limited to entities
within the insurance industry,” id., at 129, is satisfied for
many of the same reasons that the law passes the commonsense test. The
law regulates application of HMO contracts and provides for review of
claim denials; once it is established that HMO contracts are, in fact,
contracts for insurance (and not merely contracts for medical care),
it is clear that §4—10 does not apply to entities outside the insurance
industry (although it does not, of course, apply to all entities within
it).
Even if we accepted Rush’s contention, rejected already, that the law
regulates HMOs even when they act as pure administrators, we would still
find the third factor satisfied. That factor requires the targets of
the law to be limited to entities within the insurance industry, and
even a matchmaking HMO would fall within the insurance industry. But
the implausibility of Rush’s hypothesis that the pure administrator would
be bound by §4—10 obviates any need to say more under this third factor.
Cf. Barnett Bank of Marion Cty, N. A. v. Nelson, 517
U.S. 25, 39 (1996) (holding that a federal statute permitting banks to
act as agents of insurance companies, although not insurers themselves,
was a statute regulating the “business of insurance” for McCarran-Ferguson
purposes).
III
Given that §4—10 regulates insurance, ERISA’s mandate that “nothing in
this subchapter shall be construed to exempt or relieve any person from
any law of any State which regulates insurance,” 29 U.S.C. § 1144(b)(2)(A),
ostensibly forecloses preemption. See Metropolitan Life, 471
U.S., at 746 (“If a state law ‘regulates insurance,’ … it is not pre-empted”).
Rush, however, does not give up. It argues for preemption anyway, emphasizing
that the question is ultimately one of congressional intent, which sometimes
is so clear that it overrides a statutory provision designed to save
state law from being preempted. See American Telephone & Telegraph
Co. v. Central Office Telephone, Inc., 524 U.S. 214, 227
(1998) (AT&T) (clause in Communications Act of 1934 purporting to
save “the remedies now existing at common law or by statute,” 47 U.S.C.
§ 414 (1994 ed.), defeated by overriding policy of the filed-rate doctrine); Adams
Express Co. v. Croninger, 226 U.S. 491, 507 (1913) (saving
clause will not sanction state laws that would nullify policy expressed
in federal statute; “the act cannot be said to destroy itself” (internal
quotation marks omitted)).
In ERISA law, we have recognized one example of this sort of overpowering
federal policy in the civil enforcement provisions, 29 U.S.C. § 1132(a),
authorizing civil actions for six specific types of relief. [7]
In Massachusetts Mut. Life Ins. Co. v. Russell, 473
U.S. 134 (1985), we said those provisions amounted to an “interlocking,
interrelated, and interdependent remedial scheme,” id., at 146,
which Pilot Life described as “represent[ing] a careful balancing
of the need for prompt and fair claims settlement procedures against
the public interest in encouraging the formation of employee benefit
plans,” 481 U.S., at 54. So, we have held, the civil enforcement provisions
are of such extraordinarily preemptive power that they override even
the “well-pleaded complaint” rule for establishing the conditions under
which a cause of action may be removed to a federal forum. Metropolitan
Life Ins. Co. v. Taylor, 481 U.S., at 63—64.
A
Although we have yet to encounter a forced choice between the congressional
policies of exclusively federal remedies and the “reservation of the
business of insurance to the States,” Metropolitan Life, 471
U.S., at 744, n. 21, we have anticipated such a conflict, with the state
insurance regulation losing out if it allows plan participants “to obtain
remedies … that Congress rejected in ERISA,” Pilot Life, supra,
at 54.
In Pilot Life, an ERISA plan participant who had been denied
benefits sued in a state court on state tort and contract claims. He
sought not merely damages for breach of contract, but also damages for
emotional distress and punitive damages, both of which we had held unavailable
under relevant ERISA provisions. Russell, supra, at 148. We
not only rejected the notion that these common-law contract claims “regulat[ed]
insurance,” Pilot Life, 481 U.S., at 50—51, but went on to say
that, regardless, Congress intended a “federal common law of rights and
obligations” to develop under ERISA, id., at 56, without embellishment
by independent state remedies. As in AT&T, we said the saving
clause had to stop short of subverting congressional intent, clearly
expressed “through the structure and legislative history[,] that the
federal remedy … displace state causes of action.” 481 U.S., at 57. [8]
Rush says that the day has come to turn dictum into holding by declaring
that the state insurance regulation, §4—10, is preempted for creating
just the kind of “alternative remedy” we disparaged in Pilot Life.
As Rush sees it, the independent review procedure is a form of binding
arbitration that allows an ERISA beneficiary to submit claims to a new
decisionmaker to examine Rush’s determination de novo, supplanting
judicial review under the “arbitrary and capricious” standard ordinarily
applied when discretionary plan interpretations are challenged. Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110—112 (1989).
Rush says that the beneficiary’s option falls within Pilot Life’s
notion of a remedy that “supplement[s] or supplant[s]” the remedies available
under ERISA. 481 U.S., at 56.
We think, however, that Rush overstates the rule expressed in Pilot
Life. The enquiry into state processes alleged to “supplemen[t]
or supplan[t]” the federal scheme by allowing beneficiaries “to obtain
remedies under state law that Congress rejected in ERISA,” id., at
54, has, up to now, been far more straightforward than it is here.
The first case touching on the point did not involve preemption at
all; it arose from an ERISA beneficiary’s reliance on ERISA’s own
enforcement scheme to claim a private right of action for types of
damages beyond those expressly provided. Russell, 473 U.S.,
at 145. We concluded that Congress had not intended causes of action
under ERISA itself beyond those specified in §1132(a). Id.,
at 148. Two years later we determined in Metropolitan Life Ins.
Co. v. Taylor, supra, that Congress had so completely
preempted the field of benefits law that an ostensibly state cause
of action for benefits was necessarily a “creature of federal law”
removable to federal court. Id., at 64 (internal quotation
marks omitted). Russell and Taylor naturally led
to the holding in Pilot Life that ERISA would not tolerate
a diversity action seeking monetary damages for breach generally
and for consequential emotional distress, neither of which Congress
had authorized in §1132(a). These monetary awards were claimed as
remedies to be provided at the ultimate step of plan enforcement,
and even if they could have been characterized as products of “insurance
regulation,” they would have significantly expanded the potential
scope of ultimate liability imposed upon employers by the ERISA scheme.
Since Pilot Life, we have found only one other state law to
“conflict” with §1132(a) in providing a prohibited alternative remedy.
In Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990),
we had no trouble finding that Texas’s tort of wrongful discharge, turning
on an employer’s motivation to avoid paying pension benefits, conflicted
with ERISA enforcement; while state law duplicated the elements of a
claim available under ERISA, it converted the remedy from an equitable
one under §1132(a)(3) (available exclusively in federal district courts)
into a legal one for money damages (available in a state tribunal). Thus, Ingersoll-Rand fit
within the category of state laws Pilot Life had held to be
incompatible with ERISA’s enforcement scheme; the law provided a form
of ultimate relief in a judicial forum that added to the judicial remedies
provided by ERISA. Any such provision patently violates ERISA’s policy
of inducing employers to offer benefits by assuring a predictable set
of liabilities, under uniform standards of primary conduct and a uniform
regime of ultimate remedial orders and awards when a violation has occurred.
