# Amicus Curiae Brief — Kentucky Assn. of Health Plans, Inc. v. Miller

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2003
- **Citation:** 538 U.S. 329

## Text

No. 00-1471

—

i
NOV 7 200) |

Jn the Supreme Court of the Chuited States

mates —

KENTUCKY ASSOCIATION OF HEALTH PLANS, INC.,
ET AL., PETITIONERS

JANIE A. MILLER, COMMISSIONER, KENTUCKY
DEPARTMENT OF INSURANCE

ON PETITION FOR A WRIT OF CERTIORARI!
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE

HOWARD M. RADZELY
Acting Solicitor of Labor
ALLEN HH. FELDMAN
Associater Solicitor
NATHANIEL I. SPILLER
Deputy Associate Solicitor
GARY K. STEARMAN
Attorney
Department of Labor
Washington, D.C. 20210

PAUL D. CLEMENT
Acting Solicitor General
Counsel of Record
EDWIN S. KNEEDLER
Deputy Solicitor General
JAMES A. FELDMAN
Assistant to the Solicitor
General
Department of Justice
Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether Kentucky’s “any willing provider” law, which
requires each health maintenance organization (HMO) in the
State to make available to its subscribers the services of any
medical provider in its geographical region that agrees to the
terms and conditions offered by the HMO, is saved from pre-
emption as a law that “regulates insurance” under ERISA
Section 514(b)(2)(A), 29 U.S.C. 1144(b)(2)(A).

(I)

TABLE OF CONTENTS

Page
EEE ES ee ee 1
EEE LT RR 5
EE eT 20
TABLE OF AUTHORITIES
Cases:
Blue Cross & Blue Shield v. Bell, 798 F.2d 1331

Ee 13

CIGNA Healthplan of La., Inc. v. Louisiana,
82 F.3d 642 (5th Cir.), cert. denied, 519 U.S.

California Div. of Labor Standards Enforcement v.
Dillingham Constr., N.A., Inc., 519 U.S. 316
CRIED accaceasessscssossnsnsssnsensessssesesssnsssesessnssncssesnssnsssssesecscossasereees 6,7,8
Cisneros v. UNUM Life Ins. Co. of Am., 134 F 3d
939 (9th Cir. 1998), cert. denied, 526 U.S. 1086

ID ererrtenectnsenctnsnsensnsnesnennensscsnnensesessnensssesenscscnesenesscsnscesecessesee 13
Corporate Health Ins., Inc. v. Texas Dep't of

Insurance, 215 F 3d 526 (5th Cir. 2000) .............. 9, 10, 18, 19
De Buono v. NYSA-ILA Med. & Clinical Serv.

ce 8
Department of Treasury v. Fabe, 508 U.S. 491

SEED cxcuscenseccansensnsunssnsnsesnnssuscsennsnsnsnssecnsssnsansessensensscsasecseenceee 13, 16
District of Columbia v. Greater Washington Bd. of

EE 6
Egethoff v. Egethoff, 121 S. Ct. 1822 (2001) ........cccccc. 6
Express Scripts, Inc. v. Wenzel, 262 F.3d 829

SIO cenepcecassensesninssenscnmnencncennenconsensesssene 9, 13, 15, 17, 18
FMC Corp. v. Holliday, 498 U.S. 52 (19990) .............. 7, 10, 16
General Elec. Co. v. Gilbert, 429 U.S. 125

a susateminetines 10
Group Life & Health Ins. Co. v. Royal Drug Co.,

Re OD etencetenetnichchsctensnercscenscnsimneensemnecssanse 12, 14, 15

(III)

IV

Cases—Continued: Page
Mackey v. Lanier Collection Agency & Serv., Inc.,
486 U.S. 825 (1988) 6, 8
Metropolitan Life Ins. Co. v. Massachusetts, 471
ee 7,11, 13, 15, 16

New York State Conference of Blue Cross & Blue
Shield Plans v. Travelers Ins. Co., 514 U.S. 645

GEES excmessensiniiasiaieannnienrreretasinaitiinsiaiaieninsnnintemtinninns 7,8
Pegram v. Herdrich, 530 U.S. 211 (2000) «00.0... 9, 17,19
Pilot Life Ins. Co. v. Dedeaux, 481 US. 41

CD cxceneesnitiiiiliiitiaieinnnninntintiniiaicdiiitaiidliasninies 8, 20
Prudential Ins. Co. of Am. v. National Park Med.

Ctr., Inc., 154 F.3d 812 (8th Cir. 1998) - 9,18
Shaw v. Delta Air Lines, Inc., 463 US. 85 (1983) ............ 7,8

Stuart Circle Hosp. Corp. v. Aetna Health Mgmt.,

995 F.2d 500 (4th Cir.), cert. denied, 510 U.S. 1003

(1993) .. - 1,9
Texas Pharmacy Ass'n v. Prudential Ins. Co. of

Am., 105 F.3d 1035 (5th Cir.), cert. denied, 522

U.S. 820 (1997) . 911,
13, 15, 17
UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358
CRIDD occccccencacecszscesassnssssveasenencessansnsessneansnanensstanensenensassneusenes passim
Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119
ee 14, 15, 16
Statutes:

Employee Retirement Income Security Act of 1974,
29 U.S.C. 1001 et seg.:

§ 4(b), 29 U.S.C. 1008(b) (1994 & Supp. V 1999) ......... 4, 10
§ 514(a), 29 U.S.C. 1144(a) 2, 3,6
§ 514(b\X2/A), 29 U.S.C. 1144(6K2K(A) «on... 2,8, 9, 12, 16

§ 514(b\( 2B), 29 U.S.C. 1144(bK 2B) ............ 2,4,6,9, 10
McCarran-Ferguson Act, 15 U.S.C. 1012(b) ............ 4, 12, 14, 16
Ky. Rev. Stat. Ann. § 304.17A-110(3) (Banks-Baldwin

1995) 1

Vv
Statutes—Continued: Page
Ky. Rev. Stat. Ann. (Michie 2001):
PD cennernennspssesnecesessensmsensmmnneapesnsesssests 2, 3,6, 9,18
ee 1

Miscellaneous:
Wilham J. Bahr, Comments, Although Offering More
Freedom to Choose, “Any Willing Provider”
Legislation is the Wrong Choice, 45 U. Kan. L. Rev.
a a a 19

In the Supreme Court of the Gnited States

No. 00-1471

KENTUCKY ASSOCIATION OF HEALTH PLANS, INC.,
ET AL., PETITIONERS

v.

