The U.S. Supreme Court on April 18 unanimously held that insurance carriers operating under the Federal Employees Health Benefits Act (FEHBA) may assert subrogation and reimbursement rights, pursuant to their Office of Personnel Management (OPM) contracts, despite state or local laws to the contrary. If the FEHBA contract terms in question relate to the nature, provision, or extent of coverage or benefits, including payments with respect to benefits, FEHBA “ensures that the term[s] will be uniformly enforceable nationwide, notwithstanding any state law relating to health insurance or plans.”

The Facts

FEHBA plans cover nearly 85 percent of federal employees. Under FEHBA, OPM contracts with private carriers to offer a range of healthcare plans, and those contracts typically include provisions requiring carriers to seek subrogation and reimbursement.

In Coventry Health Care of Missouri v. Nevils, Jodie Nevils, a former U.S. Postal Service employee, was injured in a car accident. He was insured by Coventry Health Care of Missouri under a FEHBA plan. Coventry paid Nevils’ medical bills, and when Nevils subsequently obtained a tort settlement against the other driver, Coventry asserted a subrogation lien against Nevils’ recovery.

After Nevils satisfied Coventry’s lien, he filed a putative class action against Coventry, alleging that its subrogation pursuit violated Missouri law, and ultimately the Missouri Supreme Court sided with Nevils. On review, Coventry prevailed before the U.S. Supreme Court, which reversed Missouri’s highest court.

The Opinion

The decision turned on a straightforward question of federal preemption.

FEHBA contains an express preemption provision, 5 U.S.C.A. § 8902(m)(1). It preempts any state or local law that “relates to health insurance or plans” if the contract terms at issue “relate to the nature, provision, or extent of coverage or benefits,” “including payments with respect to benefits.” The petitioner and respondent agreed that Missouri’s law prohibiting subrogation relates to health insurance, but disagreed about whether the subrogation and reimbursement provisions in Coventry’s contract “relate to . . . payments with respect to benefits.”

Coventry was vindicated. The U.S. Supreme Court held that contractual provisions for subrogation and reimbursement in Coventry’s contract plainly “relate to . . . payments with respect to benefits because subrogation and reimbursement rights yield just such payments. When a carrier exercises its right to either reimbursement or subrogation, it receives from either the beneficiary or a third party ‘payment’ respecting the benefits the carrier had previously paid.”

Accordingly, if the FEHBA contract terms in question relate to the nature, provision, or extent of coverage or benefits, including payments with respect to benefits, section 8902(m)(1) “ensures that the term[s] will be uniformly enforceable nationwide, notwithstanding any state law relating to health insurance or plans.”