See Pilot Life, supra, at 56 (“ ‘The uniformity of decision
… will help administrators … predict the legality of proposed actions
without the necessity of reference to varying state laws.’ ” (quoting
H. R. Rep. No. 93—533, p. 12 (1973))); 481 U.S., at 56 (“The expectations
that a federal common law of rights and obligations under ERISA-regulated
plans would develop … would make little sense if the remedies available
to ERISA participants and beneficiaries under [§1132(a)] could be supplemented
or supplanted by varying state laws”).
But this case addresses a state regulatory scheme that provides no new
cause of action under state law and authorizes no new form of ultimate
relief. While independent review under §4—10 may well settle the fate
of a benefit claim under a particular contract, the state statute does
not enlarge the claim beyond the benefits available in any action brought
under §1132(a). And although the reviewer’s determination would presumably
replace that of the HMO as to what is “medically necessary” under this
contract, [9] the relief ultimately available would
still be what ERISA authorizes in a suit for benefits under §1132(a).
[10] This case therefore does not involve the sort
of additional claim or remedy exemplified in Pilot Life, Russell,
and Ingersoll-Rand, but instead bears a resemblance to the claims-procedure
rule that we sustained in UNUM Life Ins. Co. of America v. Ward,
526 U.S. 358 (1999), holding that a state law barring enforcement of
a policy’s time limitation on submitting claims did not conflict with
§1132(a), even though the state “rule of decision,” id., at
377, could mean the difference between success and failure for a beneficiary.
The procedure provided by §4—10 does not fall within Pilot Life’s
categorical preemption.
B
Rush still argues for going beyond Pilot Life, making the preemption
issue here one of degree, whether the state procedural imposition interferes
unreasonably with Congress’s intention to provide a uniform federal regime
of “rights and obligations” under ERISA. However, “[s]uch disuniformities
… are the inevitable result of the congressional decision to ‘save’ local
insurance regulation.” Metropolitan Life, 471 U.S., at 747.
[11] Although we have recognized a limited exception
from the saving clause for alternative causes of action and alternative
remedies in the sense described above, we have never indicated that there
might be additional justifications for qualifying the clause’s application.
Rush’s arguments today convince us that further limits on insurance regulation
preserved by ERISA are unlikely to deserve recognition.
To be sure, a State might provide for a type of “review” that would so
resemble an adjudication as to fall within Pilot Life’s categorical
bar. Rush, and the dissent, post, at 8, contend that §4—10 fills
that bill by imposing an alternative scheme of arbitral adjudication
at odds with the manifest congressional purpose to confine adjudication
of disputes to the courts. It does not turn out to be this simple, however,
and a closer look at the state law reveals a scheme significantly different
from common arbitration as a way of construing and applying contract
terms.
In the classic sense, arbitration occurs when “parties in dispute choose
a judge to render a final and binding decision on the merits of the controversy
and on the basis of proofs presented by the parties.” 1 I. MacNeil, R.
Speidel, & T. Stipanowich, Federal Arbitration Law §2.1.1 (1995)
(internal quotation marks omitted); see also Uniform Arbitration Act
§5, 7 U. L. A. 173 (1997) (discussing submission evidence and empowering
arbitrator to “hear and determine the controversy upon the evidence produced”);
Commercial Dispute Resolution Procedures of the American Arbitration
Association ¶¶R33—R35 (Sept. 2000) (discussing the taking of evidence).
Arbitrators typically hold hearings at which parties may submit evidence
and conduct cross-examinations, e.g., Uniform Arbitration Act
§5, and are often invested with many powers over the dispute and the
parties, including the power to subpoena witnesses and administer oaths, e.g.,
Federal Arbitration Act, 9 U.S.C. § 7; 28 U.S.C. § 653; Uniform Arbitration
Act §7, 7 U. L. A., at 199; Cal. Civ. Proc. Code Ann. §§1282.6, 1282.8
(West 1982).
Section 4—10 does resemble an arbitration provision, then, to the extent
that the independent reviewer considers disputes about the meaning of
the HMO contract [12] and receives “evidence” in the
form of medical records, statements from physicians, and the like. But
this is as far as the resemblance to arbitration goes, for the other
features of review under §4—10 give the proceeding a different character,
one not at all at odds with the policy behind §1132(a). The Act does
not give the independent reviewer a free-ranging power to construe contract
terms, but instead, confines review to a single term: the phrase “medical
necessity,” used to define the services covered under the contract. This
limitation, in turn, implicates a feature of HMO benefit determinations
that we described in Pegram v. Herdrich, 530 U.S. 211
(2000). We explained that when an HMO guarantees medically necessary
care, determinations of coverage “cannot be untangled from physicians’
judgments about reasonable medical treatment.” Id., at 229.
This is just how the Illinois Act operates; the independent examiner
must be a physician with credentials similar to those of the primary
care physician, 215 Ill. Comp. Stat., ch. 125, §4—10 (2000), and is expected
to exercise independent medical judgment in deciding what medical necessity
requires. Accordingly, the reviewer in this case did not hold the kind
of conventional evidentiary hearing common in arbitration, but simply
received medical records submitted by the parties, and ultimately came
to a professional judgment of his own. Tr. of Oral Arg. 30—32.
Once this process is set in motion, it does not resemble either contract
interpretation or evidentiary litigation before a neutral arbiter, as
much as it looks like a practice (having nothing to do with arbitration)
of obtaining another medical opinion. The reference to an independent
reviewer is similar to the submission to a second physician, which many
health insurers are required by law to provide before denying coverage.
[13]
The practice of obtaining a second opinion, however, is far removed from
any notion of an enforcement scheme, and once §4—10 is seen as something
akin to a mandate for second-opinion practice in order to ensure sound
medical judgments, the preemption argument that arbitration under §4—10
supplants judicial enforcement runs out of steam.
Next, Rush argues that §4—10 clashes with a substantive rule intended
to be preserved by the system of uniform enforcement, stressing a feature
of judicial review highly prized by benefit plans: a deferential standard
for reviewing benefit denials. Whereas Firestone Tire & Rubber
Co. v. Bruch, 489 U.S., at 115, recognized that an ERISA
plan could be designed to grant “discretion” to a plan fiduciary, deserving
deference from a court reviewing a discretionary judgment,§4—10 provides
that when a plan purchases medical services and insurance from an HMO,
benefit denials are subject to apparently de novo review. If
a plan should continue to balk at providing a service the reviewer has
found medically necessary, the reviewer’s determination could carry great
weight in a subsequent suit for benefits under §1132(a), [14]
depriving the plan of the judicial deference a fiduciary’s medical judgment
might have obtained if judicial review of the plan’s decision had been
immediate. [15]
Again, however, the significance of §4—10 is not wholly captured by Rush’s
argument, which requires some perspective for evaluation. First, in determining
whether state procedural requirements deprive plan administrators of
any right to a uniform standard of review, it is worth recalling that
ERISA itself provides nothing about the standard. It simply requires
plans to afford a beneficiary some mechanism for internal review of a
benefit denial, 29 U.S.C. § 1133(2), and provides a right to a subsequent
judicial forum for a claim to recover benefits, §1132(a)(1)(B). Whatever
the standards for reviewing benefit denials may be, they cannot conflict
with anything in the text of the statute, which we have read to require
a uniform judicial regime of categories of relief and standards of primary
conduct, not a uniformly lenient regime of reviewing benefit determinations.
