Amicus Curiae Brief — Coventry Health Care of Mo., Inc. v. Nevils, 137 S. Ct. 1190 (2017) (No. 16-149)

FILED

JAN 23 2017

‘c OF THE CLERK

OO PNAC Cc tL US.

No. 16-149

Hu the Supreme Court of the Anited States

CoveENTRY HEALTH CARE OF MISSOURI, INC.,

Petitioner,

Vv.

JODIE NEVILS,

Respondent.

On Writ of Certioruri to the

Supreme Court of Missouri

BRIEF OF THE MISSOURI ASSOCIATION OF

TRIAL ATTORNEYS AS AMICUS CURIAE SUPPORTING

RESPONDENT

Jeff Bauer J. Car) Cecere

STRONG-GARNER-BAUER, PC. Counsel ef Recor

415 E. Chestnut Expressway CECERE PC

Springfield, MO G5802 6035 McCommas Blvd.

(417) 887-4300 Dallas, TX 75206

(469) 600-9455

Todd C. Werts ccecere@ocecerepe.coimn

LEAR WERTS LLP

2003 W. Broadway, Ste, 107

Columbia, MO 65203

(673) 875-1991

Counsel for Amicus Curiae

TABLE OF CONTENTS

A soiecntichitcmcdlessedteanieenneemmencanmneildeeidiumeeth i

Sr I ini cnicinssniecnaunencicnanvadetiadibnnneniatiinnielti iii

Ne ee I I nasi cocncnccscientinntipnnneeenentawnicennotats 1

ALTHO 1

ee irwiletndiiedaosciideinntibamnnisntniicipeatiantuniniinbbinnmnnmtins 5

I. Congress did not intend for FEHBA to preempt

state restrictions on insurer subrogation and

PN IN dian ce cccesciinitncitinsisncitcsrennstnameceninians 5

A. Congress has left the states almost

unfettered discretion to regulate private

acs licursnistieiinnsicadiinbanscatidianienaiapdcialenpeitinlennes 5

B. FEHBA’s dual-regulatory regime

preserves the states’ authority to regulate

FEHB carriers’ business practices. ................ 10

1. The Federal Employees Health

Benefits Act of 1959................-..-ssscsseee- 10

2. The Civil Service Reform Act of 1978. ... 11

3. The Federal Employees Health Care

Protection Act of 1996. ...............00....+000. 15

C. FEHBA carriers’ subrogation and

reimbursement rights concern insurance

business practices that Congress reserved

Re iiscapticineieicsisencitendalaciaiesinintiabesidiemeiinen 18

1. Subrogation and _ reimbursement

restrictions are not among the specific

state laws Congress targeted for

A stsiicnsenasseserccsispedeesetinstadiesdaiibe 19

ii

2. Subrogation restrictions bear no

relation to benefits or coverage as

Congress understood them.................... 21

3. Principles of federalism favor leaving

regulation of subrogation and

reimbursement rights to the states........ 23

4. Promoting parity between the

preemptive scopes of ERISA and

FEHBA does not counsel in favor of

preemption, but against......................... 25

II. OPM would have been better served asking

Congress to explicitly preempt state regulation

of insurers’ subrogation and reimbursement

TEESE ERE a a8: OC Pete DA A aS De 27

SERRE TED ERE eae renee oe CRO PD ea 31

iii

TABLE OF AUTHORITIES

Cases

Aybar v. N.J. Transit Bus Operations, Inc.,

701 A.2d 982 (N.J. App. Div. 1997)..........c.:.0c0scerseseeesee 25

Berlinski v. Ovellette,

I es ctemaretnenedenen 19

Botsford v. Blue Cross & Blue Shield of Mont.,

Inc.,

ee > __. SS e nn re 25

Burkey v. Gov't Emp. Hosp. Ass’n,

fs EE ee 18

Hidler v. Blue Cross Blue Shield United of

Wisconsin,

671 F. Supp. 1213 (E.D. Wis. 1987)............c.0sscsescseses 15

Empire Healthchoice Assurance, Inc. v.

McVeigh,

i. ssaleessdeanntiniineninaion 9, 21, 25

Fifield Manor v. Finston,

TEE ee 20

FMC Corp. v. Holliday,

terme 9, 25, 26, 27

Fort Halifax Packing Co., Inc. v. Coyne,

I cauninclenalin 8

Gregory v. Ashcroft,

ITI ASAE or ve ae aE 8

Jones v. Aetna Casualty & Sur. Co.,

497 S.W.2d 809 (Mo. App. 1978) ...........-c-ssessesesessrcerseeess 19

Metro. Life Ins. Co. v. Ward,

CE Ee ER

iv

Metro. Life Ins. v. Mass. Travelers Ins. Co.,

CTE Ee, Te vnctrsecesnniteiianidetiniiatainde et 8, 9, 26

Pharm. Care Mgmt. Ass’n v. Rowe,

429 F'3d 294, 299 n.2 (1st Cir. 2005)

GO I oiencesceniniinsiccrcenicinpael lh Nac book 25

State Farm Fire & Cas. Co. v. Knapp,

fe, | DR eRe Cr Uc 19

State Farm Fire & Cas. Ins. Co. v. Farmers Ins.

Exch.,

ete gj | RDN le oe 20

Tafflin v. Levitt,

ee ETE se 8

United States Dep't of the Treasury v. Fabe,

a! Ef Reis 6

United States v. Bass,

SE TAs SR SW CAD cececcewsctovncinnnnienseisciecmte 20

United States v. South-eastern Underwriters

Ass'n,

Se Ses SU OD oiiieccccicscenbacneincssntides ee ae 6

Westchester Fire Ins. Co. v. Allstate Ins. Co., 236

CFUUID, GENE COMI, sorecnessesdescnicnientnddialiigiss ems a 20

Wrightsman v. Hardware Dealers Mut. Fire

Ins. Co., 147 S.E.2d 860 (Ga. 1966) ....cccccccccesecocoocoeeees. . 20

Statutes

Act of Sept, 17, 1978, Pub. L. No. 95-368, 92

SE, Gi cavininccininbidssincintsiniccnnchieniicdiadala ote Cee 14, 16

Employee Retirement Income Security Act of

1974, Pub. L. No. 93-406, , 88 Stat. 829.................... 9, 26

© RGIS wsisensessinsncsustonsinidabdiicos amma 26

v

Federal Employee Health Benefit Plan,

Pub. L. No. 86-382, 73 Stat. 708 (1959) 20.........:cccc0-sc0ee 10

Federal Employees Health Care Protection

Act of 1998, Pub. L. No. 105-266, 112 Stat.

a scenenagnsie eveetonnssssonease 15

a cecnscrnemsesnnnnennts 15

McCarran-Ferguson Act, Pub. L. No. 79-15, 59

I reesmetonncncn 6

Medicare Prescription Drug Improvement and

Modernization Act of 2008, Pub. L. No. 108-

Ee 9

I estmbenmionne i)

National Defense Authorization Act for Fiscal

Year 1987, Pub. L. No. 99-661, 100 Stat. 3816

Si tis ctesitalibadintcecnaneeneienttentostoststenesctncnnreneesene 29

National Defense Authorization Act for Fiscal

Year 1994, Pub. L. No. 103-160, 107 Stat. 1547

a sscemnincesemnenenssnce 29

EE a 29

Patient Protection and Affordable Care Act,

Pub. L. No. 11-148, § 124 Stat. 119 (2010) .................... 9

i scueenemesene as y

United States Code:

