Opinion ID: 2634504
Heading Depth: 3
Heading Rank: 3

Heading: Conflict preemption as applied to ERISA

Text: Although the existence of express preemption and saving clauses indicates that Congress did not intend to preempt the entire field of HMO regulation, the existence of these clauses does not necessarily mean that conflict preemption cannot exist. See Aetna Health Inc. v. Davila, ___ U.S. ___, ___, 124 S.Ct. 2488, 2500, 159 L.Ed.2d 312 (2004) (stating that [U]nder ordinary principles of conflict pre-emption, ... even a state law that can arguably be characterized as `regulating insurance' will be pre-empted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme.); Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341, 352, 121 S.Ct. 1012, 148 L.Ed.2d 854 (2001) ([N]either an express pre-emption provision nor a saving clause `bar[s] the ordinary working of conflict pre-emption principles.' (Quoting Geier v. Am. Honda Motor Co., 529 U.S. 861, 869, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000).) (Second alteration in original.)). See also Geier, 529 U.S. at 869, 120 S.Ct. 1913 (discussing the National Traffic and Motor Vehicle Safety Act of 1966 and stating that [w]e now conclude that the saving clause (like the express pre-emption provision) does not bar the ordinary working of conflict pre-emption principles). In Aetna Health, a unanimous Supreme Court held that a state statute was preempted because it conflicted with ERISA. At issue was a Texas statute that created a cause of action against HMOs for failure to exercise ordinary care in handling coverage decisions. Aetna Health, ___ U.S. at ___-___, 124 S.Ct. at 2492-93. Justice Thomas, writing for the Court, stated that [t]he purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans and concluded that the statute was preempted because any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted. Id. at 2495. The Court further held that [u]nder ordinary principles of conflict pre-emption, ... even a state law that can arguably be characterized as `regulating insurance' will be pre-empted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme. Id. at 2500. Thus, according to Aetna Health, any state law that creates a claim for relief relating to an ERISA-regulated employee benefit plan necessarily conflicts with § 1132(a) and is therefore preempted. See id. Although Aetna Health offers an expansive interpretation of the preemptive effects of § 1132(a), an earlier Supreme Court case, Rush Prudential, 536 U.S. at 365-87, 122 S.Ct. 2151, strongly suggests that some state laws that regulate[ ] insurance, such as HRS § 432E-6, survive § 1132(a)'s preemptive scope. Given Aetna Health's expansive language, whether Rush Prudential survives Aetna Health is not entirely clear. In the remainder of this subsection, we first examine Rush Prudential, a case involving a state-mandated regulatory scheme similar to HRS § 432E-6 ( see subsection a, infra ). We then attempt to reconcile Rush Prudential and Aetna Health; we conclude that Aetna Health prohibits the states from creating new claims for relief but allows the states to regulate insurance by creating additional procedural regulations for insurers ( see subsection b, infra ). Therefore, we hold that Rush Prudential survives Aetna Health. We then apply this analysis to HRS § 432E-6 and conclude that ERISA preempts Hawaii's external review law ( see subsection c, infra ).