See Pilot Life, 481 U.S., at 56. [16]
Not only is there no ERISA provision directly providing a lenient standard
for judicial review of benefit denials, but there is no requirement necessarily
entailing such an effect even indirectly. When this Court dealt with
the review standards on which the statute was silent, we held that a
general or default rule of de novo review could be replaced
by deferential review if the ERISA plan itself provided that the plan’s
benefit determinations were matters of high or unfettered discretion,
see Firestone Tire, supra, at 115. Nothing in ERISA,
however, requires that these kinds of decisions be so “discretionary”
in the first place; whether they are is simply a matter of plan design
or the drafting of an HMO contract. In this respect, then, §4—10 prohibits
designing an insurance contract so as to accord unfettered discretion
to the insurer to interpret the contract’s terms. As such, it does not
implicate ERISA’s enforcement scheme at all, and is no different from
the types of substantive state regulation of insurance contracts we have
in the past permitted to survive preemption, such as mandated-benefit
statutes and statutes prohibiting the denial of claims solely on the
ground of untimeliness. [17] See Metropolitan Life
Ins. Co. v. Massachusetts, 471 U.S. 724 (1985); UNUM
Life Ins. Co. of America v. Ward, 526 U.S. 358 (1999).
* * *
In sum, §4—10 imposes no new obligation or remedy like the causes of
action considered in Russell, Pilot Life, and Ingersoll-Rand.
Even in its formal guise, the state Act bears a closer resemblance to
second-opinion requirements than to arbitration schemes. Deferential
review in the HMO context is not a settled given; §4—10 operates before
the stage of judicial review; the independent reviewer’s de novo examination
of the benefit claim mirrors the general or default rule we have ourselves
recognized; and its effect is no greater than that of mandated-benefit
regulation.
In deciding what to make of these facts and conclusions, it helps to
go back to where we started and recall the ways States regulate insurance
in looking out for the welfare of their citizens. Illinois has chosen
to regulate insurance as one way to regulate the practice of medicine,
which we have previously held to be permissible under ERISA, see Metropolitan
Life 471 U.S., at 741. While the statute designed to do this undeniably
eliminates whatever may have remained of a plan sponsor’s option to minimize
scrutiny of benefit denials, this effect of eliminating an insurer’s
autonomy to guarantee terms congenial to its own interests is the stuff
of garden variety insurance regulation through the imposition of standard
policy terms. See id., at 742 (“[S]tate laws regulating the
substantive terms of insurance contracts were commonplace well before
the mid-70’s”). It is therefore hard to imagine a reservation of state
power to regulate insurance that would not be meant to cover restrictions
of the insurer’s advantage in this kind of way. And any lingering doubt
about the reasonableness of §4—10 in affecting the application of §1132(a)
may be put to rest by recalling that regulating insurance tied to what
is medically necessary is probably inseparable from enforcing the quintessentially
state-law standards of reasonable medical care. See Pegram v. Herdrich,
530 U.S., at 236. “[I]n the field of health care, a subject of traditional
state regulation, there is no ERISA preemption without clear manifestation
of congressional purpose.” Id., at 237. To the extent that benefits
litigation in some federal courts may have to account for the effects
of §4—10, it would be an exaggeration to hold that the objectives of
§1132(a) are undermined. The saving clause is entitled to prevail here,
and we affirm the judgment.
It is so ordered.
Notes
-
In the health care industry, the term “Health
Maintenance Organization” has been defined as “[a] prepaid organized
delivery system where the organization and the primary care
physicians assume some financial risk for the care provided to its
enrolled members… . In a pure HMO, members must obtain care
from within the system if it is to be reimbursed.” Weiner & de
Lissovoy, Razing a Tower of Babel: A Taxonomy for Managed Care and
Health Insurance Plans, 18 J. of Health Politics, Policy and Law
75, 96 (Spring 1993) (emphasis in original). The term “Managed Care
Organization” is used more broadly to refer to any number of systems
combining health care delivery with financing. Id., at 97.
The Illinois definition of HMO does not appear to be limited to the
traditional usage of that term, but instead is likely to encompass
a variety of different structures (although Illinois does distinguish
HMOs from pure insurers by regulating “traditional” health insurance
in a different portion of its insurance laws, 215 Ill. Comp. Stat.,
ch. 5 (2000)). Except where otherwise indicated, we use the term
“HMO” because that is the term used by the State and the parties;
what we intend is simply to describe the structures covered by the
Illinois Act.
-
In light of our holding today that §4—10 is
not preempted by ERISA, the propriety of this ruling is questionable;
a suit to compel compliance with §4—10 in the context of an ERISA
plan would seem to be akin to a suit to compel compliance with the
terms of a plan under 29 U.S.C. § 1132(a)(3). Alternatively, the
proper course may have been to bring a suit to recover benefits due,
alleging that the denial was improper in the absence of compliance
with §4—10. We need not resolve today which of these options is more
consonant with ERISA.
-
No party has challenged Rush’s status as defendant
in this case, despite the fact that many lower courts have interpreted
ERISA to permit suits under §1132(a) only against ERISA plans, administrators,
or fiduciaries. See, e.g., Everhart v. Allmerica
Financial Life Ins. Co., 275 F.3d 751, 754—756 (CA9 2001); Garren v. John
Hancock Mut. Life Ins. Co., 114 F.3d 186, 187 (CA11 1997); Jass v. Prudential
Health Care Plan, Inc., 88 F.3d 1482, 1490 (CA7 1996). Without
commenting on the correctness of such holdings, we assume (although
the information does not appear in the record) that Rush has failed
to challenge its status as defendant because it is, in fact, the
plan administrator. This conclusion is buttressed by the fact that
the plan’s sponsor has granted Rush discretion to interpret the terms
of its coverage, and by the fact that one of Rush’s challenges to
the Illinois statute is based on what Rush perceives as the limits
that statute places on fiduciary discretion. Whatever Rush’s true
status may be, however, it is immaterial to our holding.
-
The McCarran-Ferguson Act requires that the
business of insurance be subject to state regulation, and, subject
to certain exceptions, mandates that “[n]o Act of Congress shall
be construed to invalidate … any law enacted by any State for the
purpose of regulating the business of insurance … .” 15 U.S.C. §
1012(b).
-
We have, in a limited number of cases, found
certain contracts not to be part of the “business of insurance” under
McCarran-Ferguson, notwithstanding their classification as such for
the purpose of state regulation. See, e.g., SEC v. Variable
Annuity Life Ins. Co. of America, 359 U.S. 65 (1959). Even then,
however, we recognized that such classifications are relevant to
the enquiry, because Congress, in leaving the “business of insurance”
to the States, “was legislating concerning a concept which had taken
on its coloration and meaning largely from state law, from state
practice, from state usage.” Id., at 69.