JANIE A. MILLER, COMMISSIONER, KENTUCKY
DEPARTMENT OF INSURANCE

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE

This brief is submitted in response to the Court’s invita-
tion to the Solicitor General to express the views of the
United States.

STATEMENT

1. Kentucky's “any willing provider” (AWP) law provides:

A health insurer shal] not discriminate against any pro-
vider who is located within the geographic coverage area
of the health benefit plan and who is willing to meet the
terms and conditions for participation established by the
health insurer, including the Kentucky state Medicaid
program and Medicaid partnerships.

Ky. Rev. Stat. Ann. § 304.17A-270 (Michie 2001).’ Under the

AWP law, a “health insurer” must make available to its

1 When this suit was commenced, the AWP law applied to “health
benefit plan{s),” Ky. Rev. Stat. Ann. § 304.17A-110(3) (Banks-Baldwin
1995); but in 1998, the Kentucky legislature revised the law to apply to
“health insurer{s),” as quoted above. Pet. App. 5a-6a. The court of ap-
peals addressed the validity of the law in its “present form.” Pet. App. 6a.

(1)

2

subscribers the services of any medical provider in its geo-
graphical area that agrees to the terms and conditions
offered by the HMO to providers. An “insurer” is defined as

any insurance company; health maintenance organiza-

~ tion; self-insurer or multiple employer welfare arrange-
ment not exenpt from state regulation by ERISA;
provider-sponsored integrated health delivery network;
self-insured employer-organized association, or nonprofit
hospital, medical-surgical, dental, or health service
corporation authorized to transact health insurance
business in Kentucky.

Ky. Rev. Stat. Ann. § 304.17A-005(23) (Michie 2001). Sup-
porters of AWP laws argue that the laws make it easier for
patients to have access to providers of their choice, while
opponents argue that they lead to increased costs by limiting
the ability of insurers to guarantee a high volume of patients
to providers in return for lower charges. See Pet. App. 34a
n.18.

The issue in this case is whether ERISA preempts the
Kentucky AWP law. Three ERISA provisions are relevant.
First, ERISA’s general preemption provision, Section
514(a), 29 U.S.C. 1144(a), states that ERISA “shall super-
sede any and al] State laws insofar as they may now or here-
after relate to any employee benefit plan.” Second, ERISA’s
insurance saving clause, Section 514(b)(2A), 29 U.S.C.
1144(b)(2)(A), provides 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 securi-
ties.” Third, ERISA’s deemer clause, Section 514(b)(2)(B),
29 U.S.C. 1144(b\(2(B), which qualifies the insurance saving
clause, provides that “[nJeither an employee benefit olan
* * * nor any trust established under such a plan, shall be
deemed to be an insurance company or other insurer * * *
for purposes of any law of any State purporting to regulate
insurance companies, [and] insurance contracts.”

3

2. Contending that ERISA preempts Kentucky’s AWP
law, petitioners—five health maintenance organizations
(HMOs) licensed under the laws of Kentucky and a Ken-
tucky-based non-profit associatior of HMOs—filed suit
against the Insurance Commissioner of Kentucky in federal
district court to enjoin enforcement of the law. Pet. App.
64a-65a. The district court upheld the law, ruling ‘sat,
although the AWP law “relate[s} to” ERISA plans, it “regu-
lates insurance” and is therefore saved from preemption
under the insurance saving clause. /d. at 78a-82a.

3. A divided panel of the Sixth Circuit affirmed. Pet.
App. la-38a. The court unanimously ruled that Kentucky’s
AWP law “relate[s] to” employee benefit plans under 29
U.S.C. 1144(a), because it has both a “reference to” and a
“connection with” ERISA plans. The panel concluded that,
because the AWP law applies to a “self-insured plan * * *
to the extent permitted by ERISA,” Ky. Rev. Stat. Ann.
§ 304.17A-005(23) (Michie 2001) (emphasis added), it refers
to ERISA plans. See Pet. App. 10a-lla. The court further
held that AWP laws have a “connection with” ERISA plans,
because they “affect the benefits available by increasing the
potential providers, [and] they directly affect the administra-
tion of the plans,” id. at 19a.

