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Supreme Court Rules That ERISA Preempts State Law Claims over HMO Coverage Decisions

  • June 24, 2004

On June 21, 2004, the U. S. Supreme Court decided that the Employee Retirement Income Security Act solely governs suits and remedies relating to an HMO's coverage decisions based on the terms of an ERISA-governed plan.  These cases affirm the Court's view that an HMO's administrative decision that a treatment is not covered under the terms of a plan governed by ERISA is subject solely to the remedies provided by ERISA.  This decision does not affect the exposure of employers that maintain ERISA-covered plans.  [Aetna Health Inc. v. Davila, U.S., No. 02-1845, 6/21/04, and CIGNA Healthcare of Texas Inc. v. Calad, U.S., No. 03-83, 6/21/04.]

In cases consolidated for review, two individuals sued their respective HMOs for coverage decisions that allegedly aggravated the health problems for which they had sought medical care. Both cases claimed violations of the Texas Health Care Liability Act, a state law that establishes an HMO's duty "to exercise ordinary care" in the provision of medical services. Both HMOs defended the claims by removing the actions to federal court and asserting that ERISA provided the only recourse for the individuals' grievances (the relief available under ERISA is much narrower than what is typically available under state laws). The federal district courts agreed; however, the U.S. Court of Appeals for the Fifth Circuit reversed on the grounds that the state law claims did not "precisely duplicate" the causes of action prescribed under ERISA.

Rejecting the reasoning of the Fifth Circuit, the Supreme Court found that the lawsuits could only be pursued in federal court under ERISA.

The Court distinguished its decision from a previous case in which it permitted an HMO to be sued for medical malpractice. The Supreme Court in Pegram v. Herdrich, 530 U.S. 211 (2000) held that state tort-type laws may have application to aspects of a "mixed eligibility" decision. A mixed eligibility decision arises where the employee-physician of an HMO effectively make decisions that implicate both whether the benefit is covered under the terms of the plan and what should be the treatment for the medical condition.

Under Pegram, the decision as what the treatment should be is not an ERISA administrative decision and, therefore, state law is not preempted. Thus, the HMO was held vicariously liable for the treatment decisions of its employee physician. The mixed eligibility analysis of Pegram has proven extremely difficult for the courts to understand and apply. The current decision makes clear that, where the physician is not an employee or owner of the HMO, the coverage and treatment decisions are independent. Therefore, the HMO's coverage decision is solely governed by ERISA and subject to ERISA's remedies.

The aspect of the decision that has potentially broad application is the Court's explicit affirmance of its prior view that ERISA provides the sole actions and remedies for issues concerning plan administration and covered benefits. Thus, even where ERISA does not provide a remedy for a participant's or beneficiary's harm, the Court has directed the lower federal courts not to create new remedies or to incorporate state remedies to fill that vacuum.

For questions or additional information regarding this case, or any other employee benefits matter, please contact the Jackson Lewis Benefits Practice Coordinator.

©2004 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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