-
ERISA’s “deemer” clause provides an exception
to its saving clause that forbids States from regulating self-funded
plans as insurers. See29 U.S.C. § 1144(b)(2)(B); FMC Corp. v. Holliday,
498 U.S. 52, 61 (1990). Therefore, Illinois’s Act would not be “saved”
as an insurance law to the extent it applied to self-funded plans.
This fact, however, does not bear on Rush’s challenge to the law
as one that is targeted toward non-risk-bearing organizations.
-
Title 29 U.S.C. § 1132(a) provides in relevant
part: “A civil action may be brought– “(1) by a participant
or beneficiary– “(A) for the relief provided for in subsection
(c) of this section [concerning requests to the administrator for
information], or “(B) to recover benefits due to him under the
terms of his plan, to enforce his rights under the terms of the plan,
or to clarify his rights to future benefits under the terms of the
plan; “(2) by the Secretary, or by a participant, beneficiary
or fiduciary for appropriate relief under section 1109 of this title
[breach of fiduciary duty]; “(3) by a participant, beneficiary,
or fiduciary (A) to enjoin any act or practice which violates any
provision of this subchapter or the terms of the plan, or (B) to
obtain other appropriate equitable relief (i) to redress such violations
or (ii) to enforce any provisions of this subchapter or the terms
of the plan; “(4) by the Secretary, or by a participant, or beneficiary
for appropriate relief in the case of a violation of 1025(c) of this
title [information to be furnished to participants]; “(5) except
as otherwise provided in subsection (b) of this section, by the Secretary
(A) to enjoin any act or practice which violates any provision of
this subchapter, or (B) to obtain other appropriate equitable relief
(i) to redress such violation or (ii) to enforce any provision of
this subchapter; “(6) by the Secretary to collect any civil penalty
under paragraph (2), (4), (5), or (6) of subsection (c) of this section
or under subsection (i) or (l) of this section.”
-
Rush and its amici interpret Pilot
Life to have gone a step further to hold that any law that presents
such a conflict with federal goals is simply not a law that “regulates
insurance,” however else the “insurance” test comes out. We believe
the point is largely academic. As will be discussed further, even
under Rush’s approach, a court must still determine whether the state
law at issue does, in fact, create such a conflict. Thus, we believe
that it is more logical to proceed as we have done here.
-
The parties do not dispute that §4—10, as
a matter of state law, purports to make the independent reviewer’s
judgment dispositive as to what is “medically necessary.” We accept
this interpretation of the meaning of the statute for the purposes
of our opinion.
-
This is not to say that the court would
have no role beyond ordering compliance with the reviewer’s determination.
The court would have the responsibility, for example, to fashion
appropriate relief, or to determine whether other aspects of the
plan (beyond the “medical necessity” of a particular treatment) affect
the relative rights of the parties. Rush, for example, has chosen
to guarantee medically necessary services to plan participants. For
that reason, to the extent §4—10 may render the independent reviewer
the final word on what is necessary, see n. 9, supra, Rush
is obligated to provide the service. But insurance contracts do not
have to contain such guarantees, and not all do. Some, for instance,
guarantee medically necessary care, but then modify that obligation
by excluding experimental procedures from coverage. See, e.g., Tillery v. Hoffman
Enclosures, Inc., 280 F.3d 1192 (CA8 2002). Obviously, §4—10
does not have anything to say about whether a proposed procedure
is experimental. There is also the possibility, though we do not
decide the issue today, that a reviewer’s judgment could be challenged
as inaccurate or biased, just as the decision of a plan fiduciary
might be so challenged.
-
Thus, we do not believe that the mere fact
that state independent review laws are likely to entail different
procedures will impose burdens on plan administration that would
threaten the object of 29 U.S.C. § 1132(a); it is the HMO contracting
with a plan, and not the plan itself, that will be subject to these
regulations, and every HMO will have to establish procedures for
conforming with the local laws, regardless of what this Court may
think ERISA forbids. This means that there will be no special burden
of compliance upon an ERISA plan beyond what the HMO has already
provided for. And although the added compliance cost to the HMO may
ultimately be passed on to the ERISA plan, we have said that such
“indirect economic effect[s],” New York State Conference of Blue
Cross & Blue Shield Plans v. Travelers Ins. Co.,
514 U.S. 645, 659 (1995), are not enough to preempt state regulation
even outside of the insurance context. We recognize, of course, that
a State might enact an independent review requirement with procedures
so elaborate, and burdens so onerous, that they might undermine §1132(a).
No such system is before us.
-
Nothing in the Act states that the reviewer
should refer to the definitions of medical necessity contained in
the contract, but the reviewer did, in this case, refer to that definition.
Thus, we will assume that some degree of contract interpretation
is required under the Act. Were no interpretation required, there
would be a real question as to whether §4—10 is properly characterized
as a species of mandated-benefit law of the type we approved in Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985).
-
See, e.g., Cal. Ins. Code Ann.
§10123.68 (West Supp. 2002); Ind. Code Ann. §27—13—37—5 (1999); N. J.
Stat. Ann. §17B:26—2.3 (1996); Okla. Admin. Code §365:10—5—4 (1996);
R. I. Gen. Laws §27—39—2 (1998).
-
See n. 10, supra.
-
An issue implicated by this case but requiring
no resolution is the degree to which a plan provision for unfettered
discretion in benefit determinations guarantees truly deferential
review. In Firestone Tire itself, we noted that review for
abuse of discretion would home in on any conflict of interest on
the plan fiduciary’s part, if a conflict was plausibly raised. That
last observation was underscored only two Terms ago in Pegram v. Herdrich,
530 U.S. 211 (2000), when we again noted the potential for
conflict when an HMO makes decisions about appropriate treatment,
see id., at 219—220. It is a fair question just how deferential
the review can be when the judicial eye is peeled for conflict of
interest. Moreover, as we explained in Pegram, “it is at
least questionable whether Congress would have had mixed eligibility
decisions in mind when it provided that decisions administering a
plan were fiduciary in nature.” id., at 232. Our decision
today does not require us to resolve these questions.
-
Rush presents the alternative argument that
§4—10 is preempted as conflicting with ERISA’s requirement that a
benefit denial be reviewed by a named fiduciary, 29 U.S.C. § 1133(2).
Rush contends that §4—10 interferes with fiduciary discretion by
forcing the provision of benefits over a fiduciary’s objection. Happily,
we need not decide today whether §1133(2) carries the same preemptive
force of §1132(a) such that it overrides even the express saving
clause for insurance regulation, because we see no conflict. Section
1133 merely requires that plans provide internal appeals of benefits
denials; §4—10 plays no role in this process, instead providing for
extra review once the internal process is complete. Nor is there
any conflict in the removal of fiduciary “discretion”; as described
below, ERISA does not require that such decisions be discretionary,
and insurance regulation is not preempted merely because it conflicts
with substantive plan terms. See UNUM Life Ins. Co. of America v. Ward,
526 U.S. 358, 376 (1999) (“Under [Petitioner’s] interpretation …
insurers could displace any state regulation simply by inserting
a contrary term in plan documents. This interpretation would virtually
rea[d] the saving clause out of ERISA.” (internal quotation marks
omitted)).
