Court Opinion

ID: 9493543
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:11:16.453157+00
Date Added: 2024-06-11T17:55:53.934341
License: Public Domain

POSNER, Circuit Judge, with whom Circuit Judges COFFEY, EASTERBROOK, and DIANE P. WOOD
join, dissenting from denial of hearing en banc.
This case is well worth the attention of the full court. The panel’s decision creates a square conflict with another circuit, is very probably unsound, and will affect an enormous number of cases. It is also a single-issue case, and the issue is one of law, so that en banc consideration would be unlikely to create a fractured result or bog the court down in factual questions. Rarely have we had so strong a candidate for en banc review.
The decision holds that ERISA does not preempt an Illinois statute that requires HMOs to submit to review by an independent physician the decision by the HMO not to cover a treatment deemed medically necessary by the patient’s physician. 215 ILCS 125/4-10. An ERISA medical-benefits plan sponsored by the employer of the plaintiffs husband had delegated the provision of the services to which the plan participants were entitled to an HMO. The plan did not require the HMO to submit disagreements with a plan participant’s doctor to arbitration by an independent third party. The Illinois statute, unless preempted by ERISA insofar as the statute’s application to ERISA plans is concerned, will thus effect a substantial change in the employer’s plan. The state law is conceded to relate to ERISA plans and so it is preempted unless the law merely regulates insurance. See 29 U.S.C. §§ 1144(a), (b)(2)(A). In UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999), the principal basis for the panel’s decision, the Supreme Court held that a state law that limited insurance companies’ right to ignore late claims when the lateness did not harm the insurance company merely regulated insurance and therefore could lawfully be applied to ERISA plans. As the Fifth Circuit pointed out in the decision with which the panel has gone into conflict, Corporate Health Insurance, Inc. v. Texas Dept, of Insurance, 215 F.3d 526 (5th Cir. 2000), the “notice prejudice” law held not preempted in Ward was a typical regulation of insurance rather than anything either special to ERISA plans or likely to be mischievous in its impact on those plans. All the law provided was that an insurer couldn’t disregard late claims unless it had been harmed by the lateness.
The law in this case, like the materially identical law held preempted by the Fifth Circuit, is not a general regulation of insurance, or even of health insurance; it is a regulation of HMOs, which are the service providers under a great many ERISA medical-benefits plans. The law establishes a system of appellate review of benefits decisions that is distinct from the provision in ERISA for suits in federal court to enforce entitlements conferred by ERISA plans. 29 U.S.C. § 1132(a)(1)(B). By doing so, the law interferes with the federally specified system for enforcing such entitlements. The suit for breach of contract envisaged by the statute becomes a suit for judicial review of the independent physician’s decision. The Illinois law thus adds heavy new procedural burdens to ERISA plans. These burdens do not come without cost. The expense of an arbitration by the independent physician could easily equal the expense of the medical treatment that the HMO had refused to authorize. Piling on costs in the administration of ERISA plans will shrink benefits and deter some employers from offer*974ing health insurance at all. In addition, the Illinois law obviously is intended (responding to the recent torrent of criticisms of HMOs) to tilt the administration of those plans in favor of participants by giving them an additional remedy while not giving any additional remedy to the plan. The law undermines the statutory purpose of federal uniformity in the administration of ERISA plans. If such laws are permissible, the rights of participants in an ERISA plan will change as they are transferred by their employer from state to state, even though they are nominally under the same plan.
Although the panel’s opinion is long, it does not respond to the concerns just expressed, although they were forcefully argued in the HMO’s brief and in an amicus brief supporting the HMO. All that the panel can find to say in defense of its startling decision, except that it thinks it supported by Ward, yet without appreciating the force of the Fifth Circuit’s distinction of that case, is that the Illinois law makes the physician-review provision a part of the ERISA plan and so does not disturb the exclusivity of ERISA’s scheme for the enforcement of the rights that ERISA plans confer on participants and beneficiaries. Under the panel’s view, then, if the plan does not submit a disagreement to review by the independent physician, the participant can sue the plan for a violation of its terms. This is just a faton de parler. It invites states to evade the preemptive force of ERISA simply by deeming its regulations of ERISA plans to be plan terms. It would authorize a state to require ERISA plans to double their benefits. I am sure the panel would not go so far as to permit so transparent an evasion of ERISA’s preemption clause, but the opinion contains nothing that would enable the panel to distinguish that case. Far from being compelled by Ward, the panel’s opinion is in tension with Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000), which it does not cite. Although Pegram held that combined treatment-eligibility decisions by an HMO are not fiduciary decisions under ERISA, it did not doubt that ERISA applied to HMO-managed ERISA plans; the panel, by contrast, seems to think ERISA inapplicable to such plans.
There is another unresolved tension in the panel’s opinion. The opinion appears to depend on two propositions: first, that the Illinois law regulates insurance rather than ERISA plans and thus is not preempted; second, that by virtue of Illinois law the requirement of independent physician review is written not only into an insurance contract but also into the plan itself, which makes the requirement enforceable in federal court. The two propositions are incompatible. If the statute merely regulates insurance and therefore is not preempted, how can it be part of an ERISA plan and enforceable in federal court? If, on the other hand, the requirement imposed by the statute is and must be incorporated into the plan, then Illinois has-done more than merely regulate the contents of an insurance policy. It has regulated the contents of an ERISA plan — which means that its law is preempted.