I scenscionne 10

EE eee 12

IUD cccccctencessvvcscescee 1, 18, 14, 15,

16, 17, 18, 19,

20, 21, 23, 25

jet’. 50 i alae a 22

ee intncnncnntcsinmicenmanied 29

This toh D) ly on 29

i eitcceiiiatisctcseridcnstninchiouninninenbiabin 6

ee a cichintinctitbancnestnaseiiniesiinionesiasiteininiti 6

ee i cicnincncstcenectrcintnttentetanttansinieeets .6

a ae EE icivcsncccsncinsnieaninnnestentanatedinnein 9

EE eae 25

git Foe Bb) | | ee. 26

Ba BI dctuccesvenscseimstrceiastnnnde 26

42 U.S.C. § 139Gw-2G(D)(B) .......-00-0..-0-s0+-ceeeseceerees 9

Conn. Gen. Stat. 38a-33GD ............cccsscsssesesseeees 20

36 Okl. Stat. Ann. tit. 36, § 6092 (1971) ............ 19

Regulations

fk SERIA PEE a eres noe 22

Kan. Admin. Regs. § 40-1-20 (1966)..............ccccscceeceeees 19

Administrative Materials

Dep’t of Health & Human Servs., Ctrs. For

Medicare & Medicaid Servs., Medicare

Prescription Drug Benefit, 69 Fed. Reg.

eR aciniiinntnsiennieiichiaticiticarnenenctencsinesion 9

OPM, Proposed Rule, Federal Employees

Health Benefits Program; Subrogation and

Reimbursement Recovery, 80 Fed. Reg. 932,

GE Wee IE ccineerceesitctvacnccrceanicasteiaienibcinnblcteniacanl 18, 19, 23

vii

Report of the Comptroller General of the United

States, B-164562, Conflicts Between State

Insurance Requirements and Contracts of the

Federal Employees Health Benefit Carriers 15

ee icineiicsiscsaiieitincicegaasneiaiiiutdasdinals 11, 12, 13, 18, 22, 28

Legislative History

Exemption of Federal Employees Health Benefits

Program from Certain State Laws on H.R. 12114

Before the Subcomm. on Retirement and Emp.

Benefits of the H. Comm. on Post Office and Civil

Servs., 94th Cong. 40 (1976) .............scc00000 7, 8, 11, 18, 15,

16, 17, 21, 22,28, 29

H.R. Rep. No. 86-967 (1966) ...........-ccssesscscesessesscoonssees 10, 27

H.R. Rep. No. 94-1211 (1976) ............00000 11, 12, 13, 14, 17,

18, 20, 24

H.R. Rep. No. 95-282 (1977) .........0.0--sesesecesses 18, 23, 28, 12,

13, 14, 16, 21

ee es Se, BI csscicecncinecinstininccnnntngpsatiadueeenns 17

H.R. Rep. No. 103-200, 1993 WL 298896 (1993)....... 29, 30

S. Rep. No. 106-257 (1906).......csccccssscsesresssescessesees 15, 16, 17

S. Rep. No. 95-908 (1978)........0..e-ceceveseecees 11, 12, 13, 24

Model! Legislation

NAIC, Model Laws, Regulations, and

Guidelines

§ MDL-880 (Unfair Trade Practices Act)............. 7

§ MDL-900 (Unfair Claims Settlement

RAN RES ast A sceah Ne eh SE Or 7

viii

§ MDL-218 (Producer Licensing Model

§ MDL-228 (Public Adjustor Licensing

Model

§ MDL-220 (Prevention of [legal

MEWAs & Other Illegal Health Ins.

I ciecninisiesiiciatininstgiasienieninnanaesinanansoni 7

Other Authorities

John G. Day, Dep’t of Transp., Economic

Regulation of Insurance in the United States

FEHB Program Carrier Letter No. 2012-18................. 23

Brian Harr, Legislative Reform: FEHBA’s

Preemption Clause: Is It a Model for Private

Employers’ Subsidized Health Care?, 22 J.

ee ncecnicntinnastentnemeinuenmenidebiiptguneniieeinscms 15

Robert H. Jerry, Il, Understanding Insurance

IE ciemtacbennnineneeennputerersadiniennnutecndeinnciiiaiann 7

Spencer L. Kimball, /nsurance and Public

TT trisericinieciensciesepemisssinnmteininisdbeisasiiiidusbeaniiiainitiidant 5

Spencer L. Kimball, The Purpose of Insurance

Regulation: A Preliminary Inquiry in the

Theory of Insurance Law, 45 Minn. L. Rev.

Ce apniiinntnncteeienaienninninigemasinnnmnniniinenneain 7

Kenneth J. Meier, 7'he Political Economy of

Regulation: The Case of Inswrance (1988). ..............0-+-- 5

Ronald Gift Mullins, Strong Congressional

Debate Role Urged for Industry Regulators, J.

os RP ee 8

ix

NAIC, 1995 NAIC Annual Report (1996) .....-.....-..-.svve 8

Nat'l Conf. of State Legislatures, State Roles in

Health Reform Provisions Related to

Insurance (Oct. 2011), <http://bit.ly/2ibvq8I > .......... 16

RAND Corp., Nat'l Def. Res. Inst., Hvaluation

of the CHAMPUS Reform Initiative, Vol. 6:

Implementation and Operation (1994) ...........0.c0c0-c0008 29

Martin H. Redish & Shane V. Nugent, The

Dormant Commerce Clause and the

Constitutional Balance of Federalism, 1987

I 6

INTEREST OF AMICUS CURIAE’

The Missouri Association of Trial Attorneys (MATA),

is a non-profit professional organization of approximately

1,400 trial attorneys in Missouri. MATA strives to pro-

mote the fair administration of justice, to preserve the in-

tegrity of the American adversary system, and to employ

its members’ knowledge and experience to advance the

rights of all Missourians, and indeed, all Americans. Be-

cause its members frequently represent parties in per-

sonal-injury and product-liability suits that involve the re-

covery of medical expenses, MATA’s members are aware

of the vital role that Missouri’s legal safeguards against

insurer subrogation play in protecting the rights of in-

jured parties and health care providers. MATA thus

wishes to ensure that these protections—and similar state

regulations around the country—remain robust. Accord-

ingly, MATA has a strong interest in ensuring that the ex-

press preemption provision in the Federal Employee

Health Benefits Act (FEHBA), 5 U.S.C. § 8902(m)(1), is

interpreted to leave state restrictions on subrogation in-

tact. This is the result that Congress intended, as a review

of the Act’s illuminating legislative history reveals. And it

is the result that best respects the division of regulatory

labor Congress envisioned when it enacted section

8902(m)(1).

SUMMARY OF THE ARGUMENT

States have traditionally operated with virtually unfet-

! All parties have consented to the filing of this brief. No counsel

for a party authored this brief in whole or in part, and no entity other

than amicus or its counsel has made a monetary contribution to the

preparation or submission of this brief.

2

tered authority to regulate the business of private insur-

ance and the companies that provide it. Because of Con-

gress’s abiding respect for the states as separate sover-

eigns, and its familiarity with the states’ institutional ex-

pertise that has developed over time, Congress seldom in-

trudes on the states’ almost-exclusive domain in this reg-

ulatory sphere. And on those rare occasions when Con-

gress determines that federal objectives must trump state

regulatory efforts, Congress displaces state authority

only as necessary to serve those specific objectives, other-

wise leaving the states’ regulatory powers intact. Con-

gress’s traditionally cautious approach has made assets of

the states’ greater insurance expertise and their greater

sensitivity to local problems; both add critical oversight

and accountability, and mitigate the potential conflicts that

could otherwise arise from the implementation of Con-

gress’s federal objectives within the states’ respective sys-

tems.