-
We do not mean to imply that States are
free to create other forms of binding arbitration to provide de novo
review of any terms of insurance contracts; as discussed above, our
decision rests in part on our recognition that the disuniformity
Congress hoped to avoid is not implicated by decisions that are so
heavily imbued with expert medical judgments. Rather, we hold that
the feature of §4—10 that provides a different standard of review
with respect to mixed eligibility decisions from what would be available
in court is not enough to create a conflict that undermines congressional
policy in favor of uniformity of remedies.
Thomas, J., dissenting
Justice Thomas, with whom The Chief Justice, Justice Scalia, and Justice
Kennedy join, dissenting.
This Court has repeatedly recognized that ERISA’s civil enforcement provision,
§502 of the Employee Retirement Income Security Act of 1974 (ERISA),
29 U.S.C. § 1132 provides the exclusive vehicle for actions asserting
a claim for benefits under health plans governed by ERISA, and therefore
that state laws that create additional remedies are pre-empted. See, e.g., Pilot
Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52 (1987); Massachusetts
Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146—147 (1985).
Such exclusivity of remedies is necessary to further Congress’ interest
in establishing a uniform federal law of employee benefits so that employers
are encouraged to provide benefits to their employees: “To require plan
providers to design their programs in an environment of differing state
regulations would complicate the administration of nationwide plans,
producing inefficiencies that employers might offset with decreased benefits.” FMC
Corp. v. Holliday, 498 U.S. 52, 60 (1990).
Of course, the “expectations that a federal common law of rights and
obligations under ERISA-regulated plans would develop . . . would make
little sense if the remedies available to ERISA participants and beneficiaries
under §502(a) could be supplemented or supplanted by varying state laws.” Pilot
Life, supra, at 56. Therefore, as the Court concedes, see ante,
at 19, even a state law that “regulates insurance” may be pre-empted
if it supplements the remedies provided by ERISA, despite ERISA’s saving
clause, §514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). See Silkwood v. Kerr-McGee
Corp., 464 U.S. 238, 248 (1984) (noting that state laws that stand
as an obstacle to the accomplishment of the full purposes and objectives
of Congress are pre-empted). [1] Today, however, the
Court takes the unprecedented step of allowing respondent Debra Moran
to short circuit ERISA’s remedial scheme by allowing her claim for benefits
to be determined in the first instance through an arbitral-like procedure
provided under Illinois law, and by a decisionmaker other than a court.
See 215 Ill. Comp. Stat., ch.125, §4—10 (2000). This decision not only
conflicts with our precedents, it also eviscerates the uniformity of
ERISA remedies Congress deemed integral to the “careful balancing of
the need for prompt and fair claims settlement procedures against the
public interest in encouraging the formation of employee benefit plans.” Pilot
Life, supra, at 54. I would reverse the Court of Appeals’ judgment
and remand for a determination of whether Moran was entitled to reimbursement
absent the independent review conducted under §4—10.
I
From the facts of this case one can readily understand why Moran sought
recourse under §4—10. Moran is covered by a medical benefits plan sponsored
by her husband’s employer and governed by ERISA. Petitioner Rush Prudential
HMO, Inc., is the employer’s health maintenance organization (HMO) provider
for the plan. Petitioner’s Member Certificate of Coverage (Certificate)
details the scope of coverage under the plan and provides petitioner
with “the broadest possible discretion” to interpret the terms of the
plan and to determine participants’ entitlement to benefits. 1 Record,
Exh. A, p. 8. The Certificate specifically excludes from coverage services
that are not “medically necessary.” Id., at 21. As the Court
describes, ante, at 2—3, Moran underwent a nonstandard surgical
procedure. [2] Prior to Moran’s surgery, which was
performed by an unaffiliated doctor, petitioner denied coverage for the
procedure on at least three separate occasions, concluding that this
surgery was not “medically necessary.” For the same reason, petitioner
denied Moran’s request for postsurgery reimbursement in the amount of
$94,841.27. Before finally determining that the specific treatment sought
by Moran was not “medically necessary,” petitioner consulted no fewer
than six doctors, reviewed Moran’s medical records, and consulted peer-reviewed
medical literature. [3]
In the course of its review, petitioner informed Moran that “there is
no prevailing opinion within the appropriate specialty of the United
States medical profession that the procedure proposed [by Moran] is safe
and effective for its intended use and that the omission of the procedure
would adversely affect [her] medical condition.” 1 Record, Exh. E, p. 2.
Petitioner did agree to cover the standard treatment for Moran’s ailment,
see n. 2, supra; n. 4, infra, concluding that peer-reviewed
literature “demonstrates that [the standard surgery] is effective therapy
in the treatment of [Moran’s condition].” 1 Record, Exh. E, at 3.
Moran, however, was not satisfied with this option. After exhausting
the plan’s internal review mechanism, Moran chose to bypass the relief
provided by ERISA. She invoked §4—10 of the Illinois HMO Act, which requires
HMOs to provide a mechanism for review by an independent physician when
the patient’s primary care physician and HMO disagree about the medical
necessity of a treatment proposed by the primary care physician. See
215 Ill. Comp. Stat., ch.125, §4—10 (2000). While Moran’s primary care
physician acknowledged that petitioner’s affiliated surgeons had not
recommended the unconventional surgery and that he was not “an expert
in this or any other area of surgery,” 1 Record, Exh. C, he
nonetheless opined, without explanation, that Moran would be “best served”
by having that surgery,” ibid.
Dr. A. Lee Dellon, an unaffiliated physician who served as the independent
medical reviewer, concluded that the surgery for which petitioner denied
coverage “was appropriate,” that it was “the same type of surgery” he
would have done, and that Moran “had all of the indications and therefore
the medical necessity to carry out” the nonstandard surgery. Appellant’s
Separate App. (CA7), pp. A42—A43. [4] Under §4—10,
Dr. Dellon’s determination conclusively established Moran’s right to
benefits under Illinois law. See 215 Ill. Comp. Stat., ch.125, §4—10
(“In the event that the reviewing physician determines the covered service
to be medically necessary, the [HMO] shall provide the covered
service” (emphasis added)). 230 F.3d 959, 972—973 (CA7 2000).
Nevertheless, petitioner again denied benefits, steadfastly maintaining
that the unconventional surgery was not medically necessary. While the
Court of Appeals recharacterized Moran’s claim for reimbursement under
§4—10 as a claim for benefits under ERISA §502(a)(1)(B), it reversed
the judgment of the District Court based solely on Dr. Dellon’s judgment
that the surgery was “medically necessary.”
II
Section 514(a)’s broad language provides that ERISA “shall supersede
any and all State laws insofar as they . . . relate to any employee benefit
plan,” except as provided in §514(b). 29 U.S.C. § 1144(a). This language
demonstrates “Congress’s intent to establish the regulation of employee
welfare benefit plans ‘as exclusively a federal concern.’ ” New York
State Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645, 656 (1995) (quoting Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 523 (1981)). It was intended to “ensure that
plans and plan sponsors would be subject to a uniform body of benefits
law” so as to “minimize the administrative and financial burden of complying
with conflicting directives among States or between States and the Federal
Government” and to prevent “the potential for conflict in substantive
law … requiring the tailoring of plans and employer conduct to the peculiarities
of the law of each jurisdiction.” Ingersoll-Rand Co. v. McClendon,
498 U.S. 133, 142 (1990). See also Egelhoff v. Egelhoff,
532 U.S. 141, 148 (2001).
To be sure, this broad goal of uniformity is in some tension with the
so-called “saving clause,” which provides that ERISA does not “exempt
or relieve any person from any law of any State which regulates insurance,
banking, or securities.” §514(b)(2)(A) of ERISA, 29 U.S.C. § 1144(b)(2)(A).
