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The COBRA provisions of the federal Public Health Services Act (PHSA) do not preempt state law claims, the 9th U.S. Circuit Court of Appeals held in an issue of first impression ( Joseph Radici, et al. v. Associated Insurance Companies, et al., No. 98-17437, 9th Cir.). The 9th Circuit reversed the U.S. District Court for the District of Nevada’s grant of summary judgment for Associated Insurance Companies (AICI) and Blue Cross Blue Shield of Indiana on claims for breach of contract, breach of the duty of good faith and fair dealing and unfair insurance practices. The District Court concluded the PHSA preempted state law claims by analogy to the type of preemption employed in ERISA cases. PHSA IS NOT ERISA “The claim of preemption under ERISA is much stronger than under the PHSA,” the appeals court said. “The PHSA nowhere mentions preemption. Although ERISA and the PHSA contain nearly identical COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) provisions, the preemptive effect of ERISA does not create PHSA preemption. Furthermore, Congress was silent on the issue of PHSA/COBRA preemption. “Because the topic of continuation health care coverage is neither excessively regulated, nor quintessentially ‘federal’ in character, Congress bears the burden of demonstrating its desire to displace state law remedies. Congress made no such showing. Indeed, the legislative history suggests that Congress likely desired not to displace state law remedies.” Joseph Radici worked for two school districts in Indiana and had group health coverage through AICI. His daughter was totally disabled from birth. Through an arrangement with AICI, Michelle Radici remained at home with round-the-clock skilled nursing. When Radici moved to Las Vegas, he became enrolled in a group health plan offered by his new school district. The plan prohibited coverage for pre-existing medical conditions for the first year. Radici exercised his PHSA and contractual rights to continue health coverage under the Indiana policy. With two days’ notice, AICI canceled the continuation of coverage on the grounds that the Nevada policy’s one-year exclusion of coverage for pre-existing conditions had lapsed. The Nevada insurer would not agree to round-the-clock skilled nursing care. The family attempted for several moths to provide the necessary care under the Nevada policy. Michelle Radici died three months later. The appeals court noted that COBRA amended ERISA and PHSA by adding essentially identical continuation coverage and notification provisions. The District Court concluded the COBRA amendments to the PHSA provide beneficiaries an exclusive remedy against their group health insurers. LEGISLATIVE HISTORY Congress, the 9th Circuit said, did not explicitly preempt state law remedies pertaining to COBRA coverage and benefits. The amendments to the PHSA include a separate enforcement provision that authorizes an award of “appropriate equitable relief.” The provision nowhere mentions preemption of additional state remedies, nor does it include words of exclusivity, the appeals court said. In House and Senate reports written in preparation for COBRA passage, Congress made clear that it did not intend COBRA beneficiaries to be denied appropriate state law remedies for improper denials of continuation of coverage, the Ninth Circuit said. While the legislative history suggests that Congress did not intend to displace state law remedies by enacting COBRA, it expressed mild reservations about the propriety of permitting such remedies in view of ERISA’s preemptive force. However, those reservations are muted in the PHSA context, because the PHSA lacks an express preemption provision, the appeals court said. Further, the panel said its review of the limited case law on point demonstrates that courts have not determined that the COBRA provisions in the PHSA preempt state remedies. Counsel to the Radicis are Jeffrey Isaac Ehrlich of Arlington, Va., and Steven J. Parsons of Parsons & Pursiano in Las Vegas. Leann Sanders and Monica L. Pierce of Alverson, Taylor, Mortensen, Nelson & Sanders in Las Vegas represent the insurers. � Copyright 2000 Mealey Publications, Inc.

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