Title: Blue Cross & Blue Shield v. Riverside Hospital

State: kansas

Issuer: Kansas Supreme Court

Document:

237 Kan. 829 (1985)
703 P.2d 1384
BLUE CROSS AND BLUE SHIELD OF KANSAS, INC., Appellee-Cross/Appellant,
v.
RIVERSIDE HOSPITAL, an Osteopathic Institution, Appellant-Cross/Appellee.
No. 57,667

Supreme Court of Kansas.
Opinion filed July 26, 1985.
Patricia M. Dengler, of Smith, Shay, Farmer & Wetta, of Wichita, argued the cause, and William C. Farmer, of the same firm, was with her on the briefs for appellant-cross/appellee.
Charles R. Hay, of Goodell, Stratton, Edmonds & Palmer, of Topeka, argued the cause and was on the brief for appellee-cross/appellant.
Thomas E. Wright, of Fisher, Heck and Wright, P.A., of Topeka, was on the amicus curiae brief for the Blue Cross and Blue Shield Association.
The opinion of the court was delivered by
McFARLAND, J.:
This is a dispute between two employee health care group plans as to which plan has primary coverage and which plan has secondary coverage relative to certain medical expense claims.
BACKGROUND FACTS
The facts are not in dispute and may be summarized as follows. Leslie Stadalman is an employee of defendant Riverside Hospital and, as such, is a "covered person" under that institution's employee health care plan. Leslie Stadalman is the wife of Gregory Stadalman. Mr. Stadalman is employed by the City of Wichita and is covered under his employer's Blue Cross-Blue Shield group health plan. The Blue Cross-Blue Shield plan provides coverage for Mr. Stadalman's dependents. In the Fall of 1982. Leslie Stadalman incurred medical expenses in the amount of $1,963.19. The Riverside plan refused to pay the claims on the basis it provided only secondary coverage. Blue *830 Cross-Blue Shield (plaintiff) initially refused to pay the claims for the same reason  that its plan provided only secondary coverage. Ultimately, Blue Cross-Blue Shield paid the claims, expressly reserving the right to seek contribution and indemnity from Riverside. This action resulted.
BLUE CROSS-BLUE SHIELD PLAN
The Blue Cross-Blue Shield plan contains the following provisions:
NON-DUPLICATION OF BENEFITS.
Group, blanket, or franchise insurance.
Labor-management trusteed plans.
Union welfare plans.
Employee benefit organization programs.
RIVERSIDE PLAN
The Riverside Plan contains the following provisions:
(b) All other persons are excluded."
The term "covered person," only applies to Riverside employees. Coverage to a "covered person" is supplied without cost under the single plan. If family coverage is desired by the "covered person," he or she must contribute thereto. Other family members so covered are referred to as "covered dependents." The plan provides coverage for covered services on a self-insurance basis up to $20,000.00 per incident. Any amount required for covered services in excess of $20,000.00 is covered by a reinsurance contract issued to the health benefit plan.
The Riverside plan contains the further provision:
NON-DUPLICATION OF BENEFITS
JUDGMENT OF THE DISTRICT COURT
The district court held the non-duplication of benefits provisions of the two plans to be conflicting and mutually repugnant and directed that the Stadalman claim be paid 50% by each plan. Both Blue Cross-Blue Shield and Riverside were aggrieved by this determination and duly appealed therefrom.
*832 ISSUE NO. 1: WHAT EFFECT DOES THE FACT THAT THE RIVERSIDE PLAN IS AN EMPLOYEE BENEFIT PLAN UNDER THE AUSPICES OF THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, 29 U.S.C. § 1001 et seq. (1982) (ERISA) HAVE ON THE ISSUE OF PRIMARY-SECONDARY COVERAGE PRESENTED HEREIN?
The Blue Cross-Blue Shield plan is subject to regulation by the Kansas Commissioner of Insurance. The non-duplication of benefits provision incorporated within its plan is consistent with the requirements of K.A.R. 40-4-34.
The Riverside plan is not subject to regulation by the Kansas Commissioner of Insurance. Rather, it is governed by the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (1982). ERISA, as this act is commonly referred to, was enacted to protect the interests of participants and beneficiaries of qualified employee benefit plans by improving "the equitable character and the soundness of such plans," 29 U.S.C. § 1001(c). "The Act was intended to make basic reforms, require certain disclosure and reporting procedures, and establish standards of conduct, responsibility and obligations in the area of employee pensions and other employee benefit programs." Goben v. Barry, 237 Kan. 822, 703 P.2d 1378 (1985). The non-duplication of benefits provision contained in the Riverside plan is, apparently, permissible under ERISA. This Riverside contention is not disputed by Blue Cross-Blue Shield.
In 29 U.S.C. § 1144 (1982), ERISA is granted the following preemption:
....
"(c) For purposes of this section:
Riverside contends, in essence, that by virtue of its plan being *833 rooted in ERISA, it is placed in an unassailable position when challenged by a plan rooted in state law.
The preemption under ERISA is not without limits. The scope of the preemption was discussed in Goben v. Barry, wherein we held:
The judgment of the district court herein had the effect of nullifying, at least in part, a provision of the Riverside plan. This does raise a serious preemption question. We do not believe, however, that resolution of the primary-secondary coverage issue herein requires such action. Rather, we believe the provisions of the plans found by the district court to be mutually repugnant can be harmonized without doing violence to the intentions of, and purposes of, either plan or their respective statutory origins.