In Rush Prudential, the Supreme Court considered an Illinois statute similar to HRS § 432E-6. According to the Illinois statute, when an HMO denied a patient's claim for certain types of health care coverage, the HMO was required to honor the patient's request for an independent medical review of the patient's claim. Rush Prudential, 536 U.S. at 359, 361, 122 S.Ct. 2151. The statute mandated that the independent medical review be done by `a physician holding the same class of license as the primary care physician, who is unaffiliated with the [HMO], jointly selected by the patient..., primary care physician and the [HMO].' [12] Id. at 361, 122 S.Ct. 2151 (quoting 215 Ill. Comp. Stat. 125/4-10 (2000) [hereinafter, § 4-10]) (ellipsis in original). The statute provided that `[i]n the event that the reviewing physician determines the covered service to be medically necessary, the [HMO] shall provide the covered service.' Id. (quoting § 4-10). The Court explained that the independent review statute was similar to arbitration in that the independent reviewer was entitled to consider the HMO contract in addition to evidence such as medical records; however, despite these similarities, the Court stated that § 4-10 does not resemble either contract interpretation or evidentiary litigation before a neutral arbiter, as much as it looks like a practice (having nothing to do with arbitration) of obtaining another medical opinion. Id. at 382-83, 122 S.Ct. 2151. A divided Court upheld § 4-10. Justice Souter, writing for the Court, stated that the Illinois statute was not preempted because it did not create a new claim for relief: [T]his case addresses a state regulatory scheme that provides no new cause of action under state law and authorizes no new form of ultimate relief. While independent review under § 4-10 may well settle the fate of a benefit claim under a particular contract, the state statute does not enlarge the claim beyond the benefits available in any action brought under § 1132(a). And although the reviewer's determination would presumably replace that of the HMO as to what is medically necessary under this contract, the relief ultimately available would still be what ERISA authorizes in a suit for benefits under § 1132(a). Id. at 379-80, 122 S.Ct. 2151 (footnote omitted). The Rush Prudential Court recognized that allowing the states to establish these types of procedures would somewhat undermine ERISA's purpose in establishing a uniform federal regime of `rights and obligations' under ERISA. Id. at 381, 122 S.Ct. 2151. However, the Court stated, `[s]uch disuniformities ... are the inevitable result of the congressional decision to `save' local insurance regulation.' Id. (quoting Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985)) (alterations in original). The Court acknowledged its previous holding in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 57, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (holding that Congress had clearly express[ed], through the structure and legislative history of ... ERISA, an intention that the federal remedy... displace state causes of action) and explained that a state statute might so resemble an adjudication as to fall within Pilot Life's categorical bar. Rush Prudential, 536 U.S. at 381, 122 S.Ct. 2151. Nevertheless, the Court upheld the Illinois statute because the statute does not implicate ERISA's enforcement scheme at all and imposes no new obligation or remedy. [13] Id. at 386, 122 S.Ct. 2151. Justice Thomas, joined by Chief Justice Rehnquist, Justice Scalia, and Justice Kennedy, dissented. Id. at 388, 122 S.Ct. 2151. Justice Thomas (who later wrote for the Court in Aetna Health ) argued that ERISA's civil enforcement scheme was intended to be exclusive: Such exclusivity of remedies is necessary to further Congress' interest in establishing a uniform federal law of employee benefits so that employers are encouraged to provide benefits to their employees[.] Id. He contended that § 4-10 was an alternative state-law remedy and that the Court had consistently held that such state-law remedies conflicted with ERISA's civil enforcement scheme. Id. at 393-94, 122 S.Ct. 2151. He stated that, while the states are entitled to regulate health care, the states are not entitled to circumvent ERISA by creating alternative procedures like those in § 4-10: [W]ere a State to require that insurance companies provide all medically necessary care or even that it must provide a second opinion before denying benefits, I have little doubt that such substantive requirements would withstand ERISA's pre-emptive force. But recourse to those benefits, like all others, could be sought only through an action under § [1132] and not, as is the case here, through an arbitration-like remedial device. Section 4-10 does not, in any event, purport to extend a new substantive benefit. Rather, it merely sets up a procedure to conclusively determine whether the HMO's decision to deny benefits was correct when the parties disagree, a task that lies within the exclusive province of the courts through an action under § [1132(a)]. Id. at 399, 122 S.Ct. 2151. Justice Thomas conceded that ERISA's saving clause allowed for some lack of uniformity, but stated that [a]llowing disparate state laws that provide inconsistent external review requirements to govern a participant's or beneficiary's claim to benefits under an employee benefit plan is wholly destructive of Congress' expressly stated goal of uniformity in this area. Id. at 400-01, 122 S.Ct. 2151.