Congress employed this respectful approach in

FEHBA’s design. At the program’s inception, Congress

decided that FEHB carriers should submit fully to state

regulatory authority. It later decided that preemption was

necessary, but only upon realizing that FEHBA’s goal of

providing uniform benefits and coverage at affordable

cost would be frustrated by state laws that mandated

more than federal plans could provide. Even then, Con-

gress targeted for preemption only those state laws caus-

ing the conflict. And Congress proceeded in a similarly

limited fashion in amending FEHBA, when it expanded

the FEHB program to allow certain managed-care ar-

rangements, such as Preferred Physician Organizations

(PPOs)—going no further than to preempt those specific

state laws that would make such arrangements illegal.

3

Throughout these changes, deference to the states’ supe-

rior capacities in regulating insurance remained Con-

gress’s guiding principle, and outside these narrow fed-

eral objectives, Congress left the states free to regulate

FEHB carriers.

Congress intended for state restrictions on insurers’

subrogation and reimbursement rights to fall within the

wide swath of insurance-business regulation that Con-

gress left to the states. These anti-subrogation laws were

not mentioned among the list of specific state laws Con-

gress slated for preemption when FEHBA’s preemption

provision was first enacted, and are different in kind from

the laws on that list. Subrogation and reimbursement re-

strictions have no effect on the “benefits” or “coverage”

the insurer promises to enrollees. They do nothing to ab-

solve the insurer of its obligation to provide benefits. And

the funds recovered through these processes bear abso-

lutely no relationship to the insurers’ initial benefits out-

lays, coming from a person completely outside the rela-

tionship between the government, insurer, and employee,

and from sources that are kept separate from the insurers’

initial outlays. And the recovered funds do not even nec-

essarily go back to the insurers that paid out the initial

benefits.

More fundamentally, however, the regulation of insur-

ers’ subrogation and reimbursement rights is reserved to

the states because it implicates the federalist purpose ly-

ing at the heart of FEHBA’s dual-regulatory design. In-

surers’ exercise of these rights has significant effects on

the states’ respective tort systems, and has serious impli-

cations for others outside the contractual insurance rela-

tionship, including injured employees, health-care provid-

4

ers, other creditors—and indeed, the tortfeasors them-

selves—all of whom might have competing claims to the

same money. Deciding whether insurers’ contractual sub-

rogation and reimbursement rights should be enforced, or

should instead give way to other priorities, requires care-

fully balancing these competing interests. Congress un-

derstood that the states’ knowledge of their respective

tort, insurance, and health-care systems, and the needs of

the various players within each system, put the states in a

better position to achieve the proper balance.

If any doubt existed about whether FEHBA’s preemp-

tive scope extended to state subrogation and reimburse-

ment restrictions, it would have been better for OPM to

have come to Congress to have those doubts dispelled.

Over the course of the FEHBA’s history, Congress has re-

peatedly demonstrated that it understands FEHBA’s im-

portance, and has proven time and again to be responsive

to OPM’s needs. On several occasions, OPM and its pre-

decessors have come to Congress seeking additional pow-

ers. Congress has responded each time, granting the

agencies the tools they needed to properly oversee and ad-

minister the program. Indeed, in other regulatory con-

texts, Congress has proven willing to go to even greater

lengths than it did in FEHBA to craft preemption policy

to fit agency needs—in some instances granting agencies

the power to craft preemption policy for themselves, on a

case-by-case basis. Congress has thus given every indica-

tion that it would have been willing to directly address sec-

tion 8902(m)(1)’s preemptive effect on state anti-subroga-

tion laws. Had it done so, OPM’s position would stand on

firmer constitutional footing.

5

ARGUMENT

I. Congress did not intend for FEHBA to

preempt state restrictions on insurer

subrogation and reimbursement rights.

State restrictions on insurers’ subrogation and reim-

bursement rights existed long before Congress enacted

FEHBA’s preemption provision. And Congress was

aware that these preexisting laws might apply to FEHBA

plans. But Congress declined to include these laws within

FEHBA’s preemptive scope, deeming them to fall within

the regulation of the business of insurance, a matter tra-

ditionally resting within the states’ exclusive regulatory

authority. Congress understood that FEHB carriers’ ex-

ercise of their subrogation and reimbursement rights

raises core federalism concerns, affecting different states

in different ways, and Congress thought it better to allow

the states to decide for themselves whether to allow these

rights to be enforced, rather than grant FEHB carriers

an exclusive right to shove aside all other comers at the

tort-compensation trough.

A. Congress has left the states almost

unfettered discretion to regulate private

insurance.

For more than a century, insurance regulation has

been dominated almost exclusively by the states, largely

free from Congressional interference. John G. Day, Dep't

of Transp., Economic Regulation of Insurance in the

United States 10 (1970); Spencer L. Kimball, /nsurance

and Public Policy (1960); Kenneth J. Meier, The Political

Economy of Regulation: The Case of Insurance 49-87

(1988).

6

Indeed, only once in our nation’s history has state reg-

ulatory dominance over insurance been threatened, and

that threat came from the Court, not Congress. In United

States v. South-eastern Underwriters Association, 322

U.S. 533, 543 (1944), the Court threatened to federalize the

business of insurance by determining it to be a matter of

“interstate commerce,” thus potentially within exclusive

federal control under the Dormant Commerce Clause, see

Martin H. Redish & Shane V. Nugent, The Dormant Com-

merce Clause and the Constitutional Balance of Federal-

ism, 1987 Duke L..J. 569, 587-89 (1981). Congress reacted

swiftly to this decision, to “restore the supremacy of the

States in the realm of insurance regulation.” United

States Department of the Treasury v. Fabe, 508 U.S. 491,

500 (1993). It took less than a year for Congress to enact

the McCarran-Ferguson Act, Pub. L. No. 79-15, 59 Stat.

33 (1945) (codified as amended at 15 U.S.C. §§ 1011-15

(1994)), in which Congress declared that “the continued

regulation and taxation by the several states of the busi-

ness of insurance is in the public interest,” 15 U.S.C.

§ 1011. And the Act “explicitly suspended Commerce

Clause restraints on state taxation of insurance and placed

insurance regulation firmly within the purview of the sev-

eral States.” Metro. Life Ins. Co. v. Ward, 470 U.S. 869,

884 (1985).’

During this period of virtually unfettered freedom, the

states developed regulatory systems that today provide

critical oversight of private insurance companies. All

* The McCarran-Ferguson Act provides, in relevant part, that “No

Act of Congress shall be construed to invalidate, impair, or supersede

any law enacted by any State for the purpose of regulating the busi-

ness of insurance, *** unless such Act specifically relates to the busi-

ness of insurance.” 15 U.S.C. § 1012(b).

7

states have laws licensing insurance companies, agents,

and brokers. Hxemption of Federal Employees Health

Benefits Program from Certain State Laws on H.R. 12114

Before the Subcomm. on Retirement and Emp. Benefits

of the H. Comm. on Post Office and Civil Servs., 94th

Cong. 40 (1976) (statement of Dick L. Rottman, President

of the National Association of Insurance Commissioners

(NAIC) (Hearing No. 94-69); see, e.g., NAIC, Model

Laws, Regulations, and Guidelines (NAIC Model Law)

§ MDL-218 (Producer Licensing Model Act); id. § MDL-

228 (Public Adjustor Licensing Model Act); id. § MDL-220

(Prevention of Illegal MEWAs & Other Illegal Health Ins.

Model Regulation). States secure insurer solvency by

mandating minimum reserves and requiring sound finan-

cial and reporting practices. Hearing No. 94-69, at 40.

States have also enacted legislation to prevent insurers

from engaging in unfair marketing and claims-handling

practices. Jd. at 40-41; e.g., NAIC Model Law § MDL-880

(Unfair Trade Practices Act); id. § MDL-900 (Unfair

Claims Settlement Practices Act). And states have sought

to ensure the availability of affordable insurance coverage

by setting rates and policy terms. See generally Robert

H. Jerry, Il, Understanding Insurance Law 22 (2d ed.

1996); Spencer L. Kimball, The Purpose of Insurance Reg-

ulation: A Preliminary Inquiry in the Theory of Insur-

ance Law, 45 Minn. L. Rev. 471, 482 (1961). The states

enforce these regulatory commands through their own

specialized regulatory bodies, armed with broad enforce-

ment powers, and also by permitting civil actions against

insurers in court. Hearing No. 94-69, at 41.

