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Spring 2003-12 AWP statutes are not preempted by ERISA

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Number 51
Spring 2003

AWP statutes are not preempted by ERISA

In Kentucky Association v. Miller, decided on April 2, 2003, the Supreme Court of the United States held that two Kentucky statutes were not preempted by ERISA, and threw out the 15-year test for determining if a state law regulates insurance.

The State of Kentucky enacted two "any willing provider" (AWP) statutes which prohibit a "health insurer [from] discriminating against any provider who is . . . willing to meet the terms and conditions for participation established by the . . . insurer" and require a "health benefit plan that includes chiropractic benefits [to] . . . permit any licence chiropractor who agrees to abide by the terms and conditions . . . of the . . . plan to participate as a participating primary chiropractic provider."

The Kentucky Association of Health Plans, Inc., which includes several health maintenance organizations plans with an "exclusive provider network," filed a suit in federal court asserting that the laws were pre-empted by the Employment Retirement Income Security Act of 1974 (ERISA). Section 1144 of ERISA preempts all state laws "insofar as they relate to any employee benefit plan" but excluded from preemption state "laws which regulate insurance."

Insurance exemption

In 1987 the Supreme Court of the United States established a test for the "insurance exemption." For these statutes to be "laws which regulates insurance," they must be specifically directed toward the insurance industry; laws of general application that have some bearing on insurers do not qualify. Pilot Life v. Dedeaux, 481 U.S. 41, (1987). In determining which practices constitute "the business of insurance," the Supreme Court looked for three factors: "a) whether has the effect of transferring or spreading a policy holder risk; b) whether the practice is an integral part of the policy relationship between the insurer and the insured; and c) whether the practice is limited to entities in the insurance industry." Union Labor Life Ins. v. Pireno, 458 U.S. 119 (1982), at page 129. These factors were adopted from an interpretation of the McCarran-Ferguson Act. In UNUM Life Ins. v. Ward, 526 U.S. 358 (1999), and Rush Prudential HMO v. Moran, 536 U.S. 355, the Court clarified that a state law may fail the first McCarran-Fergunson factor, and yet still be saved from preemption under ERISA.

In the Kentucky Association v. Miller opinion, the Supreme Court noted that "our use of the McCarran-Fergunson case law in the ERISA context has misdirected attention, failed to provide clear guidance to lower federal courts." Instead, the Court articulated a new test: (1) is the state law specifically directed toward entities engaged in insurance? and (2) does the state law substantially affect the risk pooling arrangement between the insurer and the insured? n


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