As the Court has suggested on more than one occasion, the pre-emption
and saving clauses are almost antithetically broad and “ ‘are not a model
of legislative drafting.’ ” John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav.
Bank, 510 U.S. 86, 99 (1993) (quoting Pilot Life, 481 U.S.,
at 46). But because there is “no solid basis for believing that Congress,
when it designed ERISA, intended fundamentally to alter traditional pre-emption
analysis,” the Court has concluded that federal pre-emption occurs where
state law governing insurance “ ‘stands as an obstacle to the accomplishment
of the full purposes and objectives of Congress.’ ” Harris Trust,
supra, at 99 (quoting Silkwood, 464 U.S., at 248).
Consequently, the Court until today had consistently held that state
laws that seek to supplant or add to the exclusive remedies in §502(a)
of ERISA, 29 U.S.C. § 1132(a), are pre-empted because they conflict with
Congress’ objective that rights under ERISA plans are to be enforced
under a uniform national system. See, e.g., Ingersoll-Rand
Co., supra, at 142—145; Metropolitan Life Ins. Co. v. Taylor,
481 U.S. 58, 64—66 (1987); Pilot Life, supra, at 52—57. The
Court has explained that §502(a) creates an “interlocking, interrelated,
and interdependent remedial scheme,” and that a beneficiary who claims
that he was wrongfully denied benefits has “a panoply of remedial devices”
at his disposal. Russell, 473 U.S., at 146. It is exactly this
enforcement scheme that Pilot Life described as “represent[ing]
a careful balancing of the need for prompt and fair claims settlement
procedures against the public interest in encouraging the formation of
employee benefit plans,” 481 U.S., at 54. Central to that balance is
the development of “a federal common law of rights and obligations under
ERISA-regulated plans.” Id., at 56.
In addressing the relationship between ERISA’s remedies under §502(a)
and a state law regulating insurance, the Court has observed that “[t]he
policy choices reflected in the inclusion of certain remedies and the
exclusion of others under the federal scheme would be completely undermined
if ERISA-plan participants and beneficiaries were free to obtain remedies
under state law that Congress rejected in ERISA.” Id., at 54.
Thus, while the preeminent federal interest in the uniform administration
of employee benefit plans yields in some instances to varying state regulation
of the business of insurance, the exclusivity and uniformity of ERISA’s
enforcement scheme remains paramount. “Congress intended §502(a) to be
the exclusive remedy for rights guaranteed under ERISA.” Ingersoll-Rand
Co., supra, at 144. In accordance with ordinary principles of conflict
pre-emption, therefore, even a state law “regulating insurance” will
be pre-empted if it provides a separate vehicle to assert a claim for
benefits outside of, or in addition to, ERISA’s remedial scheme. See, e.g., Pilot
Life, supra, at 54 (citing Russell, supra, at 146); Harris
Trust, supra, at 99 (citing Silkwood, supra, at
248).
III
The question for the Court, therefore, is whether §4—10 provides such
a vehicle. Without question, Moran had a “panoply of remedial devices,” Russell, supra, at
146, available under §502 of ERISA when petitioner denied her claim for
benefits. [5] Section 502(a)(1)(B) of ERISA provided
the most obvious remedy: a civil suit to recover benefits due under the
terms of the plan. 29 U.S.C. § 1132(a)(1)(B). But rather than bring such
a suit, Moran sought to have her right to benefits determined outside
of ERISA’s remedial scheme through the arbitral-like mechanism available
under §4—10.
Section 4—10 cannot be characterized as anything other than an alternative
state-law remedy or vehicle for seeking benefits. In the first place,
§4—10 comes into play only if the HMO and the claimant dispute the claimant’s
entitlement to benefits; the purpose of the review is to determine whether
a claimant is entitled to benefits. Contrary to the majority’s characterization
of §4—10 as nothing more than a state law regarding medical standards, ante,
at 26—27, it is in fact a binding determination of whether benefits are
due: “In the event that the reviewing physician determines the covered
service to be medically necessary, the [HMO] shall provide the
covered service.” 215 Ill. Comp. Stat., ch. 125, §4—10 (2000) (emphasis
added). Section 4—10 is thus most precisely characterized as an arbitration-like
mechanism to settle benefits disputes. See Brief for United States as Amicus
Curiae 23 (conceding as much).
There is no question that arbitration constitutes an alternative remedy
to litigation. See, e.g., Air Line Pilots v. Miller,
523 U.S. 866, 876, 880 (1998) (referring to “arbitral remedy” and “arbitration
remedy”); DelCostello v. Teamsters, 462 U.S. 151, 163
(1983) (referring to “arbitration remedies”); Great American Fed.
Sav. & Loan Assn. v. Novotny, 442 U.S. 366, 377—378
(1979) (noting that arbitration and litigation are “alternative remedies”);
3 D. Dobbs, Law of Remedies §12.23 (2d. ed. 1993) (explaining that arbitration
“is itself a remedy”). Consequently, although a contractual agreement
to arbitrate–which does not constitute a “State law” relating to “any
employee benefit plan”–is outside §514(a) of ERISA’s pre-emptive scope,
States may not circumvent ERISA pre-emption by mandating an alternative
arbitral-like remedy as a plan term enforceable through an ERISA action.
To be sure, the majority is correct that §4—10 does not mirror all procedural
and evidentiary aspects of “common arbitration.” Ante, at 25—26.
But as a binding decision on the merits of the controversy the §4—10
review resembles nothing so closely as arbitration. See generally 1 I.
MacNeil, R. Spediel, & T. Stipanowich, Federal Arbitration Law §2.1.1
(1995). That the decision of the §4—10 medical reviewer is ultimately
enforceable through a suit under §502(a) of ERISA further supports the
proposition that it tracks the arbitral remedy. Like the decision of
any arbitrator, it is enforceable through a subsequent judicial action,
but judicial review of an arbitration award is very limited, as was the
Court of Appeals’ review in this case. See, e.g., Paperworkers v. Misco,
Inc., 484 U.S. 29, 36—37 (1987) (quoting Steelworkers v. American
Mfg. Co., 363 U.S. 564, 567—568 (1960)). Although the Court of Appeals
recharacterized Moran’s claim for reimbursement under §4—10 as a claim
for benefits under §502(a)(1)(B) of ERISA, the Court of Appeals did not
interpret the plan terms or purport to analyze whether the plan fiduciary
had engaged in the “full and fair review” of Moran’s claim for benefits
that §503(2) of ERISA, 29 U.S.C. § 1133(2), requires. Rather, it rubberstamped
the independent medical reviewer’s judgment that Moran’s surgery was
“medically necessary,” granting summary judgment to Moran on her claim
for benefits solely on that basis. Thus, as Judge Posner aptly noted
in his dissent from the denial of rehearing en banc below, §4—10 “establishes
a system of appellate review of benefits decisions that is distinct from
the provision in ERISA for suits in federal court to enforce entitlements
conferred by ERISA plans.” 230 F.3d, at 973.