State dominance in insurance regulation is due, in part,

to Congress’s respect for the sovereignty that the states

8

possess “concurrent with that of the Federal Govern-

ment,” Gregory v. Ashcroft, 501 U.S. 452, 457 (1991)

(quoting Tafflin v. Levitt, 493 U.S. 455, 458 (1990)), and

the recognition that insurance is one of the “areas of tra-

ditional state regulation” that Congress does not lightly

tamper with. Metro. Life Ins. v. Mass. Travelers Ins. Co.,

471 U.S. 724, 740 (1985); see id. at 741; Fort Halifax Pack-

ing Co., Inc. v. Coyne, 482 U.S. 1, 19 (1987).

State dominance of insurance regulation also reflects

Congress’s understanding that the states possess special

competence in insurance regulation that the federal gov-

ernment lacks. State legislators and regulators have de-

veloped relationships with the people and institutions im-

pacted by their actions—including insurers, consumers,

and, in the case of health insurance, health-care providers.

Ronald Gift Mullins, Strong Congressional Debate Role

Urged for Industry Regulators, J. Com., June 11, 1997 at

8A (quoting Josephine Musser).

The states’ smaller geographic sphere of responsibility

also enables them to provide closer, more personalized

oversight, tailored to local assumptions, local problems,

and individual communities’ needs. NAIC, 1995 NAIC

Annual Report 15 (1996) (“[T]he states are closer to the

consumers they are protecting and the industry they are

regulating,” which is why “states do a better job of regu-

lating insurance than the federal government could.”).

And local expertise matters, because the insurance busi-

ness ha numerous “logical ties to the geographic, eco-

nomic, and political structures of the states,” that affect

employers, health-care providers, and others. Hearing

No. 94-69, at 43.

Recognizing these realities, Congress has consistently

9

sought to make use of state regulatory expertise in fash-

ioning federal legislation regarding private insurance.

Even where Congress has identified areas of “exclusive

federal concern,” FMC Corp. v. Holliday, 498 U.S. 52, 58

(1990), or where “distinctly federal interests” are at play,

Empire Healthchoice Assurance, Inc. v. McVeigh, 547

U.S. 677, 696 (2006), and determines it necessary to take

over important areas of insurance regulation—whether to

offer affordable comprehensive insurance to seniors, to

expand health care access tu all Americans, or to com-

pletely overhaul the regulation of employee benefit

plans—Congress has still left the states with significant

regulatory authority. And the unblemished core of that

authority has always included the states’ power to regu-

late the business practices of carriers that wanted to do

business in their respective states.*

* E.g., Medicare Prescription Drug Improvement and Moderniza-

tion Act of 2003, Pub. L. No. 108-173, § 232(a)(3), 117 Stat. 2066 (sub-

jecting private Medicare plans to “State licensing laws or State laws

relating to plan solvency,” 42 U.S.C. § 1395w-26(b)(3), a directive that

the Centers for Medicare & Medicaid Services has interpreted to in-

clude “{s}tate environmental laws, laws governing private contracting

relationships, tort law, labor law, civil rights laws and similar laws,

Dep’t of Health & Human Servs., Ctrs. For Medicare & Medicaid

Servs., Medicare Prescription Drug Benefit, 69 Fed. Reg. 46,632,

46,696 (Aug. 3, 2004)); Patient Protection and Affordable Care Act,

Pub. L. No. 11-148, § 1821(d), 124 Stat. 119 (2010) (PPACA) (providing

that “{nJothing in this title shall be construed to preempt any State

law that does not prevent the application of the provisions of this ti-

tle”); Employee Retirement Income Security Act of 1974, Pub. L. No.

93-406, § 514(b)(2)(A), 88 Stat. 829 (ERISA) (preserving any state law

that “regulates insurance,” 29 U.S.C. § 1144(2)(A), which “reservies]

the business of insurance to the States,” Metro. Life, 471 U.S. at 744

n.21).

10

B. FEHBA’s dual-regulatory regime

preserves the states’ authority to regulate

FEHB carriers’ business practices.

Congress followed this tried-and-true dual-regulatory

formula with FEHBA, striking a balance of federalism

particularly slanted in favor of state regulatory authority.

Congress extended FEHBA’s preemptive reach to laws

that would interfere with FEHB plan terms relating to

“benefits” or “coverage.” But Congress has left intact the

states’ authority to regulate everything else.

1. The Federal Employees Health Benefits Act

of 1959.

When Congress first created the Federal Employee

Health Benefit Plan in 1959, Pub. L. No. 86-382, 73 Stat.

708, to offer health benefits to federal employees, it sought

to close a “wide gap” that existed between the “govern-

ment, in its capacity of employer, and employers in private

enterprise,” that “almost universally” offered “contribu-

tory health benefit programs.” H.R. Rep. No. 86-957, at

1-2 (1959); J.A. 267a-268a. It sought to provide those

health benefits in the same manner as private employers

did, by “execut{ing] contracts” with private insurance car-

riers to administer FEHB plans, 5 U.S.C. § 8902(a); H.R.

Rep. No. 86-957, at 3; J.A. 269a.

Congress viewed the state’s ability to provide account-

ability and consumer protection as an important asset in

this new program—which is unsurprising, given that the

federal government was becoming a consumer of insur-

ance. Accordingly, Congress did not “design{]” FEHBA

to “regulate the insurance business” or to “override any

state regulatory scheme.” Report of the Comptroller

General of the United States, B-164562, Conflicts Between

11

State Insurance Requirements and Contracts of the Fed-

eral Employees Health Benefit Carriers 15 (1975) (Comp-

troller General Report). Rather, because Congress recog-

nized that “[ajll states regulate the health insurance busi-

ness in various” ways, S. Rep. No. 95-9038, at 7 (1973); J.A.

375; Hearing No. 94-69, at 3 (Statement of Thomas Tins-

ley, Director, Bureau of Retirement, Insurance, and Occu-

pational Health) (same), it left to the states “the authority

to both regulate and tax health insurance carriers operat-

ing under the [FEHB] program,” in the same manner that

they regulated other private insurers. Comptroller Gen-

eral Report at 15.

2. The Civil Service Reform Act of 1978.

In the “early years of the” FEHB program, subjecting

the FEHB carriers to the states’ complete regulatory au-

thority “offered few if any problems.” S. Rep. 95-903, at

7; J.A. 375. But in the early 1970s, certain FEHB carriers

encountered state laws that conflicted with the provisions

in their plans. Comptroller General Report at 2-4. These

“presented serious problems” for the program. S. Rep.

95-903, at 7; J.A. 375. Complying with them would mean

additional premium costs, which would make the program

more expensive for “both the Government and enrollees,”

H.R. Rep. No. 94-1211, at 3 (1976); J.A. 338. It also threat-

ened the “uniformity of benefits” the government had

promised to enrollees. Jbid. Some employees would get

“benefits for which they did not contract,” Hearing No. 94

69, at 2 (Statement of Thomas Tinsley), and others would

end up “paying a premium based, in part, on the cost of

benefits provided only to enrollees in other States.” H.R.

Rep. No. 94-1211, at 3; J.A. 338; see also S. Rep. 95-903, at

9; J.A. 379. This lack of uniformity was not only inequita-

ble, but also put “carriers in serious jeopardy” of losing

12

their eligibility to provide insurance under the plan, S.

Rep. 95-903, at 7; J.A. 376, because eligible carriers are

required to be “licensed to issue group health insurance in

all the States and the District of Columbia,” see 5 U.S.C.

