Several U.S. Courts of Appeal have reached varying conclusions on whether state "any-willing-provider," or AWP, laws are pre-empted by the federal Employee Retirement Income Security Act, or ERISA.
Some courts have found that state any-willing-provider laws are pre-empted by the Employee Retirement Income Security Act, and other courts have found that they are not.
Most recently, the U.S. Court of Appeals for the Sixth Circuit decided that Kentucky’s AWP law was not pre-empted by ERISA and could remain in effect.1
The Kentucky law at issue provided that a health insurer could not discriminate against any provider in its geographic area who was willing to meet its conditions of participation. The definition of "insurer" included insurance companies; health maintenance organizations, or HMOs; self-insurers that were not exempted from state regulation by ERISA; dental service corporations; and other entities.
Seven HMOs and the Kentucky Association of Health Plans Inc. filed a lawsuit arguing that ERISA should pre-empt the statute. The trial court granted a motion for summary judgment dismissing the case after finding that the Kentucky statute was not pre-empted by ERISA because it regulated insurance. The plaintiffs appealed to the Sixth Circuit, which has jurisdiction over federal courts in Michigan, Ohio, Kentucky and Tennessee.
In its opinion, the Sixth Circuit reviewed similar cases considered by various U.S. Courts of Appeal around the country. The holdings of these cases are split, with some courts finding that state AWP laws are pre-empted by ERISA, and other courts ruling that they are not.
Generally, the courts have followed a similar pattern of analysis in reviewing these cases. The analysis focuses on the ERISA preemption statute, which provides that while state laws relating to an employee benefit plan are preempted by ERISA, state laws regulating insurance are not preempted; however, it also provides that an employee benefit plan should not be deemed an insurer.
In deciding whether a state law "relates to" an ERISA plan, courts consider a number of factors. In the present case, the Sixth Circuit noted that the language of the Kentucky AWP statute referred to and had a connection with ERISA plans. Thus, the Sixth Circuit concluded that the statute related to an ERISA plan.
The next key step in the analysis of these cases is to determine whether a particular AWP statute regulates insurance. Initially, courts utilize a "common sense" approach in reviewing the issue. In the present case, the Sixth Circuit also found that the Kentucky AWP law in question regulated insurance.
The Kentucky statute regulated insurance companies and HMOs, and since the HMOs spread risk, they were insurance vehicles under Kentucky law, the court reasoned. The court also found that the fact that the AWP law regulated self-insured health benefit plans did not mean that the law did not regulate insurance. The Sixth Circuit stated that it knew of "no reason why it is not within the authority of a state in enacting laws dealing with insurance to include within such laws entities that act as self-insurers as well as entities who purchase insurance."
The court determined that the fact that the "deemer clause" prevents ERISA self-insured plans from being seen as engaging in the business of insurance does not mean that self-insured plans do not involve the business of insurance and are beyond the reach of state regulations dealing with insurance. The court found that Kentucky had done this by expressly including self-insurers, to the extent permitted by ERISA, within the coverage of the statutes in question.
The U.S. Court of Appeals for the Fourth Circuit reached a similar conclusion when examining a Virginia statute regulating preferred provider organizations, or PPOs, established by insurers.2 The statute provided that an insurer could not exclude from the PPO physicians, hospitals or certain other providers that were willing to meet the PPO’s terms for participation.
The Fourth Circuit, which covers Maryland, Virginia, West Virginia, North Carolina and South Carolina, found that the Virginia statute met the "common sense" definition of regulating the business of insurance. The Virginia law was part of a state code regulating accident and sickness insurance, and it prohibited an insurer’s unreasonable restriction of the insured party’s choice of provider.
In contrast, the U.S. Court of Appeals for the Eighth Circuit reached a different conclusion when reviewing an Arkansas AWP statute.3 The statute at issue prohibited health care insurers from refusing to accept a health care provider who was willing to accept conditions of participation in the insurer’s plan. The statute excluded self-funded or other health benefit plans exempted from state regulation by ERISA.
The requirement that any willing provider able to meet the insurer’s conditions be allowed to participate affected the administration of a health benefit plan, the Sixth Circuit Court concluded.
The Eighth Circuit, which covers Arkansas, Missouri, Iowa, Nebraska, South Dakota, North Dakota and Minnesota, found that the Arkansas statute did not regulate insurance under a "common sense" definition because the law was not specifically directed toward the insurance industry. The court noted that under Arkansas law, a health benefit plan covered any entity providing reimbursement for health care services, which would include employers and administrators of self-insured plans, as well as traditional insurers. Additionally, the court observed, the "health care insurers" referenced in the statute included insurers, HMOs, PPOs, third-party administrators and other entities.
