Twice this year federal courts in New York have refused to apply a state law to block a health plan’s claim for reimbursement. New York General Obligation Law § 5-335 provides that a benefit provider must have a statutory basis to assert a lien or right of subrogation. In February, the U.S. District Court for the Southern District of New York held – in Calingo v. Meridian Resource Company[i] – that the Federal Employees Health Benefit Act (“FEHBA”) preempted NY GOL 5-335 and thus a federal employee health plan was not barred from seeking reimbursement against a personal injury settlement. Similarly, in March, in Wurtz v. Rawlings Company, LLC [ii], the U.S. District Court for the Eastern District of New York held that the Employee Retirement Income Security Act of 1974 (“ERISA”) preempted the same state law and thus an insured, employer-sponsored health plan could seek reimbursement.
Calingo v. Meridian Resource Company
In Calingo a federal employees’ health benefit plan levied a lien against an insured who recovered $382,000 after a slip-and-fall. The district court originally held that FEHBA did not preempt NY GOL 5-335 because the health plan’s contractual reimbursement claim did not “relate to coverage and benefits.” [iii] The court also determined the plan’s right stemmed from its contract with the employee, and, thus, the right was not statutory. [iv] Nearly a year after that decision, the United States Office of Personal Management (“OPM”) issued a memo supporting state law preemption and instructing carriers to “utilize the correspondence as needed in your recovery efforts.” [v]
The OPM’s memo persuaded the district court to reverse its earlier ruling and hold that preemption would apply. The Court found OPM’s rationale to be convincing as to why subrogation and reimbursement “relate to” the coverage and benefits of the FEHBA plans. Specifically, the Court noted that OPM had explained how recovered funds ultimately reduce the amount of money enrollees pay for their health insurance, which persuaded the Court that the recovery affects enrollees’ benefits. Because preemption applied, the federal employee plan could claim its right to subrogation/reimbursement.
Wurtz v. Rawlings Company
Wurtz involved a class of personal injury plaintiffs who had employer-sponsored health plans funded through insurance arrangements (i.e., fully insured ERISA plans). Plaintiffs sued Rawlings, Oxford Health Plans, and UnitedHealth Group asserting, in part, that NY GOL 5-335 trumped any reimbursement rights that the health plans had per ERISA.
The Court dismissed the lawsuit, finding that the general rule that insured ERISA plans are subject to state law did not apply to NY GOL 5-335. Specifically, the Court determined that the New York state law was not “saved” from preemption,” because the statute was neither (1) specifically directed toward insurance entities nor did it (2) “substantially affect the risk pooling arrangement between the insurer and the insured.” [vi] The Court found that NY GOL 5-335 was too limited in scope and excluded reimbursement and subrogation rights falling outside of the tort settlement realm. [vii]
Bottom Line:
These decisions seem to reflect a growing trend in New York healthcare lien resolution. The decisions follow several recent opinions which held that NY GOL 5-335 did not apply to Medicare Advantage plans because of federal preemption. [viii] Consequently, it appears that – barring any contrary decisions -- the application of GOL 5-335 will be extremely limited from here on out, as it arguably applies only to basic insurance arrangements (individually purchased policies) and state-based health plans without a statutory right to reimbursement. [ix]
The Garretson Resolution Group will closely monitor the impact of these decisions on healthcare lien resolution in New York, and continue to update you on any significant rulings or developments.
Contact Us:
If you have any questions, or need further information, please contact GRG’s lien resolution experts Michael Russell (mrussell@garretsongroup.com) or Charles Medlin (cmedlin@garretsongroup.com) at (704) 559-4300.
[i] 2013 WL 1250448 (S.D.N.Y. February 22, 2013).
[ii] 2013 WL 1248631, (E.D.N.Y. March 28, 2013).
[iii] FEHBA contains a preemption clause which states “[t]he terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.” 5 U.S.C.A. § 8902(m)(1) (West).
[iv] See Calingo v. Meridian Resource Company, LLC, 2011 WL 611319, at *10 (S.D.N.Y August 16, 2011).
[v] OPM’s memo supports this proposition by citing to several earlier court decisions including the Supreme Court’s decision in Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006).
[vi] Two prong test established in Kentucky Ass’n of Health Plans, Inc., v. Miller, 538 U.S. 329 (2003).
[vii] The court also discussed ERISA’s Deemer Clause, 29 U.S.C. § 1144(b)(2)(B), but determined that analysis is only needed if the state law is found to be saved from preemption, which was not the case here.
[viii] See Potts v. Rawlings Co., LLC, 2012 U.S. Dist. LEXIS 137802 (S.D.N.Y. Sept. 25, 2012); Meek-Horton v. Trover Solutions, Inc., 2012 U.S. Dist. LEXIS 181839 (S.D.N.Y. Dec. 21, 2012); and Trezza v. Trezza, 2012 N.Y. App. Div. LEXIS 9000, 2012 NY Slip Op 9048 (N.Y. App. Div. 2d Dep't Dec. 26, 2012).
[ix] Significantly, the wording of GOL 5-335 excludes all lien holders with a statutory right to preemption, which would include Medicare, Medicaid, and workers’ compensation carriers.
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