§ 8902(a) & (b), and thus an insurer’s failure to follow even

one state’s law could force it out of the FEHB program

entirely, S. Rep. 95-903, at 7; J.A. 376.

In keeping with its traditional respect for state insur-

ance regulation, Congress took a targeted approach in ad-

dressing these conflicts. Congress first decided to act in

February of 1975, after certain FEHB insurers had come

to the Civil Service Commission (CSC) expressing con-

cern about the impact that state-mandated benefit laws

were having on their plans. H.R. Rep. No. 95-282, at 3

(1977); J.A. 353-54; Comptroller General Report at 13-15.

In response, the Honorable Richard C. White, Chairman

of the House Subcommittee on Retirement and Employee

Benefits, requested the Comptroller General of the

United States to furnish a report identifying “those State

health insurance requirements which conflict with con-

tracts negotiated between the FEHB carriers and the

Civil Service Commission.” H.R. Rep. No. 94-1211, at 2;

J.A. 336; Comptroller General Report at 18-19, App. I.

Representative White also asked the Comptroller to study

the costs that would be incurred if FEHB plans were

“changed to include all benefits” that enrollees were enti-

tled to receive by state statute. Comptroller General Re-

port at 19, App. I.

In response, the Comptroller, with the assistance of

AETNA, one of the FEHB carriers, identified a set of 19

specific “[s]tate insurance laws, regulations, and Attor-

ney’s generals opinions” in 14 states that “conflict with

contracts” of the FEHB carriers. Comptroller General

13

Report at 1, 5, 24. These included state mandates for

health insurance carriers to cover chiropractic services,

acupuncture, and treatment for mental illness and alcohol-

ism, along with laws that mandated continuation of cover-

age, home health care, and maternity benefits. Comptrol-

ler General Report at 5-12, 21-24. One law from Maryland

even mandated that health-insurance carriers cover ben-

efits that might otherwise be provided under no-fault au-

tomobile insurance. Jd. at 24. The Comptroller General

estimated that premiums might have to increase by “as

much as 5 percent” to cover the benefits mandated for the

enrollees in these states, H.R. Rep. No. 95-282, at 4; J.A.

355; see Comptroller General Report at iii, 18.

Accordingly, when Congress decided to amend

FEHBA to add a preemption provision, it did so as a “di-

rect result” of the Comptroller General’s Report, Hearing

No. 94-69, at 1, based on a detailed legislative record tied

specifically to these laws.

The preemptive effort that resulted from this narrow,

targeted investigative effort was likewise narrow and tar-

geted. The CSC, the agency charged with implementing

FEHBA at the time, did not request “complete preemp-

tion” of all state laws that might impact the plans. H.R.

Hearing No. 94-69, at 4. And Congress provided only “a

form of limited preemption,” S. Rep. 95-903, at 7; J.A. 375,

which targeted “the various State conflicts” outlined in the

Comptroller General Report, H. R. Rep. No. 94-1211, at 2;

J.A. 336.

As the Committee reports and hearing transcripts

from this legislative effort reveal, Congress’s sole objec-

tive in enacting FEHBA’s preemption provision, 5 U.S.C.

§ 8902(m)(1), Act of Sept, 17, 1978, Pub. L. No. 95-368, 92

14

Stat. 606, was “to establish uniformity in benefits and cov-

erage,” and the only state laws and regulations it sought

to preempt were “State or local laws pertaining to such

benefits and coverage which are inconsistent with such

contracts.” H.R. Rep. No. 95-282, at 6; J.A. 359. Congress

thus targeted laws that would conflict with FEHB con-

tractual provisions concerning “the nature or extent of

coverage or benefits (including payments with respect to

benefits).” 5 U.S.C. § 8902(m)(1) (1982). But Congress

made clear that in doing so, it was pulling out only isolated

pieces of the states’ réguiatory authority. State laws were

preempted only “insofar as they pertain to benefits and

coverage.” H.R. Rep. No. 95-282, at 6; J.A. 359. To Con-

gress, this meant that section 8902(m)(1)’s preemptive

scope would reach:

State laws or regulations which specify types of

medical care, providers of care, extent of bene-

fits, coverage of family members, age limits for

family members, or other matters relating to

health benefits or coverage when such laws or

regulations conflict with the provision of con-

tracts under” the FEHBP

H.R. Rep. 94-1211, at 4; J.A. 339; H.R. Rep. No. 95-282, at

4-5; J.A. 356-57—a list that was virtually identical to the

list of laws regarding “benefits” compiled in the Comptrol-

ler General’s Report. Comptroller General Report at 1.

But according to Congress, “such a preemption” was “pur-

posely limited,” and would not “provide insurance carriers

under the program with exemption from state laws and

regulations governing other aspects of the insurance busi-

ness, such as the payment of premium taxes and require-

ments for statutory reserves.” H.R. Rep. No. 95-282, at 6;

15

J.A. 359. As Senator Herbert Harris explained, the pro-

vision “limits itself solely to who is eligible for this Federal

plan and what benefits are provided,” and he cautioned: “I

think we ought to make sure we don’t get into the business

of just overriding willy-nilly today or in the future the

State’s rights as far as the regulation of the industry is

concerned.” Hearing No. 94-69, at 14.

8. The Federal Employees Health Care Pro-

tection Act of 1998.

When Congress amended FEHBA’s preemption pro-

vision in the Federal Employees Health Care Protection

Act of 1998, Pub. L. No. 105-266, § 3(c), 112 Stat. 2363,

2366 (FEHCPA), it again had narrow goals in mind, and

tailored its amendments to those specific aims. Congress

moderately expanded upon section 8902(m)(1)’s preemp-

tion provision in two ways. The first addressed a series of

cases in which courts had permitted claimants to skirt

preemption of state tort claims by arguing they merely

augmented the duties in the plans, and were thus not “in-

consistent” with the plans. Brian Harr, Legislative Re-

form: FEHBA’s Preemption Clause: Is It a Model for Pri-

vate Employers’ Subsidized Health Care?, 22 J. Legis.

267, 273 (1996) (discussing Hidler v. Blue Cross Blue

Shield United of Wisconsin, 671 F. Supp. 1213, 1216-17

(E.D. Wis. 1987)). Congress deleted the language from

section 8902(m)(1) that required a state law to be “incon-

sistent” with FEHB contract terms to be preempted,

“thereby giving the federal contract provisions clear au-

thority” over state law when those terms concerned ben-

efits or coverage. S. Rep. No. 105-257, at 15 (1998); J.A.

468.

Congress also revised FE HBA’ preemption provisions

as part of a larger effort within the Federal Employees

16

Health Care Protection Act to encourage “managed care

programs,” H.R. Rep. No. 105-374, at 16 (1997); J.A. 416-

17, such as PPOs, in which insurers enter contractual ar-

rangements with providers to offer their services at dis-

counted rates. Congress found these arrangements to

provide “legitimate and valuable benefits” in the form of

cost savings to “health care providers, carriers, and pa-

tients,” S. Rep. 105-257, at 3; J.A. 444. Congress deter-

mined that allowing these arrangements would

“strengthen the ability of national plans to offer uniform

benefits and rates to enrollees regardless of where they

may live.” H.R. Rep. No. 105-374, at 9; J.A. 403.

Permitting these PPO arrangements required

preempting “State-mandated ‘any-willing provider’ stat-

utes,” ibid., to the extent they applied to FEHBA plans.

Such “any-willing provider” laws give plan beneficiaries

the right to select their own health-care provider, and to

require their insurance carrier to pick up the cost of the

provider’s services, on the same terms with doctors in the

plan’s network. Nat'l Conf. of State Legislatures, State

Roles in Health Reform Provisions Related to Insurance

(Oct. 2011), <http-//bit.ly/2ibvq8I>. This obviously ham-

pered efforts to create PPO network arrangements. To

prevent these “cost-cutting initiatives from being frus-

trated” by these “any-willing-provider” laws, H.R. Rep.