The fact that the Riverside plan is rooted in ERISA is not, we believe, a significant factor in the determination of the issue before us. Therefore, the matter of preemption is not involved herein and, even if it were involved, the outcome of the litigation would not be affected as the applicable Kansas and federal rules relative to the interpretation and construction of contracts do not differ.
ISSUE NO. 2. UNDER THE TWO EMPLOYEE HEALTH CARE GROUP PLANS HEREIN, WHICH PLAN IS PRIMARY AND WHICH PLAN IS SECONDARY RELATIVE TO THE STADALMAN CLAIMS?
The case before us involves contract interpretation arising from an uncontroverted factual situation. As stated in Western Cas. & Surety Co. v. Universal Underwriter Ins. Co., 232 Kan. 606, 657 P.2d 576 (1983), quoting Crestview Bowl, Inc. v. Womer Constr. Co., 225 Kan. 335, 592 P.2d 74 (1979):
As applicable to the narrow issue raised herein, both plans have quite similar purposes. They are group health care plans provided by employers to their employees without cost to the employees where only the employee is covered (single coverage). If the employee desires family coverage, he or she must contribute to the cost of the coverage. These plans seek to provide adequate financially responsible coverage at the lowest cost. In keeping with this goal, benefits should not be duplicated where an individual has coverage under more than one such plan  hence the need for non-duplication of benefits clauses, or as sometimes referred to, "coordination of benefits" clauses. In modern American society, husbands and wives frequently both work outside the home with each being covered by his or her own employee health care group plan. Family coverage, in such circumstances, sets up the potential for duplication of benefits where one or both has family coverage under a plan. Duplication of benefits accomplishes none of the goals of such plans, serving only to run up the cost of the plans. Hassles, such as the one before us, increase the costs of administration of the plans and can delay payment of the medical bills (or reimbursement to the employees who have previously paid the bills). Obviously, litigation of the dispute between plans as to coverage should be avoided wherever possible. For this reason, the Insurance Commissioner of Kansas requires non-duplication of benefits provisions such as included in the Blue Cross-Blue Shield plan. The provisions spell out when the plan is primary and when it is secondary in a variety of foreseeable circumstances. Specifically, K.A.R. 40-4-34 (1982 Supp.) provides:
The Riverside plan is not in accord with said regulation and guidelines and is not required to be.
*835 If both plans are studied side by side, as equals, it would appear Leslie Stadalman has two secondary coverages and no primary coverage. This is an untenable position to maintain, and this led the district court to hold the plans to be mutually repugnant. This approach was followed (relative to automobile liability policies) in Western Cas. & Surety Co. v. Universal Underwriters Ins. Co., 232 Kan. 606, wherein we held:
In Western Cas., we concluded:
The difficulties of such a proration procedure when applied to *836 employee health care group plans has been pointed out by Blue Cross-Blue Shield  the two plans have different deductibles, covered services, and coinsurance provisions.
Leslie Stadalman is an employee of Riverside and coverage was provided to her as a "covered person" as defined by the plan. Mrs. Stadalman, as a "covered person" (as opposed to a covered dependent), received the coverage as a part of her employment, and, as required by ERISA, was fully advised of the plan in writing. The Riverside plan was intended to provide her coverage but would not pay duplicate benefits with those she would have under another group employee plan. We believe the logical approach is to look to her own plan first in determining the effect of non-duplication of benefits provisions. The Riverside plan (repeated for convenience) provides:
If Mrs. Stadalman had held two jobs with primary coverage provided by the two respective employers, the Riverside plan would intend to avoid duplication of benefits by becoming secondary. As a dependent of Gregory Stadalman under his Blue Cross-Blue Shield family plan, Leslie Stadalman has Blue Cross-Blue Shield coverage that is only excess (secondary) in nature. Her own group plan is primary unless another group plan provides primary coverage. The Blue Cross-Blue Shield plan does not provide primary coverage to Mrs. Stadalman by virtue of the fact she is a covered employee in her own group plan. Therefore, there is no potentiality for duplication of benefits or overpayment. In such circumstances, generally, the primary coverage of Riverside should pay all benefits due thereunder on the claims, and the excess claims should be submitted to Blue Cross-Blue Shield for determination of benefits due under its secondary coverage. On the specific claims involved herein, the parties do not directly address the matter of whether the Riverside plan, as the provider with primary coverage, would provide full coverage therefor. There are inferences that such is the case, but we are not satisfied that the parties have agreed such is true. *837 Therefore, we decline to reverse and enter judgment against Riverside for the entire amount of the claims paid by Blue Cross-Blue Shield. This aspect of the case must be determined by the district court.
We believe the result reached herein holding the Riverside plan provides primary coverage is consistent with the rationale expressed in Northeast Dept. ILGWU v. Teamsters Local U. No. 229, 764 F.2d 147 (3d Cir.1985). In ILGWU the Third Circuit in considering conflicting coordination of benefits clauses in two ERISA employee health care benefit plans, stated:
The judgment of the district court is reversed and the case is remanded with directions to enter judgment against defendant consistent with this opinion.