The next question is whether Rush Prudential and Miller (discussed supra ) survive Aetna Health; in other words, does ERISA's saving clause still have meaning, or are all state laws relating to employee benefit plans preempted by § 1132(a)? We believe that the United States Supreme Court's holding in Aetna Health was not intended to overrule Rush Prudential or Miller. Based on Aetna Health, Miller, and Rush Prudential, we believe that the Hawai'i legislature may continue to regulate [] insurance so long as the legislature does not create a cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy. Aetna Health, ___ U.S. at ___, 124 S.Ct. at 2495. Reading Rush Prudential and Aetna Health together, we believe that the Supreme Court intended to distinguish between state laws that (1) create a state law claim for relief against an employee benefit plan and (2) require insurers to provide certain procedural protections to insureds (even if the insurance is provided as part of an ERISA-covered employee benefit plan). Aetna Health struck down the state statute at issue because any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted. Aetna Health, ___ U.S. at ___, 124 S.Ct. at 2495. The Supreme Court has consistently struck down state laws that create claims for relief against ERISA-covered employee benefit plans, even if those state laws also regulate insurance. See, e.g., Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 135, 145, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (holding that an employee's claim for relief for wrongful discharge based on state common law was preempted by § 1132(a)); Pilot Life, 481 U.S. at 57, 107 S.Ct. 1549 (holding that a state common law claim for bad faith did not fall under the saving clause and was therefore preempted by § 1144(a)). As the United States Court of Appeals for the Third Circuit recently explained: Reading Pilot Life, Rush Prudential, and Aetna Health together, a state statute is preempted by ERISA if it provides a form of ultimate relief in a judicial forum that added to the judicial remedies provided by ERISA, Rush Prudential, 536 U.S. at 379, 122 S.Ct. 2151, or stated another way, if it duplicates, supplements, or supplants the ERISA civil enforcement remedy. Aetna Health, ___ U.S. at ___, 124 S.Ct. at 2495 (citing Pilot Life, 481 U.S. at 54-56, 107 S.Ct. 1549). Barber v. Unum Life Ins. Co. of Am., 383 F.3d 134, 140 (3d Cir.2004). In contrast, Rush Prudential upheld the state statute at issue because it was a state regulatory scheme that provide[d] no new cause of action under state law and authorize[d] no new form of ultimate relief. Rush Prudential, 536 U.S. at 379, 122 S.Ct. 2151. As Rush Prudential demonstrates, the Court has been careful not to read the saving clause out of the statute. Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). Although the dissenting Justices in Rush Prudential argued that state insurance regulations would undermine congressional intent (by corroding uniformity in the area of employee welfare benefit plans), the majority rejected this argument. Instead, the majority held that the states were entitled to require insurers to comply with certain procedural requirements as a condition of engaging in the business of insurance within the state's borders. See Rush Prudential, 536 U.S. at 379-80, 122 S.Ct. 2151. Again, the Court limited states' power by stating that a state law would be preempted if it enlarged a claim for benefits beyond what was available pursuant to § 1132(a): [T]he relief ultimately available would still be what ERISA authorizes in a suit for benefits under § 1132(a). Id. at 380, 122 S.Ct. 2151. Thus, both Rush Prudential and Aetna Health hold that a state may not create a new cause of action. [14] Both cases preserve the states' right to regulate insurance so long as those insurance regulations do not conflict with ERISA's civil enforcement scheme. In sum, Aetna Health does not overrule Rush Prudential. [15] Therefore, we hold that a state law that regulates insurance is not preempted so long as it does not create a new claim for relief and does not enlarge a claim for benefits beyond that available in § 1132(a). The following subsection applies this principle to HRS § 432E-6.