IV
The Court of Appeals attempted to evade the pre-emptive force of ERISA’s
exclusive remedial scheme primarily by characterizing the alternative
enforcement mechanism created by §4—10 as a “contract term” under state
law. [6] Id., at 972. The Court saves §4—10
from pre-emption in a somewhat different manner, distinguishing it from
an alternative enforcement mechanism because it does not “enlarge the
claim beyond the benefits available in any action brought under §1132(a),”
and characterizing it as “something akin to a mandate for second-opinion
practice in order to ensure sound medical judgments.” Ante,
at 22, 27. Neither approach is sound.
The Court of Appeals’ approach assumes that a State may impose an alternative
enforcement mechanism through mandated contract terms even though it
could not otherwise impose such an enforcement mechanism on a health
plan governed by ERISA. No party cites any authority for that novel proposition,
and I am aware of none. Cf. Fort Halifax Packing Co. v. Coyne, 482
U.S. 1, 16—17 (1987) (noting that a State cannot avoid ERISA pre-emption
on the ground that its regulation only mandates a benefit plan; such
an approach would “permit States to circumvent ERISA’s pre-emption provision,
by allowing them to require directly what they are forbidden to regulate”).
To hold otherwise would be to eviscerate ERISA’s comprehensive and exclusive
remedial scheme because a claim to benefits under an employee benefits
plan could be determined under each State’s particular remedial devices
so long as they were made contract terms. Such formalist tricks cannot
be sufficient to bypass ERISA’s exclusive remedies; we should not interpret
ERISA in such a way as to destroy it.
With respect to the Court’s position, Congress’ intention that §502(a)
be the exclusive remedy for rights guaranteed under ERISA has informed
this Court’s weighing of the pre-emption and saving clauses. While the
Court has previously focused on ERISA’s overall enforcement
mechanism and remedial scheme, see infra, at 6—7, the Court
today ignores the “interlocking, interrelated, and interdependent” nature
of that remedial scheme and announces that the relevant inquiry is whether
a state regulatory scheme “provides [a] new cause of action” or authorizes
a “new form of ultimate relief.” Ante, at 23. These newly created
principles have no roots in the precedents of this Court. That §4—10 also effectively
provides for a second opinion to better ensure sound medical practice
is simply irrelevant to the question whether it, in fact, provides a
binding mechanism for a participant or beneficiary to pursue a claim
for benefits because it is on this latter basis that §4—10 is pre-empted.
The Court’s attempt to diminish §4—10’s effect by characterizing it as
one where “the reviewer’s determination would presumably replace
that of the HMO,” ante, at 23 (emphasis added), is puzzling
given that the statute makes such a determination conclusive and the
Court of Appeals treated it as a binding adjudication. For these same
reasons, it is troubling that the Court views the review under §4—10
as nothing more than a practice “of obtaining a second [medical] opinion.” Ante,
at 27. The independent reviewer may, like most arbitrators, possess special
expertise or knowledge in the area subject to arbitration. But while
a second medical opinion is nothing more than that–an opinion–a determination
under §4—10 is a conclusive determination with respect to the award of
benefits. And the Court’s reference to Pegram v. Herdrich,
530 U.S. 211 (2000), as support for its Alice in Wonderland-like claim
that the §4—10 proceeding is “far removed from any notion of an enforcement
scheme,” ante, at 27, is equally perplexing, given that the
treatment is long over and the issue presented is purely an eligibility
decision with respect to reimbursement. [7]
As we held in Metropolitan Life Ins. Co. v. Massachusetts,
471 U.S. 724 (1985), a State may, of course, require that employee health
plans provide certain substantive benefits. See id., at 746
(holding that a state law mandating mental health benefits was not within
ERISA’s pre-emptive reach). Indeed, were a State to require that insurance
companies provide all “medically necessary care” or even that it must
provide a second opinion before denying benefits, I have little doubt
that such substantive requirements would withstand ERISA’s pre-emptive
force. But recourse to those benefits, like all others, could be sought
only through an action under §502 and not, as is the case here, through
an arbitration-like remedial device. Section 4—10 does not, in any event,
purport to extend a new substantive benefit. Rather, it merely sets up
a procedure to conclusively determine whether the HMO’s decision to deny
benefits was correct when the parties disagree, a task that lies within
the exclusive province of the courts through an action under §502(a).
By contrast, a state law regulating insurance that merely affects whether
a plan participant or beneficiary may pursue the remedies available
under ERISA’s remedial scheme, such as California’s notice-prejudice
rule, is not pre-empted because it has nothing to do with §502(a)’s exclusive
enforcement scheme. In UNUM Life Ins. Co. of America v. Ward,
526 U.S. 358 (1999), the Court evaluated California’s so-called notice-prejudice
rule, which provides that an insurer cannot avoid liability in cases
where a claim is not filed in a timely fashion absent proof that the
insurer was actually prejudiced because of the delay. In holding that
it was not pre-empted, the Court did not suggest that this rule provided
a substantive plan term. The Court expressly declined to address the
Solicitor General’s argument that the saving clause saves even state
law “conferring causes of action or affecting remedies that regulate
insurance.” See id., at 376—377, n. 7 (internal quotation marks
omitted). While a law may “effectively creat[e] a mandatory contract
term,” id., at 374 (internal quotation marks omitted), and even
provide the rule of decision with respect to whether a claim is out
of time, and thus whether benefits will ultimately be received,
such laws do not create an alternative enforcement mechanism with
respect to recovery of plan benefits. They merely allow the participant
to proceed via ERISA’s enforcement scheme. To my mind, neither Metropolitan
Life nor UNUM addresses, let alone purports to answer,
the question before us today.
* * *
Section 4—10 constitutes an arbitral-like state remedy through which
plan members may seek to resolve conclusively a disputed right to benefits.
Some 40 other States have similar laws, though these vary as to applicability,
procedures, standards, deadlines, and consequences of independent review.