No. 105-374, at 9; J.A. 403, Congress expanded section

8902(m)(1)’s preemptive scope to include not only contract

terms relating to the “nature or extent of coverage or ben-

efits,” but also those relating to the “provision” of “cover-

age or benefits.” 5 U.S.C. § 8902(m)(1). This change tar-

geted for preemption laws that limited the “types of or-

ganization [that] can provide health care,” S. Rep. No. 105-

257, at 14-15 (emphasis added); J.A. 468, thus displacing

17

state laws that would not allow plans that “provide{d]”

benefits through such “managed care programs,” H.R.

Rep. No. 105-374, at 16; J.A. 416-17.

Congress took pains to explain that this was only a

very limited expansion of section 8902(m)(1)’s preemptive

scope. The Senate’s report specified that the change

would only “affect states that have requirements govern-

ing what types of organization can provide health care

when those requirements are different from those under

federal contracts.” S. Rep. No. 105-257, at 14-15; J.A. 468.

The amendments thus had no effect on state regulations

concerning the business of FEHB insurers more gener-

ally.

Taken together, these benchmarks in FEHBA’s devel-

opment demonstrate that Congress understood the

preemptive scope of section 3902(m)(1) to be quite limited,

in keeping with Congress’s traditional respect for state in-

surance regulation. And these acts show the care that

Congress took in its preemption policy, displacing states’

authority no further than necessary to achieve the specific

objects it had in mind.

For instance, on more than one occasion, Congress has

stressed the need to control costs as reason to amend

FEHBA’s preemptive scope—whether to avoid cost in-

creases that would result from state-mandated benefits

laws, H.R. Rep. No. 94-1211, at 3; J.A. 338, and the admin-

istrative costs of complying with differing state laws, ibid.,

or to promote cost savings by lifting restrictions on the

types of organizations that could provide insurance, H.R.

Rep. No. 105-374, at 9; J.A. 403. But Congress’s desire for

cost-savings did not mean that it intended to provide

FEHBA carriers with free-form immunity from any state

law that impact plan costs. After all, Congress explained

18

that state laws regarding “premium taxes” were not to be

preempted, H.R. Rep. No. 95-282, at 6; J.A. 359, despite

its awareness that allowing the states to impose such taxes

added millions of dollars to the costs of the plans, up to $13

dollars per enrollee for some plans, Comptroller General

Report at 20, App. II, and subjected the plans to the ad-

ministrative costs of complying with the tax laws of 50 dif-

ferent states.

Likewise, the fact that Congress sought to provide uni-

formity in benefits and coverage through section

8902(m)(1), H.R. Rep. No. 94-1211, at 3; J.A. 337, did not

mean that it intended the “administiation” of FEHB plans

or benefits to be perfectly uniform. Burkey v. Gov't Emp.

Hosp. Ass’n, 983 F.2d 656, 660 (5th Cir. 1993); OPM, Pro-

posed Rule, Federal Employees Health Benefits Pro-

gram; Subrogation and Reimbursement Recovery, 80

Fed. Reg. 932, 933 (Jan. 7, 2015) (Proposed Rule). Con-

gress sought uniformity in benefits and coverage within

plans because that was what it promised to employees,

H.R. Rep. No. 94-1211, at 3; J.A. 337. But in areas other

than benefits or coverage, Congress was willing to bear

the increased administrative burden of a federalist sys-

tem, because those costs were outweighed by the benefits

of oversight and localized decision-making that came with

leaving the large part of the regulation of FEHB carriers

to the states.

C. FEHBA carriers’ subrogation and

reimbursement rights concern insurance

business practices that Congress reserved

to the states.

State restrictions on subrogation are among the regu-

lations regarding the business of FEHB insurers that

19

Congress intended to remain within the province of the

states after enactment of section 8902(m)(1). This conclu-

sion follows not only from the absence of any relationship

between these laws and the “benefits” or “coverage” of

FEHB plans, 5 U.S.C. § 8902(m)(1), but also because state

regulation of these insurer rights is necessary to fulfill the

basic federalist purpose behind FEHBA’s dual-regulatory

structure.

1. Subrogation and reimbursement re-

strictions are not among the specific state

laws Congress targeted for preemption.

Subrogation and reimbursement provisions have long

been common in insurance contracts, and OPM’s

“longstanding practice” has been for “FEHB Program

contracts and the applicable statement of benefits” to “re-

quire carriers to seek reimbursement and/or subrogation

recoveries.” Proposed Rule, 80 Fed. Reg. 931, 933. Even

before FEHBA’s preemption provision was enacted, many

states, including Missouri, refused to enforce these con-

tractual rights of insurers. Jones v. Aetna Casualty &

Sur. Co., 497 S.W.2d 809, 812 (Mo. App. 1973) (“[Ajn in-

surer may not acquire part of the insured’s rights against

a tortfeasor (other than an uninsured motorist) by reason

of payment of medical expense, either by assignment or

by subrogation.”) (emphasis added). See also, e.g., 36 Okl.

St. Ann. tit. 36, § 6092 (1971) (imposing “{l]imitations on

subrogation and setoff under medical coverage”); Kan.

Admin. Regs. § 40-1-20 (1966) (prohibiting subrogation

clauses “for certain coverages”); State Farm Fire & Cas.

Co. v. Knapp, 484 P2d 180 (Ariz. 1971) (refusing to permit

subrogation as an impermissible assignment of a personal

injury claim); Berlinski v. Ovellette, 325 A.2d 239 (Conn.

1973) (invaliding subrogation provision in an automobile-

20

insurance contract), overruled in Westchester Fire Ins. Co.

v. Allstate Ins. Co., 236 Conn. 362 (1996), overruled by

statute, C.G.S. 38a-336b (denying insurers that provide

uninsured-motorist coverage any right of subrogation

against uninsured motorists); Fifield Manor v. Finston,

354 P2d 107 (Ca. 1960); State Farm Fire & Cas. Ins. Co. v.

Farmers Ins. Exch., 489 P2d 480 (Okl. 1971); Wrightsman

v. Hardware Dealers Mut. Fire Ins. Co., 147 S.E.2d 860

(Ga. 1966).

Congress was thus doubtless aware of these state anti-

subrogation regulatory efforts when it passed section

8902(m)(1) into law, and thus understood that these re-

strictions might have an impact on FEHB plan terms. But

these laws were not among “the various State conflicts”

that Congress sought to preempt with section 8902(m)(1),

H. R. Rep. No. 94-1211, at 2; J.A. 336, although, at the

time, these anti-subrogation laws were far more pervasive

than the state-mandated benefits laws that were targeted

for preemption. Anti-subrogation laws likewise go un-

mentioned in all of the committee reports and hearing tes-

timony surrounding adoption and amendment of section

8092(m)(1). This complete absence of Congressional at-

tention demonstrates that Congress has not “in fact faced”

the question of whether FEHBA’s preemptive reach ex-

tends to state restrictions on insurers’ subrogation and re-

- imbursement rights, reason alone to conclude that Con-

gress did not intend to intrude into this “traditionally sen-

sitive area[]” of “the federal balance” between federal and

state authority. United States v. Bass, 404 U.S. 336, 349

(1971).

21

2. Subrogation restrictions bear no relation to

benefits or coverage as Congress under-

stood them.