After completing the "common sense" analysis, courts generally look at three additional factors before deciding whether an AWP law regulates insurance:
- – whether the law transferred or spread a policyholder’s risk;
- – whether the law constituted an integral part of the relationship between the insurer and the insured;
- – whether the law was limited to entities within the insurance industry.
In the present case, the Sixth Circuit found that the Kentucky statute spread the policyholder’s risk in that it removed a restriction on the availability of providers. This was because the cost component of the policy-holder’s risk was spread among all insured parties, rather than requiring a policyholder to cover all or part of this cost when seeking care from a doctor who had been excluded from the plan.
Again, the Eighth Circuit reached the opposite conclusion when reviewing the Arkansas law, which was similar to the Kentucky AWP law. The Eighth Circuit found that the Arkansas AWP statute did not transfer or spread the policyholder’s risk.
Returning to the present case, the Sixth Circuit found the second factor to be present in the Kentucky AWP law. The Sixth Circuit reasoned that the ability of an insured person to select a doctor of his or her choice is an integral part of the relationship between insurer and insured. The requirement that any willing provider able to meet the insurer’s conditions be allowed to participate also affected the administration of a plan, and effectively created a mandatory contract term pertaining to plan administration, the court concluded.
However, the Eighth Circuit found that the Arkansas AWP law did not define the terms of the relationship between the insurer and insured, but only the terms of a relationship between an insurer and a third party. Thus, the statute was no more integral to the insurer-insured relationship than any contract an insurer might make with a third party, the Eighth Circuit concluded.
In applying the third factor to the Kentucky AWP statute, the Sixth Circuit also found that the statute was limited to entities within the insurance industry. The court repeated its earlier conclusion that entities such as HMOs and self-insured companies engage in the business of insurance, as do insurance companies. However, the Sixth Circuit acknowledged that entities acting solely as plan administrators would not be covered by the statute.
In contrast, the U.S. Court of Appeals for the Fifth Circuit found that a Louisiana AWP law, which required PPOs to accept all licensed providers who agree to the terms of their preferred provider contracts, was not limited to entities within the insurance industry.4 The Fifth Circuit, which covers Texas, Louisiana and Mississippi, based this finding on the fact that the Louisiana AWP statute applied not only to insurers, but also to entities such as self-funded organizations and third-party administrators.
The Fifth Circuit used similar reasoning in reviewing a Texas statute pertaining to pharmacy benefits.5 The statute provided that a health insurance policy or managed care plan must allow beneficiaries to select pharmacies or pharmacists of their choice. The statute also specified that the policy or plan could not deny a pharmacy or pharmacist the right to participate as a contracting provider if the pharmacy or pharmacist agreed to comply with all terms established by the policy or plan.
The Fifth Circuit found that the pharmacy statute was not limited to entities within the insurance industry, but applied to other entities such as HMOs and PPOs. The Fifth Circuit used an example to show that the pharmacy statute did not apply solely to insurance entities: If a self-insured employer not subject to the AWP statute signed up with an HMO or PPO, those organizations would be subject to the statute, even if there was no insurer involved.
In general, it appears that the Fifth and Eighth Circuits are unwilling to find that AWP statutes regulating entities other than traditional insurers may escape ERISA pre-emption. However, the recent decision from the Sixth Circuit falls in line with the ruling from the Fourth Circuit discussed above. Similarly, the U.S. Court of Appeals for the Tenth Circuit, which covers New Mexico, Oklahoma, Kansas, Colorado, Utah and Wyoming, held in 1986 that a Kansas AWP statute was not pre-empted by ERISA.6
The Sixth Circuit case, along with the prior cases from the Fourth and Tenth Circuits, represents a shift away from the assumption that any health plan subject to ERISA automatically will be exempt from most state laws governing health plans. These cases, along with some other lower court cases, suggest that the "business of insurance" may be interpreted broadly in determining whether statutes are saved from ERISA preemption because they regulate insurance. Consequently, it appears that the breadth of ERISA preemption is diminishing.
While the U.S. Supreme Court has considered a variety of ERISA pre-emption cases, it has not issued a ruling directly addressing whether ERISA preempts an AWP statute. It will be interesting to see whether the Supreme Court is asked in the future to resolve the split of authority among various U.S. Courts of Appeal regarding this issue.
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