Like the district court, however, the panel majority ruled
that the AWP law is saved from preemption as a law that
“regulates insurance.” Applying the analytical framework,
of UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 367-
368, 373 (1999), the court first found that the AWP law is
specifically directed at the insurance industry, thus satisfy-
ing the common-sense test for insurance regulation. Pet.
App. 22a-24a. The court observed that “(t}he fact that it
includes within its reach HMOs as well as traditional insur-
ance companies does not take it out of the realm of insurance
regulation,” because “[{iJn the end, HMOs function the same
way as a traditional health insurer: The policyholder pays a
fee for a promise of medical services in the event that he

4

should need them.” Jd. at 22a-23a. The court similarly held
that the law’s coverage of certain self-insured government
and church plans (which are exempt from ERISA, see 29
U.S.C. 1003(b) (1994 & Supp. V 1999) and thus not protected
from state insurance regulation by the “deemer clause,” 29
U.S.C. 1144(b)(2)(B)) does not preclude a finding that the law
“regulate[s] insurance,” because “it is * * * within the
authority of a state in enacting laws dealing with insurance
to include within such laws entities that act as self-insurers.”
Pet. App. 24a; see id. at 24a-29a. Observing that the AWP
law increases benefits by giving the insured more freedom to
choose and is part of “a comprehensive subtitle of Ken-
tucky’s insurance code regulating health benefit plans,” the
court concluded that the law “clearly” satisfies the common-
sense test. Jd. at 30a. The court also held that the Kentucky
law does not apply to non-insurers engaged solely in plan
administration, observing that the Kentucky law “elimi-
nate[s] any ambiguity as to whether administrators under
contracts with benefit plans are included within the scope of
the statutes. They obviously are not.” /d. at 28a n.14.

The court also followed UNUM in considering the three
factors utilized in determining whether a particular practice
constitutes the “business of insurance” for purposes of the
McCarran-Ferguson Act, 15 U.S.C. 1012(b). See UNUM,
526 U.S. at 373-375. First, the court concluded that the
AWP law “spreads the cost component of the policyholder’s
risk among all the insureds, instead of requiring the policy-
holder to shoulder all or part of this cost when seeking care
or treatment from an excluded doctor or hospital of his or
her choice.” Pet. App. 3la. The court also found that the
AWP laws “directly impact the insurer-insured relationship
because they affect restrictions on the network of providers
available for treatment under the plan and they directly
affect the administration of the plan * * * by expanding
covered treatment from a closed pool of providers to an open
pool of providers.” Jd. at 36a. Finally, the court reiterated

5

that, because the Kentucky law does not apply to entities
outside the insurance business, it is directed at insurance
and thus satisfies the third factor. Jd. at 36a-37a.

Judge Kennedy dissented from the court’s holding that
the AWP law “regulates insurance” and is therefore saved
from preemption. Pet. App. 39a-63a. In her view, the AWP
law fails the common-sense test and the three McCarran-
Ferguson Act factors. With respect to the common-sense
test, she stated that the law “clearly target[s] more than just
members of the insurance industry,” because in her view it
“appllies}] to non-ERISA covered self-insured plans,” id. at
40a-41la, and to “third parties that a self-insured ERISA plan
hires to administer its plan benefits,” id. at 42a, which she
viewed as outside the insurance industry. As to the three
McCarran-Ferguson factors, Judge Kennedy concluded that
the AWP law does not spread risk because “(t]he risk as-
sumed by the benefit plan under its policy, that the policy-
holder will require medical treatment, remains unaltered” by
the AWP law. Jd. at 50a. She concluded that the AWP law
neither changes the relationship between the insurer and the
insured nor is integral to it, because it “center[s] on the
insurer-provider relationship,” id. at 58a, and “leave[s] the
contract terms between the insurer and insured, unaltered,”
id. at 59a. Finally, she concluded that the AWP law is not
“limited to entities within the insurance industry” because
the AWP law “not only regulates entities that fall outside
the traditional definition of insurer,” but also “extends to
include entities in no way involved in underwriting risks,”
such as HMOs that administer ERISA-exempt self-insured
plans. /d. at 59a.

DISCUSSION

The court of appeals correctly held that ERISA does not
preempt Kentucky’s AWP law. The law “relates to” em-
ployee benefits plans by indirectly but substantially affecting
their content, but is saved from preemption because it is a

6

law that regulates insurance. Nonetheless, further review is
warranted because the case presents an important and
recurring issue that has caused substantial confusion and
widely varying results in the courts of appeals. The issue in
this case is, however, related to the issue pending before the
Court in Rush Prudential HMO v. Moran, No. 00-1021. We
therefore suggest that the Court hold the petition in this
case and then dispose of it as appropriate in light of its
decision in’ Rush.

A. Any Willing Provider Laws “Relate To” ERISA Plans

Under Section 514(a) of ERISA, 29 U.S.C. 1144(a), the
provisions of ERISA “shall supersede any and all State laws
insofar as they may now or hereafter relate to any employee
benefit plan.” This provision is “clearly expansive.” Egel-
hoff v. Egelhoff, 121 S. Ct. 1322, 1327 (2001). It “yield[{s] a
two-part inquiry: A law ‘relate[s] to’ a covered employee
benefit plan for purposes of § 514(a) ‘if it [1] has a connection
with or [2] reference to such a plan.” California Div. of
Labor Standards Enforcement v. Dillingham Constr., N.A.,
Inc., 519 U.S. 316, 324 (1997) (citation and internal quotation
marks omitted).

1. Although the Kentucky AWP law makes a literal ref-
erence to the ERISA statute, the court of appeals erred in
holding that the law makes a forbidden “reference to”
ERISA plans, as this Court has used that phrase. By its
terms the AWP law applies to any “insurer,” including any
“self-insurer or multiple employer welfare arrangement not
exempt from state regulation by ERISA.” Ky. Rev. Stat.
Ann. § 304.17A-005(23) (Michie 2001) (emphasis added).
That reference to the ERISA statute neither singles out
ERISA plans for differing treatment, Mackey v. Lanier
Collection Agency & Serv., Inc., 486 U.S. 825, 830 (1988), nor
is dependent on such plans for its operation, District of
Columbia v. Greater Washington Board of Trade, 506 U.S.
125, 130-131 (1992). Rather, it simply acknowledges the

7

limits on the scope of state laws imposed by the “deemer
clause” of ERISA, Section 514(b)(2)(B), 29 U.S.C.
1144(b)(2)(B), which prevents the States from regulating
self-insured plans under the guise of regulating insurance.
FMC Corp. v. Holliday, 498 U.S. 52, 61 (1990). The
Kentucky AWP law thus treats all insurers and all plans
(ERISA and non-ERISA) alike, to the extent permitted by
federal law. If such a citation to ERISA itself were suffi-
cient to warrant preemption, it would create the perverse
result that a state law’s express recognition of the limits
imposed by federal law would render the state law pre-
empted, not only to the extent acknowledged by that refer-
ence, but in other areas that the States concededly may
regulate consistent with ERISA.