State restrictions on subrogation and reimbursement

also bear no relationship to “benefits” or “coverage,” as

required for preemption under section 8902(m)(1). In

McVeigh, the Court expressed concern about the “puz-

zling” nature of section 8902(m)(1), concluding that its

provisions were ambiguous and subject to multiple “plau-

sible constructions.” 547 U.S. at 697-98. But when Con-

gress enacted section 8902(m)(1), it did not understand

these terms to be ambiguous, nor did it understand them

to encompass state restrictions on subrogation and reim-

bursement.

Anti-subrogation laws have no connection to “cover-

age” as Congress used the term in section 8902(m)(1), be-

cause in that provision, Congress adopted an industry def-

inition of that term—using it to refer to “who is eligible to

participate,” Hearing No. 94-69, at 14 (Statement of Peter

Connell, Counsel, AETNA Life & Cas.), “and for how

long,” id. (Statement of Daniel W. Pettengill, Vice Presi-

dent, Group Div., AETNA Life & Cas.).* There is no ques-

tion that restrictions on subrogation and reimbursement

* References within the contemporaneous committee reports are con-

sistent with Congress’s adoption of this industry view. E.g., H.R. Rep.

No. 95-282, at 1, J.A. 351 (providing that FEHBA provides “health

insurance coverage for about 3 million Federal employees and annui-

tants and 6 million dependents); id. at 4, J.A. 356 (referring to “cover-

age of family members”); id. at 6, J.A. 360 (noting that the problems

giving rise to section 8902(m){1) began when states started mandat-

ing, among other things, the “family members to be covered, the age

limits for family members, [and] extension of coverage”).

22

rights have nothing to do with these aspects of the insur-

ance relationship.

These laws do not have any connection to contractual

“benefits” either. Not only are state restrictions on reim-

bursement or subrogation completely absent from the list

of laws concerning “benefits” compiled in the Comptroller

General’s 1975 report, Comptroller General Report at 1,

they are also different in kind from those included on that

list. Each of the laws listed in the Comptroller General’s

Report relate to, and dictate, the “benefit structure” of the

plan itself—the benefits initially given to plan enrollees.

Hearing No. 94-69, at 4 (Statement of Thomas Tinsley).

Restrictions on subrogation or reimbursement, on the

other hand, do not fit within this conception of benefits.

They neither dictate nor constrain the insurer’s obligation

to provide benefits—which remains unchanged regardless

of whether the insurer becomes entitled to a recovery

later or not. And the cost-recovery mechanisms that these

laws regulate are entirely distinct from the underlying

benefits that create the reimbursement obligation. In-

deed, the later-in-time recoveries they provide never ac-

tually come out of the benefits that were initially provided

by the insurer, see 5 C.F-R. § 890.101(f) (providing that

payments to the insurer must come “out of the recovery”

from a third-party). This is because these funds are not

retained by the enrollee, but instead go to health-care pro-

viders that are under no obligation to pay them back.

Indeed, funds recovered via subrogation or reimburse-

ment under FEHB plans do not even necessarily go back

to the same insurer that paid out the benefits in the first

place. Some recoveries are “required to be credited to the

Employees Health Benefits Fund established by 5 U.S.C.

§ 8989, held by the Treasury of the United States,” which

23

is controlled by OPM, not the insurers. OPM Proposed

Rule, 80 Fed. Reg. 932; FEHB Program Carrier Letter

No. 2012-18, Pet. App. 117a.

Accordingly, restrictions on subrogation and reim-

bursement, like the contractual rights they regulate, bear

no relationship to benefits. Instead, they are more akin to

laws mandating “statutory reserves,” H.R. Rep. 95-282, at

6; J.A. 359, targeting the operating funds that insurers to

pay benefits, which Congress decided do not “relate to”

the “nature, provision, or extent of coverage,” and thus fall

within the laws relating to the “business of insurance” that

Congress reserved to the states. 5 U.S.C. § 8902(m)(1).

8. Principles of federalism favor leaving reg-

ulation of subrogation and reimbursement

rights to the states.

Preemption of subrogation and reimbursement re-

strictions would not only be inconsistent with FEHBA’s

statutory text, it would also disregard Congress’s core

federalist purpose behind its decision in FEHBA to leave

matters regarding the business of insurance to the states.

This is because subrogation and reimbursement rights do

not exist in isolation. These contractual rights can have

larger impacts on states’ tort systems. For example, in

some jurisdictions, the “double recovery” that an insured

might receive as the result of restrictions on subrogation

might not be seen as a windfall, but instead as a trade-off

for stricter limits on tort remedies. Accordingly, stripping

away those restrictions might deprive injured parties of

compensation that is necessary to make them whole.

Moreover, insurers are not the only ones who rely on tort

recoveries to recover costs. Injured parties, health care

providers, and other creditors may all have competing

claims to the money coming from the tortfeasor, and the

24

tortfeasor herself may claim a right to retain that money.

State regulators are in a better position than Congress to

know whether allowing subrogation recoveries will upset

the balance of these other interests within their respective

health-care, insurance, and tort systems, and are in a bet-

ter position to prioritize the competing interests involved

in tort recoveries. This is a compelling reason why Con-

gress intended for the matter of subrogation to be left to

the states, not subjected to a single, inflexible, uniform

federal rule.

Subrogation and reimbursement restrictions are also

divorced from the other concerns that motivated Con-

gress to create, and then amend, FEHBA’s preemption

provision. Restrictions on subrogation and reimburse-

ment rights raise no risk of cross-subsidies—“paying a

premium based, in part, on the cost of benefits provided

only to enrollees in other States,” H.R. Rep. No. 94-1211,

at 3; J.A. 338—-that motivated Congress to universalize

coverage and benefits through preemption. Whether in-

jured parties are entitled to keep funds they receive based

on duties entirely exterior to the insurance contract, from

people who are not covered under the insurance contract,

and who themselves are not receiving benefits under the

contract, has no potential to create inequity—either in the

premiums employees are forced to pay, or in the resulting

benefits they are entitled to receive.

There is likewise no indication that an attempt to as-

sert subrogation or reimbursement rights in contraven-

tion of state law will put “carriers in serious jeopardy” of

losing their eligibility to provide insurance under

FEHBA, S. Rep. 95-903, at 7; J.A. 376. Indeed, Coventry

25

has asserted its subrogation rights, and there is no indica-

tion that it is at risk of forfeiting its Missouri insurance

license for doing so.

4. Promoting parity between the preemptive

scopes of ERISA and FEHBA does not

counsel in favor of preemption, but against.

Finally, it is often suggested that FEHBA and ERISA

should be read together, Pharm. Care Mgmt. Ass’n v.

Rowe, 429 F.3d 294, 299 n.2 (1st Cir. 2005) (per curiam),

Botsford v. Blue Cross & Blue Shield of Mont., Inc., 314

F.3d 390, 393-94 (9th Cir. 2002); see also, e.g., Aybar v. NJ.

Transit Bus Operations, Inc., 701 A.2d 932, 935-36 (N.J.

App. Div. 1997), to ensure that federal employees “receive

equal treatment with private-sector plans governed by

ERISA.” Pet. Br. at 12. It is also argued that adopting this

principle of parity would cause subrogation and reim-

bursement restrictions to be preempted under this

Court’s decision in FMC Corp. v. Holliday, 498 U.S. 52

(1990).

But ERISA’s preemption provision, which “proport(s]

to render inoperative any and all state laws that in some

way bear on federal employee-benefit plans,” McVeigh,

547 U.S. at 698 (citing 29 U.S.C. § 1144(a)), is materially

broader than FEHBA’s, which targets only those terms

within a plan relating to “benefits” and “coverage,” 5

U.S.C. § 8902(m)(1). These critical differences make it

doubtful that Congress actually intended for them to be

read together.

But in any event, any pursuit of parity between ERISA

and FEHBA should require reading FEHBA’s preemp-

tion provision narrowly, to preserve state authority to reg-

ulate insurers’ subrogation and reimbursement rights.