We hold that HRS § 432E-6, a law that regulates insurance, conflicts with § 1132(a) because HRS § 432E-6 so resemble[s] an adjudication as to fall within Pilot Life's categorical bar. Rush Prudential, 536 U.S. at 381, 122 S.Ct. 2151. HRS § 432E-6 is very similar to the Illinois statute at issue in Rush Prudential: both statutes provide for an independent review of an insurer's denial of benefits; both statutes require the reviewing individual(s) to consider the medical necessity of the procedure at issue; and both statutes allow the reviewing individual(s) to overturn the insurer's denial of coverage. See HRS § 432E-6; 215 Ill. Comp. Stat. 125/4-10. Both statutes allow the reviewing individual(s) limited authority to interpret the terms of the insurance contract. See HRS § 432E-6(a)(7) (providing that the review panel must consider [t]he terms of the agreement of the enrollee's insurance policy, evidence of coverage, or similar document in determining whether the HMO acted reasonably); Rush Prudential, 536 U.S. at 380, 383, 122 S.Ct. 2151 (stating that the reviewer's determination would presumably replace that of the HMO as to what is `medically necessary' under this contract but recognizing that the Illinois statute does not give the independent reviewer a free-ranging power to construe contract terms, but instead, confines review to ... the phrase `medical necessity[]'). Neither statute creates a claim for relief upon which an aggrieved beneficiary or participant can file a lawsuit, and neither statute enlarges a beneficiary's or participant's claim for benefits beyond what she or he could obtain pursuant to § 1132(a). See HRS § 432E-6; 215 Ill. Comp. Stat. 125/4-10. Nevertheless, the Illinois statute and HRS § 432E-6 differ in several important ways. First, Hawaii's external review incorporates HRS chapter 91, the Hawai'i Administrative Procedure Act (HAPA). See HRS § 432E-6(a)(4) (stating that the commissioner shall appoint the members of the panel and shall conduct a review hearing pursuant to chapter 91). HAPA sets forth the procedural requirements for contested case hearings, see, e.g., HRS § 91-9 (1993 & Supp.2003) (providing that all parties in a contested case shall be afforded an opportunity for hearing after reasonable notice); more importantly, HAPA provides for judicial review of contested cases: [a]ny person aggrieved by a final decision and order in a contested case ... is entitled to judicial review thereof under this chapter[.] HRS § 91-14 (1993). Second, whereas the Illinois statute considered in Rush Prudential required one physician to determine whether the proposed procedure was medically necessary, the Hawai'i statute provides for a three-member panel (only one of whom must be a physician) to determine whether the HMO's actions were reasonable. These distinctions are fatal to the external review law. The external review hearing more closely resembles contract interpretation or evidentiary litigation before a neutral arbiter than a practice (having nothing to do with arbitration) of obtaining another medical opinion. Rush Prudential, 536 U.S. at 383, 122 S.Ct. 2151. More damaging, however, is the right of either party to seek judicial review. For example, a claimant who is denied benefits pursuant to Hawaii's external review law can appeal that denial to the courts, allowing for a judicial determination of the claimant's entitlement to benefits. This is precisely the type of adjudication barred by Pilot Life, 481 U.S. at 52, 107 S.Ct. 1549 (holding that § 1132(a) is the exclusive vehicle for actions by ERISA-plan participants and beneficiaries asserting improper processing of a claim for benefits). See HRS § 432E-6; 215 Ill. Comp. Stat. 125/4-10. Thus, although the Hawai'i legislature is entitled to regulate insurance by requiring external review (because external review laws are not necessarily preempted by ERISA), HRS § 432E-6 too closely resembles adjudication and therefore is preempted by § 1132(a). [16] Because Hawaii's external review law is preempted, the Commissioner did not have jurisdiction to consider Baldado's claim. Correspondingly, the Commissioner did not have jurisdiction to award attorneys' fees and costs to Baldado, and the Commissioner's March 1, 2001 and March 22, 2001 orders are void. See Amantiad v. Odum , 90 Hawai'i 152, 159, 977 P.2d 160, 167 (1999) (When reviewing a case where the circuit court lacked subject matter jurisdiction, the appellate court retains jurisdiction, not on the merits, but for the purpose of correcting the error in jurisdiction. A judgment rendered by a circuit court without subject matter jurisdiction is void. (Citations omitted.)). Similarly, the circuit court's conclusions that Baldado was entitled to attorneys' fees and costs and that HMAA was not entitled to attorneys' fees and costs are void. See id.