2. The court of appeals was correct, however, in holding
that the AWP law falls within the scope of ERISA’s express
preemption provision because it has a “connection with”
ERISA plans. A state law has such a connection if it “man-
date[s] employee benefit structures or their administration.”
New York State Conference of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 658 (1995); see
Dillingham, 519 U.S. at 328. The AWP law requires that
insurers offer to all who purchase their policies, including
ERISA plans and their participants and beneficiaries, open-
panel provider networks (i.e., those in which the insurer may
not limit the universe of available providers) rather than
closed, exclusive networks. Participants and beneficiaries of
ERISA plans therefore have a wider choice of providers
than they would have without the law.” Accordingly, the
AWP law “relates to” ERISA plans for the same reasons
that other mandated-benefits laws do. See Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985) (as-
suming that law requiring minimum mental health benefits
relates to ERISA plans); Travelers, 514 U.S. at 663-664
(discussing Metropolitan Life); Shaw v. Delta Air Lines,

8

Inc., 463 U.S. 85, 97 (1983) (law requiring pregnancy benefits
relates to ERISA plans).

B. AWP Laws Are Saved By ERISA’s Insurance Saving
Clause

The court of appeals correctly held that Kentucky’s AWP
law is saved from preemption as a law that “regulates in-
surance” under 29 U.S.C. 1144(b)(2)(A). In deciding whether
a state law is saved under that clause, the Court first asks
“whether, from a ‘common-sense view of the matter,’ the
contested prescription regulates insurance.” UNUM, 526
U.S. at 367-368. To satisfy the common-sense test, 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, 481 U.S. 41, 50 (1987); see UNUM,
526 U.S. at 368. Thus, a general state tort or contract law
that includes the insurance industry within its reach, but is
not specifically directed at it, does not “regulate insurance”
and therefore is not within the saving clause. Pilot Life, 48i
U.S. at 50, 57. Here, as the court below concluded, the AWP
law makes clear on its face that it is targeted at the insur-
ance industry. In reviewing that determination, this Court
does not “normally disturb an appeals court’s judgment on
an issue so heavily dependent on analysis of state law.”
UNUM, 526 U.S. at 368.

1. The court below correctly ruled that the AWP law
satisfies the common-sense test because it is specifically
directed at insurance. By its terms, the AWP law applies to
“health insurer[{s].” Pet. App. 89a. It defines health insurers

2 The direct impact of the AWP law’s mandatory open-panel provider
networks on plans’ benefit structures and the ability of plans to operate
uniformly across state lines contrasts with the incidental economic impact
of state laws of general applicability that are not sufficiently connected to
ERISA plans to meet the “relates to” requirement. See Travelers, 514
U.S. at 668; see also De Buono v. NYSA-ILA Med. & Clinical Serv. Fund,
520 U.S. 806, 815-816 (1997); Dillingham, 519 U.S. at 334; Mackey, 486
US. at 831-836.

9

to include not only traditional health insurers, but also
entities that take more innovative approzches to insurance
and the provision of health care, such as a “health main-
tenance organization” or a provider-sponsored “health ser-
vice corporation.” Ky. Rev. Stat. Ann. § 304.17A-005(23)
(Michie 2001). HMOs may play several roles in relation to a
health benefit plan, but one role—and the one covered by the
Kentucky law—is that of insurer. As this Court has recog-
nized, such organizations are “risk-bearing organizations,”
because they generally “assume[] the financial risk of
providing the benefits promised.” Pegram v. Herdrich, 530
U.S. 211, 218-219 (2000); see also Pet. App. 22a-23a; U.S.
Amicus Br. at 13-16, Rush Prudential, No. 00-1021.* Indeed,
millions of employees in the United States are offered the
choice between indemnity health insurance plans and HMO
membership as similar ways to obtain health insurance
coverage. Accordingly, the application of the Kentucky law
to HMOs as well as traditional insurers does not detract

3 Like the dissent below, some courts of appeals have suggested that
HMOs are not engaged in insurance for purposes of ERISA’s insurance
saving clause. Pet. App. 41a n.3. See also Prudential Ins. Co. of Am. v.
National Park Med. Ctr., Inc., 154 F.3d 812, 829 (8th Cir. 1998); Texas
Pharmacy Ass’n v. Prudential Ins. Co. of Am., 105 F.3d 1035, 1038-1039
(5th Cir.), cert. denied, 522 U.S. 820 (1997). The continued validity of
those decisions, however, was undermined by this Court’s discussion in
Pegram. More recent decisions from those same courts recognize that
HMOs may be classified as insurers for ERISA purposes. See Corporate
Health Ins., Inc. v. Texas Dep't of Ins., 215 F.3d 526, 538 (5th Cir. 2000)
(“A statute may regulate insurance if it applies to insurers, health care
service contractors, and HMOs.”), petition for cert. pending, No. 00-665;
Express Scripts, Inc. v. Wenzel, 262 F.3d 829, 836 (8th Cir. 2001) (“The
language of the statutes was specifically directed at HMOs and we
conclude that the provisions regulate insurance under the common sense
test.”); see also 29 U.S.C. 1144(b)(2)(B) (protecting self-insured plans from
application of state insurance laws saved by 29 U.S.C. 1144(b)(2)(A) by
barring plans from being deemed to be “an insurance company or other
insurer” for purposes of such state laws) (emphasis added).