26

This is because ERISA’s savings clause, like FEHBA’s

preemption clause, preserves an essential role for the

states in regulating “the business of insurance,” 29 U.S.C.

§ 1144(b)(2)(A), Metro. Life, 471 U.S. at 744 n.21, which

this Court held “returns the matter of subrogation to state

law,” Holliday, 498 U.S. at 61. If subrogation is a matter

reserved to the states under ERISA, then parity would

require that the issue should also be left to the states un-

der FEHBA.

Indeed, although the state anti-subrogation restriction

at issue in Holliday fell outside the coverage of ERISA’s

savings clause in section 514(b)(2)(A), that result had noth-

ing to do with the nature of the state law at issue in Hol-

liday. It hinged instead on specifics about nature of the

plan at issue in that case. There was no question that the

anti-subrogation restriction at issue in Holliday was a

“State law({] that directly regulat{[ed] insurance,” Hol-

liday, 498 U.S. at 61, and thus within ERISA’s “saving

clause.” Instead, the reason that the law was not “saved”

had to do with a different part of ERISA—the “deemer

clause,” ibid., 29 U.S.C. § 1144(b)(2)(A). Under this

“deemer clause,” the self-funded employee benefit plans

at issue in Holliday were not “deemed to be an insurance

company” or “to be engaged in the business of insurance,”

and thus were exempt from the state laws regulating “in-

surance” that were saved from preemption under ERISA

section 514(b)(2)(A). 498 U.S. at 61. As this Court noted,

this “deemer” clause existed because “requir[ing] plan

providers to design their programs in an environment of

differing state regulations *** complicat{[es] the admin-

istration of nationwide plans,” Holliday, 498 U.S. at 60,

and Congress considered this task, and its administrative

27

costs, to be too much for normally smaller self-funded and

self-insured plans to bear.

The outcome in Holliday thus depended upon the plan

at issue, and illustrates nothing beyond Congress’s intent

to exempt very small self-insured plans from being forced

to deal with the administrative burdens of applying with

the varying laws of different states. But the FEHB pro-

gram contains no equivalent to the self-insured plans at

issue in Holliday. FEHB carriers must be large enough

to be licensed in all 50 states and DC before they are qual-

ified to offer FEHBA plans, and thus Congress under-

stood that they would be already accustomed to modifying

their administrative practices t+) comply with the varying

laws of different jurisdictions.

Thus, putting the federal and private employees of

Missouri and other states on equal footing (except for the

small-subset in self-insured plans) would require respect-

ing state protections against preemption, not preempting

them.

II. OPM would have been better served asking

Congress to explicitly preempt state

regulation of insurers’ subrogation and

reimbursement rights.

If the past 60 years since the creation of the FEHB

program have taught anything, it is that Congress has al-

ways understood the program to involve important inter-

ests, and has proven remarkably responsive to the needs

of the agencies charged with running the program.

The 1959 reforms that led to the FEHBA were recom-

mended by the CSC (the agency charged with administer-

ing the statute at that time), which thought the reforms

“highly desirable.” H.R. Rep. 86-957, at 18; J.A. 301. And

28

when Congress added FEHBA’s preemption provision, it

came after CSC “strongly urged” Congress to amend

FEHBA to address laws that conflicted with plan terms.

H.R. Rep. No. 95-282, at 6; J.A. 359; Comptroller Gen-

eral’s Report at 13-15. CSC insisted that preemption was

in the best interest of the plan, and would enable the Com-

mission to “administer the [FEHB] in a reasonable and

efficient manner.” H.R. Rep. No. 95-282, at 3; J.A. 354-55.

Congress thus provided CSC with exactly the preemptive

power it requested.

When Congress later amended FEHBA’s statutory

provisions, at the insistence of OPM and others, it “pro-

vide(d] the Office of Personnel Management” (which had

taken over administration of the FEHB) with substan-

tially greater powers, giving it new ways to “fight{] waste,

fraud, and abuse,” H.R. Rep. 105-374, at 6; J.A. 398, “re-

duce administrative burdens” on OPM, id. at 15; J.A. 469,

offer PPO plans, and expand the types of underwriting or-

ganizations that OPM could use as carriers, id. at 9; J.A.

456. Congress has thus repeatedly proven itself to be re-

sponsive to OPM’s requests, and has consistently acted to

give the agency the tools it needs to make the FEHB pro-

gram operate as efficiently and effectively as possible.

Indeed, in other regulatory contexts, Congress has

demonstrated even greater willingness to allow agencies

to have a hand in crafting preemption policy. For instance,

Congress has given the Secretary of Defense enormous

power to preempt state laws in the implementation of the

CHAMPUS Program, which allows military personnel

and their dependents to access civilian health services in a

program akin to an employer-provided health-care plan.

Anderson et al., RAND Corp., Nat'l Def. Res. Inst., Fval-

29

uation of the CHAMPUS Reform Initiative, Vol. 6: Im-

plementation and Operation 3-4 (1994). When Congress

first explored the idea of using managed-care arrange-

ments in CHAMPUS to control costs, it created a pilot

program in two states, and granted blanket preemption of

“State and local laws and local laws and regulations” for

the provisions in the initial managed-care contracts in that

pilot program. H.R. Rep. No. 103-200, 1993 WL 298896, at

*298 (1993); see National Defense Authorization Act for

Fiscal Year 1987, Pub. L. No. 99-661, § 701-703, 100 Stat.

3816 (1986); 10 U.S.C. § 1103(a) (1988).

But at the close of the Cold War, when the resulting

draw-down in military personnel reduced the number of

active-duty military physicians, Congress anticipated that

the DOD would begin “moving toward greater reliance on

[private] contractor support for the delivery of health care

services” within CHAMPUS, H.R. Rep. No. 103-200, 1993

WL 298896, at *298, by expanding these managed-care

programs. Congress decided that preemption should be

relaxed for these new managed-care programs, “be-

liev[ing}] that State and local government regulation of

health plans operating within their purview generally pro-

vides added protection,” H.R. Rep. No. 103-200, 19938 WL

298896, at *298. Accordingly, in a provision of the National

Defense Authorization Act for Fiscal Year 1994, Pub. L.

No. 103-160, § 715, 107 Stat. 1547, 1642 (1993), Congress

provided that any state or local law that conflicted with

CHAMPUS terms would be preempted “to the extent that

the Secretary of Defense” decided that such law was “in-

consistent with a specific provision in a contract or regu-

lation,” or determined that preemption is “necessary to

implement or administer the provisions of the contract or

to achieve any other important Federal Interest.” 10

30

U.S.C. § 1103(a); H.R. Rep. No. 108-200, at *193. This

gave considerable discretion to the Secretary of Defense

to decide selectively, on a case-by-case basis, whether

state law should give way to CHAMPUS plan terms, or

vice-versa, and shows the lengths Congress will go—in-

deed, far farther than FEHBA—to craft preemption pol-

icy to fit specific agency needs.

Accordingly, if OPM felt that the scope of federal

preemption needed to be expanded or clarified, it should

have made its case to Congress, and Congress would have

addressed the question directly. That would have been the

better path, and would have ensured that preemption was

actually what Congress intended.

CONCLUSION

The judgment of the Missouri Supreme Court should

be affirmed.

Respectfully submitted,

Jeff Bauer J. Carl Cecere

STRONG-GARNER-BAUER, PC. Counsel of Record

415 E. Chestnut Expressway CECERE PC

Springfield, MO 65802 6035 McCommas Blvd.

(417) 887-4300 Dallas, TX 75206

(469) 600-9455

Todd C. Werts ececere@cecerepc.com

LEAR WERTS LLP

2003 W. Broadway, Ste. 107 Counsel for Amicus Curiae

Columbia, MO 65203

(573) 875-1991

January 25, 2017