Kentucky Assn. of Health Plans, Inc. v. Miller
538 U.S. 329, 2003 U.S. LEXIS 2710, 155 L. Ed. 2d 468 (2003)
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Rule of Law:
A state law regulates insurance and is saved from ERISA pre-emption if it satisfies two requirements: 1) the law is specifically directed toward entities engaged in insurance, and 2) the law substantially affects the risk pooling arrangement between the insurer and the insured.
Facts:
- Several Health Maintenance Organizations (HMOs) in Kentucky operate by creating exclusive networks of healthcare providers.
- Providers in these exclusive networks agree to give the HMOs' subscribers discounted rates in exchange for the promise of a higher volume of patients.
- Kentucky enacted two 'Any Willing Provider' (AWP) statutes.
- One statute generally requires health insurers to allow any provider who is willing to meet the insurer's terms and conditions to participate in their plan.
- The second statute specifically requires health benefit plans that include chiropractic care to permit any licensed chiropractor who agrees to the terms to serve as a participating provider.
- These AWP laws prevent the HMOs from maintaining their exclusive provider networks, which the HMOs believe undermines their ability to control costs and quality.
Procedural Posture:
- Petitioners, a group of HMOs, filed suit against the Commissioner of Kentucky's Department of Insurance in the U.S. District Court for the Eastern District of Kentucky.
- Petitioners sought a ruling that Kentucky's AWP laws were pre-empted by ERISA.
- The District Court ruled that the AWP laws were not pre-empted because they fell within ERISA's saving clause for laws that regulate insurance.
- Petitioners (as appellants) appealed the decision to the U.S. Court of Appeals for the Sixth Circuit.
- The Sixth Circuit affirmed the District Court's judgment, agreeing that the Kentucky laws regulate insurance and are saved from ERISA pre-emption.
- The U.S. Supreme Court granted certiorari to review the Sixth Circuit's decision.
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Issue:
Does the Employee Retirement Income Security Act of 1974 (ERISA) pre-empt Kentucky's 'Any Willing Provider' (AWP) statutes, which prohibit health insurers from discriminating against providers who are willing to meet the terms for participation in a network?
Opinions:
Majority - Justice Scalia
No, ERISA does not pre-empt Kentucky's AWP statutes because they are laws which regulate insurance and are therefore saved from pre-emption. To determine if a state law regulates insurance under ERISA's saving clause, the Court established a new two-part test, explicitly breaking from the previously used McCarran-Ferguson factors. First, the state law must be specifically directed toward entities engaged in insurance. Kentucky's AWP laws meet this requirement as they are directed at 'health insurers' and 'health benefit plans,' even if they have consequential effects on third-party providers. Second, the law must substantially affect the risk pooling arrangement between the insurer and the insured. The AWP laws meet this requirement by altering the scope of permissible bargains; they prevent insurers from offering, and insureds from selecting, lower-cost plans that feature a smaller, exclusive network of providers. This directly affects the type of risk pooling arrangements available in the market.
Analysis:
This decision is significant for creating a new, simplified two-part test to determine whether a state law falls under ERISA's saving clause for insurance regulation. The Court's explicit 'clean break' from the confusing, multi-factor McCarran-Ferguson analysis provides much clearer guidance to lower courts. This new standard may broaden the range of state health insurance regulations that can survive ERISA pre-emption challenges, potentially giving states greater authority to regulate the healthcare market and protect consumers.