10

from the law’s basic character as one that regulates
“insurance.”

Nor does the inclusion of self-insured plans, including gov-
ernmental or church plans, take the AWP law outside the
insurance saving clause. Governmental and church plans are
exempt from ERISA, 29 U.S.C. 1003(b) (1994 & Supp. V
1999), regardless of whether they are self-insured. More-
over, a State may reasonably conclude that “a party who has
not purchased insurance, effectively act[s] as its own
insurer,” and States may therefore regulate self-insuring
entities as part of their regulation of insurance. Pet. App.
24a; see General Elec. Co. v. Gilbert, 429 U.S. 125, 138 n.16
(1976) (“That General Electric self-insures does not change
the fact that it is, in effect, acting as an insurer.”). Indeed,
ERISA’s deemer clause, 29 U.S.C. 1144(b)(2)(B), necessarily
presumes that self-insured entities are subject to state
insurance regulations. The precise function of the clause is
to exempt self-insured plans from state laws that would
otherwise apply to them through operation of ERISA’s
insurance saving clause. See FMC, 498 U.S. at 61 (“We read
the deemer clause to exempt self-funded ERISA plans from
state laws that ‘regulat[e] insurance’ within the meaning of
the saving clause.”). UNUM, 526 U.S. at 367 n.2 (deemer
clause is a “limitation on state regulatory authority”). That
exemption would be unnecessary—and the deemer clause

4 Judge Kennedy observed that such entities may in some instances
merely “handle paperwork and plan administration for a self-funded [7.e.,
self-insured) ERISA plan.” Pet. App. 43a. She noted that in such cases,
“({t}he only risk underwritten is that accepted by the ERISA self-insured
plan, which under the ‘deemer clause’ of ERISA * * * cannot be treated
as an insurance company for the purposes of state regulation.” Jd. at 44a.
The majority, however, expressly addressed whether HMOs and similar
entities acting solely as plan administrators for self-insured plans “are
included within the scope of the” AWP law and concluded that they
“obviously are not.” Jd. at 28a n.14. Cf. Corporate Health Ins., Inc., 215
F.3d at 538 (administrators function as insurers in making benefit
determinations).

1]

superfluous—if the fact that a state law regulates self-
insurance meant that the state law does not “regulate[]
insurance.”

This Court recognized as much in Metropolitan Life.
There, the Court held that the state mandated-benefits law
was a law that regulated “insurance” within the meaning of
the saving clause, even though it included self-insured plans
among the insurers within its scope. See 471 U.S. at 735-736
n.14, 740-747. Notwithstanding that intended scope, the
Court simply held that, because of the “deemer clause,” the
mandated-benefits law did not apply to self-insured plans
covered by ERISA. See id. at 735-736 n.14. The Court did
not hold that the inclusion of self-insured plans made the law
one that does not regulate insurance.

2. Consideration of the three McCarran-Ferguson fac-
tors, insofar as they bear on the ERISA analysis, confirms
the conclusion that the Kentucky AWP law “regulates insur-
ance.” At least the last two of those factors are satisfied
here. As the court below correctly concluded (Pet. App. 35a-
36a), the AWP law “serves as ‘an integral part of the policy
relationship between the insurer and the insured.”” UNUM,
526 U.S. at 374; Stwart Circle Hosp. Corp. v. Aetna Health
Mgmt., 995 F.2d 500, 503 (4th Cir.) (regulations governing
treatment and cost are integral parts of insurer-insured rela-
tionship), cert. denied, 510 U.S. 1003 (1993). Like other
mandated-benefit provisions, the AWP law’s mandate of
open networks fundamentally changes the underlying insur-
ance promise between the insurer and insured. See Metro-
politan Life, 471 U.S. at 744 (state regulation affecting “the
type of policy which could be issued” is part of “the core of
the ‘business vi insurance’”); see also UNUM, 526 U.S. at
374 (notice-prejudice rule integral to relationship by chang-
ing bargain between insurer and insured); Texas Pharmacy,
105 F.3d at 1041. The AWP law, although not mandating
coverage of specific conditions like the mandated coverage of
mental illnesses in Metropolitan Life nevertheless defines

12

the scope of the benefits provided and mandates the type of
policy that may be issued.

Likewise, for essentially the same reasons that the AWP
law regulates insurance as a matter of common-sense, see
pp. 8-11, supra, the court of appeals correctly held that the
law satisfies the third McCarran-Ferguson factor in this
context because the law is properly construed as limited to
regulating insurers and entities acting as insurers.’ This
Court does not “normally disturb an appeals court’s judg-
ment on an issue so heavily dependent on analysis of state
law,” UNUM, 526 U.S. at 368. As in UNUM, the Court
“lack[s] cause” to do so here, because the court of appeals’
construction is reasonable. See Pet. App. 23a-29a.°

5 Neither petitioners, the court of appeals, nor any of the appellate
decisions cited by petitioners, see Pet. 15-16, have asserted that AWP
laws fail to satisfy the third factor because those laws regulate relations
between insurers and other entities (health care providers) that are not
insurers. See Group Life & Health Ins. Co. v. Royal Drug Co., 440 US.
205, 231 (1979). In applying the ERISA saving clause, that point is more
appropriately considered here under the second factor, as discussed in the
text, because the fact that the AWP law regulates the .elationship
between the insurer and providers does not detract from the fact that it
also regulates the relationship between the insurer and the insured, and
therefore “regulates insurance.” That does not mean, however, that the
relationship between an insurer and a provider is itself the “business of
insurance” for purposes of the McCarran-Ferguson Act’s exemption from
the antitrust laws. See pp. 15-16 & n.8, infra.