See Brief for Respondent State of Illinois 12, n. 4 (citing state independent
review statutes); see also Kaiser Family Foundation, K. Politz, J. Crowley,
K. Lucia, & E. Bangit, Assessing State External Review Programs and
the Effects of Pending Federal Patients’ Rights Legislation (May 2002)
(comparing state program features). Allowing disparate state laws that
provide inconsistent external review requirements to govern a participant’s
or beneficiary’s claim to benefits under an employee benefit plan is
wholly destructive of Congress’ expressly stated goal of uniformity in
this area. Moreover, it is inimical to a scheme for furthering and protecting
the “careful balancing of the need for prompt and fair claims settlement
procedures against the public interest in encouraging the formation of
employee benefit plans,” given that the development of a federal common
law under ERISA-regulated plans has consistently been deemed central
to that balance. [8] Pilot Life, 481 U.S.,
at 54, 56. While it is true that disuniformity is the inevitable result
of the Congressional decision to save local insurance regulation, this
does not answer the altogether different question before the Court today,
which is whether a state law “regulating insurance” nonetheless provides
a separate vehicle to assert a claim for benefits outside of, or in addition
to, ERISA’s remedial scheme. See, e.g., id., at 54
(citing Russell, 473 U.S., at 146); Harris Trust, 510
U. S., at 99 (citing Silkwood, 464 U.S., at 248). If
it does, the exclusivity and uniformity of ERISA’s enforcement scheme
must remain paramount and the state law is pre-empted in accordance with
ordinary principles of conflict
pre-emption. [9]
For the reasons noted by the Court, independent review provisions may
sound very appealing. Efforts to expand the variety of remedies available
to aggrieved beneficiaries beyond those set forth in ERISA are obviously
designed to increase the chances that patients will be able to receive
treatments they desire, and most of us are naturally sympathetic to those
suffering from illness who seek further options. Nevertheless, the Court
would do well to remember that no employer is required to provide any
health benefit plan under ERISA and that the entire advent of managed
care, and the genesis of HMOs, stemmed from spiraling health costs. To
the extent that independent review provisions such as §4—10 make it more
likely that HMOs will have to subsidize beneficiaries’ treatments of
choice, they undermine the ability of HMOs to control costs, which, in
turn, undermines the ability of employers to provide health care coverage
for employees.
As a consequence, independent review provisions could create a disincentive
to the formation of employee health benefit plans, a problem that Congress
addressed by making ERISA’s remedial scheme exclusive and uniform. While
it may well be the case that the advantages of allowing States to implement
independent review requirements as a supplement to the remedies currently
provided under ERISA outweigh this drawback, this is a judgment that,
pursuant to ERISA, must be made by Congress. I respectfully dissent.
Notes
-
I would assume without deciding that 215
Ill. Comp. Stat., ch. 125, §4—10 (2000) is a law that “regulates
insurance.” We can begin and end the pre-emption analysis by asking
if §4—10 conflicts with the provisions of ERISA or operates to frustrate
its objects. See, e.g., Boggs v. Boggs,
520 U.S. 833, 841 (1997).
-
While the Court characterizes it as an “unconventional
treatment,” the Court of Appeals described this surgery more clinically
as “rib resection, extensive scale-nectomy,” and “microneurolysis
of the lower roots of the brachial plexus under intraoperative microscopic
magnification.” 230 F.3d 959, 963 (CA7 2000). The standard procedure
for Moran’s condition, as described by the Court of Appeals, involves
(like the nonstandard surgery) rib resection with scale-nectomy,
but it does not include “microneurolysis of the brachial plexus,”
which is the procedure Moran wanted and her primary care physician
recommended. See id., at 963—964. In any event, no one disputes
that the procedure was not the standard surgical procedure for Moran’s
condition or that the Certificate covers even nonstandard surgery
if it is “medically necessary.”
-
Petitioner thus appears to have complied
with §503 of ERISA, which requires every employee benefit plan to
“provide adequate notice in writing to any participant or beneficiary
whose claim for benefits under the plan has been denied,” and to
“afford a reasonable opportunity to any participant whose claim for
benefits has been denied for a full and fair review by the appropriate
named fiduciary of the decision denying the claim.” 29 U.S.C. § 1133.
-
Even Dr. Dellon acknowledged, however, both
that “[t]here is no particular research study” to determine whether
failure to perform the nonstandard surgery would adversely affect
Moran’s medical condition and that the most common operation for
Moran’s condition in the United States was the standard surgery that
petitioner had agreed to cover. Appellant’s Separate App. (CA7),
p. A43.
-
Commonly included in the panoply constituting
part of this enforcement scheme are: suits under §502(a)(1)(B) (authorizing
an action to recover benefits, obtain a declaratory judgment that
one is entitled to benefits, and to enjoin an improper refusal to
pay benefits); suits under §§502(a)(2) and 409 (authorizing suit
to seek removal of the fiduciary); and a claim for attorney’s fees
under §502(g). See Russell, 473 U.S., at 146—147; Pilot
Life Ins. Co. v. Dedeaux, 481 U.S. 41, 53 (1987).
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The Court of Appeals concluded that §4—10
is saved from pre-emption because it is a law that “regulates insurance,”
and that it does not conflict with the exclusive enforcement mechanism
of §502 because §4—10’s independent review mechanism is a state-mandated
contractual term of the sort that survived ERISA pre-emption in UNUM
Life Ins. Co. of America v. Ward, 526 U.S. 358, 375—376
(1999). In the Court of Appeals’ view, the independent review provision,
like any other mandatory contract term, can be enforced through an
action brought under §502(a) of ERISA, 29 U.S. C. §1132(a), pursuant
to state law. 230 F.3d, at 972.
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I also disagree with the Court’s suggestion
that, following Pegram v. Herdrich, 530 U.S. 211
(2000), HMOs are exempted from ERISA whenever a coverage or reimbursement
decision relies in any respect on medical judgment. Ante,
at 26, 30, n. 17. Pegram decided the limited question whether
relief was available under §1109 for claims of fiduciary breach against
HMOs based on its physicians’ medical decisions. Quite sensibly,
in my view, that question was answered in the negative because otherwise,
“for all practical purposes, every claim of fiduciary breach by an
HMO physician making a mixed decision would boil down to a malpractice
claim, and the fiduciary standard would be nothing but the malpractice
standard traditionally applied in actions against physicians.” 530
U.S., at 235.
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The Court suggests that a state law’s impact
on cost is not relevant after New York State Conference of Blue
Cross & Blue Shield Plans v. Travelers Ins. Co.,
514 U.S. 645, 662 (1995), which holds that a state law providing
for surcharges on hospital rates did not, based solely on their indirect
economic effect, “bear the requisite ‘connection with’ ERISA plans
to trigger pre-emption.” But Travelers addressed only the
question whether a state law “relates to” an ERISA plan so as to
fall within §514(a)’s broad preemptive scope in the first place and
is not relevant to the inquiry here. The Court holds that “[i]t is
beyond serious dispute,” ante, at 7—8, that §4—10 does “relate
to” an ERISA plan; §4—10’s economic effects are necessarily relevant
to the extent that they upset the object of §1132(a). See Ingersoll-Rand
Co. v. McClendon, 498 U.S. 133, 142 (1990) (“Section
514(a) was intended to ensure that plans and plan sponsors would
be subject to a uniform body of benefits law; the goal was to minimize
the administrative and financial burden of complying with conflicting
directives among States or between States and the Federal Government.
Otherwise, the inefficiencies created could work to the detriment
of plan beneficiaries”).
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The Court isolates the “plan” from the HMO
and then concludes that the independent review provision “does not
threaten the object of 29 U.S.C. § 1132” because it does not affect
the plan, but only the HMO. Ante, at 24, n. 11. To my knowledge
such a distinction is novel. Cf. Pegram, 530 U.S., at 223
(recognizing that the agreement between an HMO and an employer may
provide elements of a plan by setting out the rules under which care
is provided). Its application is particularly novel here, where the
Court appears to view the HMO as the plan administrator, leaving
one to wonder how the myriad state independent review procedures
can help but have an impact on plan administration. Ante,
at 5—6, n. 3.