FEHBA health plan carriers can ignore state anti-subrogation statutes

Faced with the threat of local laws that vary from state to state, the US Supreme Court unanimously held that insurance carriers operating under the Federal Employees Health Benefits Act can assert subrogation or reimbursement rights even though a state statute prevents carriers from seeking subrogation or reimbursement.

Missouri law prohibits the subrogation of personal injury claims. The Federal Employees Health Benefits Act (FEHBA) authorizes the Office of Personnel Management (OPM) to enter into contracts with private insurance carriers to administer benefit plans, and OPM's contracts require carriers to seek subrogation or reimbursement. Coventry Health Care of Missouri v. Nevils (US Supreme Court 04/18/2017) [Opinion text] held that these contractual subrogation and reimbursement provisions override state laws barring subrogation and reimbursement. The opinion was unanimous, and took only 11 pages.

Jodie Nevils was injured in a car wreck. He's a federal employee who was insured by Coventry Health Care under a FEHBA plan. Coventry paid his medical bills, and then Nevils recovered a settlement from a third party. Coventry asserted a subrogation lien on the recovery; Nevils satisfied the lien and then sued Coventry and ultimately won in the Missouri Supreme Court. He won because that court applied a state statute that prohibits subrogation in such cases, and also held that the federal scheme did not preempt that state statute.

Here's the federal statute, FEHBA §8902(m)(1):

“The 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.”

The US Supreme Court said:

"We hold, contrary to the decision of the Missouri Supreme Court, that contractual subrogation and reimbursement prescriptions plainly “relate to . . . payments with respect to benefits,” §8902(m)(1); therefore, by statutory instruction, they override state law barring subrogation and reimbursement."

"We further hold, again contrary to the Missouri Supreme Court, that the regime Congress enacted is compatible with the Supremacy Clause. Section 8902(m)(1) itself, not the contracts OPM negotiates, triggers the federal preemption. As Congress directed, where FEHBA contract terms “relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits),” §8902(m)(1) ensures that those terms will be uniformly enforceable nationwide, free from state interference."

For more on this case: Opinion analysis: Justices reject Missouri’s push to expand insurance benefits for federal employees by Professor Ronald Mann.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]