® The application of the third factor to laws that regulate self-insurers
in the ERISA context may also differ from the application of that factor to
the practice of self-insurers in the antitrust context. See note 8, injra.
The ultimate statutory test for whether a state law is saved under ERISA
is whether it “regulates insurance.” 29 U.S.C. 1144(b)(2)(A). The ultimate
statutory test in the antitrust context is different. There, the McCarran-
Ferguson Act exempts a practice from the federal antitrust laws if it con-
stitutes “the business of insurance.” 15 U.S.C. 1012(b) (emphasis added).
A self-insurer may reasonably be viewed as engaged in “insurance,” and
therefore a law regulating self-insurers “regulates insurance” under the
ERISA saving clause. But a self-insurer would not appear to be involved
in “the business of insurance” within the meaning of the McCarran-
Ferguson Act.

13

Thus, at least two of the three McCarran-Ferguson Act
factors, plus the common-sense test, are satisfied. That is
sufficient to support the court of appeals’ holding that Ken-
tucky’s AWP law is not preempted. See UNUM, 526 US. at
374. The court of appeals ruled that the AWP law also
satisfies the first, risk-spreading factor because it has the
effect of spreading the insureds’ risk by providing them with
more physicians to choose from and thereby reducing the
likelihood that they will receive medical care outside the
network and personally shoulder the cost of treatment. Pet.
App. 3la; accord Stwart Circle, 995 F.2d at 503; see also
Express Scripts, 262 F.3d at 838 (law preventing HMOs from
making mail-order pharmacies exclusive providers trans-
ferred risk by enabling insured to avoid paying higher price
at retail pharmacy when mail-order pharmacy delays filling
prescription); Texas Pharmacy, 105 F.3d at 1041-1042; Blue
Cross & Blue Shield v. Bell, 798 F.2d 1331, 1334-1335 (10th
Cir. 1986).’ But even if that conclusion is based on too broad
a view of the risk-spreading factor, the McCarran-Ferguson
factors are nct necessary conditions for determining whether
a law regulates insurance under ERISA’s insurance saving
clause. See UNUM, 526 U.S. at 373-374; see p. 16, infra.
Thus, the court of appeals’ ultimate conclusion that the

7 Petitioners correctly note (Pet. 17-19) that the courts of appeals on
occasion have narrowly interpreted the McCarran-Ferguson “risk-spread-
ing” criterion as “refer{ring]} to the risk of injury for which the insurance
company contractually agreed to compensate the insured.” Cisneros v.
UNUM Life Ins. Co. of Am., 134 F.3d 939, 945-946 (Sth Cir. 1998), cert.
denied, 526 U.S. 1086 (1999); see Pet. App. 48a-57a (Kennedy, J., dis-
senting). That narrow view of risk-spreading under ERISA is incorrect.
See UNUM, 526 U.S. at 374 (describing criterion as “whether the rule at
issue ‘has the effect of transferring or spreading a policyholder’s risk’”)
(quoting Metropelitan Life, 471 U.S. at 743) (emphasis added); cf
Department of Treasury v. Fabe, 508 U.S. 491, 502-504 (1993) (under first
clause of § 2(b) of McCarran-Ferguson Act, Ohio creditor-priority scheme
met risk-transfer criterion by ensuring payment of policyholders’ claims
and performance of insurance contract).

14

Kentucky AWP law comes within the insurance saving
clause is correct.

3. Contrary to petitioners’ contention (Pet. 19-23), the
decision of the court of appeals does not conflict with this
Court’s decision in Group Life & Health Ins. Co. v. Royal
Urug Co., 440 U.S. 205 (1979), which held that an arrange-
ment between insurers and pharmacists was not exempt
from the federal antitrust laws under Section 2(b) of the
McCarran-Ferguson Act, 15 U.S.C. 1012(b). The insurer in
Royal Drug entered into agreements with participating
pharmacies, whereby policyholders could purchase drugs
from the pharmacy for two dollars and the insurer would
reimburse the pharmacy for the actual costs of the drugs
purchased. Although the insurer offered that arrangement
to all pharmacies, not all pharmacies chose to participate on
those terms. 440 U.S. at 209. The Court held that the
agreements satisfied none of the McCarran-Ferguson Act
factors, and that they therefore were not exempt from the
federal antitrust laws. The Court reasoned that the in-
surer’s policyolders were “basically unconcerned with
arrangements made between [the insurer] and participating
pharmacies.” Jd. at 214. Characterizing the agreements as
“merely arrangements for the purchase of goods and ser-
vices by [the insurer],” ibid., the Court held that they did not
spread risk, were not central to the insurer-insured
relationship, and extended to entities outside the insurance
industry, id. at 214, 216, 231-233.

In contrast to the private agreements at issue in Royal
Drug, state AWP laws do not merely set the rate at which an
insurer will reimburse a provider who already is part of the
provider network—a matter with which the policyholders in
Royal Drug were “basically unconcerned.” See also Union
Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 132 (1982)
(policyholder’s “only concern is whether his claim is paid”)
(emphasis added). AWP laws regulate who may be included
in that network to begin with. Pet. App. 32a. Thus,

15

although such laws affect persons other than the insurer and
the insured, they do so by inviting them into the provider
network that the insurer makes available to the insured. In
that respect, AWP and similar laws affect the nature of the
insurer’s underlying promise to the insured by changing the
network of providers available to the insured from a limited,
closed one to an open one. See UNUM, 526 U.S. at 374; see
also Pet. App. 3la; Express Scripts, 262 F.3d at 837-838;
Texas Pharmacy, 105 F.3d at 1041. Although policyholders
are likely not to be directly concerned with the insurer’s
costs of providing benefits (as in Royal Drug), they are likely
to be very concerned with the range of providers available to
them under the plan (and therefore the likelihood that the
“family doctor” is covered by the plan). Access to health
care is a key element of the relationship between insurer and
insured. AWP laws therefore “regulate insurance” within
the meaning of ERISA’s insurance saving clause. Pet. App.
33a-34a; Texas Pharmacy, 105 F.3d at 1041.

More generally, although Royal Drug is informative in the
ERISA context, it was not itself an ERISA case and does
not control the ERISA analysis. Royal Drug involved the
application of the second clause of Section 2(b) of the
McCarran Ferguson Act, which is an exemption to the fed-
eral antitrust laws and, as such, must be construed narrowly.
See Pireno, 458 U.S. at 126; Royal Drug, 440 U.S. at 231.
ERISA’s saving clause, by contrast, is not an exemption
subject to a narrow construction, but a preservation of state
authority. Cf. Metropolitan Life, 471 U.S. at 741 (“(t]he

8 Although the Kentucky AWP law’s effect on the insurer-insured
relationship is sufficient to bring that law within the scope of ERISA’s
insurance saving clause, which is designed to preserve the broad authority
of the States over insurance, it does not follow that private conduct by an
insurer affecting a provider's ability to participate in the insurer’s pro-
vider network would be protected by the McCarran-Ferguson Act’s
narrow exemption from the antitrust laws simply because that conduct
might also have an effect on the insurer-insured relationship.

16

presumption is against pre-emption”). In that regard, the
saving clause bears a greater resemblance to the first clause
of Section 2(b), which preserves state laws “enacted * * *
for the purpose of regulating the business of insurance,” 15
U.S.C. 1012(b), and “was intended to further Congress’s pri-
mary directive of granting the States broad regulatory
authority over the business of insurance.” Department of
Treasury v. Fabe, 508 U.S. 491, 505 (1993). The ERISA
saving clause thus has a broader scope thas the narrow
exemption from the antitrust laws at issue in Royal Drug.
See ibid.

Furthermore, the language of the ERISA insurance sav-
ing clause, which saves “any law of any State which regu-
lates insurance,” 29 U.S.C. 1144(b)(2)(A) (emphasis added),
is broader than the language of the first clause of Section
2(b) of the McCarran-Ferguson Act, which applies to state
laws enacted for the purpose of regulating “the business of
insurance.” 15 U.S.C. 1012(b) (emphasis added). Although
the Court simply applies the three McCarran-Ferguson Act
factors in determining the scope of the second clause (the
antitrust exemption) in Section 2(b) of that Act, see Pireno,
458 U.S. at 129-134, and likewise applies those same factors
(albeit perhaps more flexibly) under the first clause of Sec-
tion 2(b) (the preservation of state authority) at issue in
Fabe, see 508 U.S. at 502-504, the Court has adopted a differ-
ent analysis under the ERISA insurance saving clause. In
the ERISA analysis, the Court first and foremost applies a
“common-sense view of the matter,” UNUM, 526 U.S. at
367, and only then considers the McCarran-Ferguson factors,
which in any event are merely “relevant” but not “required”
in assessing whether a state law “regulates insurance” under
ERISA. Id. at 373. See also id. at 374 (factors are “guide-
posts”); FMC, 498 U.S. at 60-61 (finding that a law “regu-
lates insurance” under ERISA without mention of McCarran-
Ferguson factors). See also note 6, supra. Thus, even if the
Kentucky AWP law would fail Royal Drug scrutiny under

17

the McCarran-Ferguson Act, the court of appeals’ decision

that the AWP law satisfies the ERISA insurance saving

clause would remain sound.

-C. The Issue Of Whether ERISA Preempts AWP Laws
Merits Further Review, Although The Court May Wish
To Hold This Case Pending Its Decision In Rush
Prudential HMO v. Moran

1. The decision in this case appears to conflict with
decisions of two other courts of appeals holding similar state
AWP statutes to be preempted. The Eighth and Fifth
Circuits have held that AWP-type laws are not preempted if
they apply only to traditional insurance companies, see
Texas Pharmacy, 105 F.3d at 1040 (ruling on pre-1995 state
law), and HMOs, see Express Scripts, 262 F.3d at 836-837,
but that such laws are preempted if their definitions of
covered entities also include self-insured plans (and, perhaps,
third-party administrators for such plans, though that is
unclear from the decisions). See Prudential, 154 F.3d at 829;
Texas Pharmacy Ass'n, 105 F.3d at 1038-1040 (ruling on
state law enacted in 1995); CIGNA Healthplan of La., Inc. v.
Louisiana, 82 F.3d 642, 650 (5th Cir.), cert. denied, 519 U.S.
964 (1996). Although the Fifth Circuit’s decisions holding
such laws to be preempted have rested at least in part on
misconceptions of the law that have since been clarified, the
Fifth Cireuit appears to adhere to those decisions.’ See

9 For instance, in Texas Pharmacy, the Fifth Circuit rested its
decision in part on the proposition that HMOs and similar entities are not
part of the insurance industry, 105 F.3d at 1038-1039, but this Court has
determined otherwise. Pegram, 530 U.S. at 218-223. Following Pegram,
the Fifth Circuit broadened its view. See note 3, supra. Furthermore, in
Texas Pharmacy and CIGNA Healthplan, 82 F 3d at 650, the Fifth Cir-
cuit required the laws to satisfy both the common-sense test and all three
McCarran-Ferguson factors to be saved as an insurance regulation. 105
F.3d 1088. This Court, however, has expressly rejected that requirement,
holding that the McCarran-Ferguson factors are merely “guideposts” in
the analysis and that a law may “regulate insurance” under ERISA
without satisfying all three factors. UNUM, 526 U.S. at 373-374. In

18

generally Corporate Health., 215 F.3d at 538 (attempting to
harmonize Fifth Circuit case law).

Under the Eighth and Fifth Circuit decisions, the Ken-
tucky law at issue in this case would have been held to be
preempted. It has a broad coverage provision that extends
to a number of self-insured entities, such as “any self-insurer
or multiple eiaployer welfare arrangement not exempt from
state regulation by ERISA; provider-sponsored integrated
health delivery network; self-insured employer-organized
association or nonprofit hospital, medical-surgical, dental, or
health service corporation.” Ky. Rev. Stat. Ann. § 304.17A-
005(23) (Michie 2001). To be sure, the Kentucky law ex-
cludes self-insured plans that are covered by ERISA and
protected from state insurance regulation by ERISA’s
“deemer clause,” because it covers only self-insured plans
“not exempt from state regulation by ERISA.” But that
feature could not save the Kentucky law under the Eighth
Circuit’s analysis. Although the Arkansas AWP law at issue
in Prudential similarly excluded such plans, see 154 F.3d at
816 (reciting Arkansas AWP provision stating that AWP law
“shall not apply to self-funded or other health benefit plans
that are exempt from state regulations by virtue of
[ERISA]”), the Eighth Circuit’s holding in Prudential that
the Arkansas law was preempted rested on the premise that
the Arkansas AWP law covered some self-insured entities.
See Express Scripts, 262 F.3d at 836-837 (distinguishing
Prudential). Because the Kentucky law likewise appears to
cover the same self-insured entities—i.e., those, like church
and government plans, that are not covered by ERISA—it
would thus be preempted under the Eighth Circuit’s
analysis. It likewise would be preempted under Fifth Cir-

Corporate Health, the Fifth Circuit acknowledged that clarification, but
reaffirmed the basic holding that AWP laws are preempted to the extent
they regulate entities other than traditional insurers and HMOs. 215 F.3d
at 537.

19

cuit precedent. See Corporate Health, 215 F.3d at 538 &
n.51; compare Stuart Circle (holding that Virginia law that
apparently applied to self-insured entities is saved by
insurance saving clause)... )

2. The issue that has caused the conflict in the circuits, as
well as the accompanying difficulty the courts have had in
analyzing AWP laws, is important. The wisdom of AWP
legislation can certainly be debated. Pet. App. 34a n.18; see
also Pegram, 530 U.S. at 221 (structure of HMOs involves
“complicated factfinding and such a debatable social judg-
ment” not usually left to courts). But whatever its wisdom,
approximately twenty-five States have enacted some form of
AWP law. William J. Bahr, Comments, Although Offering
More Freedom to Choose, “Any Willing Provider” Legisla-
tion is the Wrong Choice, 45 U. Kan. L. Rev. 557, 568 n.112
(1997). Managed-care entities subject to the strictures of
those laws deliver a substantial portion of health services
nationwide. It is important that the permissible scope and
limits of state authority in this area be defined. Further
review is therefore warranted.

3. The question presented by this case is related to the
question in Rush Prudential HMO, Inc. v. Moran, No. 00-
1021, cert. granted (June 29, 2001). The question there is
whether ERISA preempts an Illinois law requiring HMOs to
provide independent review by an outside physician in the
event of a disagreement regarding whether a particular
treatment is medically necessary and therefore included in
the insurance coverage provided by the HMO. The court of
appeals in Rush Prudential held that the state independent
review law is saved from preemption by ERISA’s insurance
saving clause. Citing the Eighth Circuit’s decision in Pru-
dential and the Fifth Circuit’s decision in Texas Pharmacy,
the petitioner in Rush Prudential argues that the Illinois
law does not “regulate[{] insurance” because it is directed at
HMOs, which in the petitioner’s view do not necessarily offer
insurance products and “do not always bear the risk for the

20

health plans with which they contract.” 00-1021 Pet. Br. at
37, 39-40."° If the court addresses that question, its analysis
may well affect the issue in this case. If so, this case should
then be remanded to the court of appeals for further
consideration in light of the Court’s decision in Rush
Prudential. If the decision in Rush Prudential does not
address the insurance saving clause in a way that sheds light
on this case, the Court should grant plenary review in this
case at that time.

CONCLUSION
The Court should hold the petition for a writ of certiorari
in this case pending its decision in Rush Prudential HMO,
Inc. v. Moran, No. 00-1021, cert. granted (June 29, 2001), and
then dispose of it accordingly.

Respectfully submitted.
PAUL D. CLEMENT
» — Acting Solicitor General *
WARD Bi. RADSSLY EDWIN S. KNEEDLER
Prresn-- « oe of Labor Deputy Solicitor General
LLEN H. FELDMAN
S “ae JAMES A. FELDMAN
Associater Solicitor Assistant to the Solicitor
NATHANIEL I. SPILLER Generel
Deputy Associate Solicitor
GARY K. STEARMAN
Attorney
Department of Labor
NOVEMBER 2001

10 The petitioner also argues that, under the Court’s decision in Pilot
Life, 481 U.S. at 53-57, the Illinois law conflicts with the provision in
Section 502(a) of ERISA for bringing civil actions to recover benefits or
enforce the terms of the plan. See 00-1021 Pet. Br. at 19-32, Rush
Prudential, supra.

* The Solicitor General is recused in this case.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0456%3A05. Public record. Not legal advice.