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In a victory for self-funded employee benefit plans, a federal judge has ruled that a provision of the Pennsylvania Motor Vehicle Financial Responsibility Law that imposes caps on medical charges is pre-empted by ERISA. In Benefit Concepts Inc. v. Macera, the insured did not dispute her insurer’s subrogation rights when she settled an auto accident claim for $60,000. Instead, Carmelann Macera argued that under MVFRL’s § 1797(a), her insurer was required not to pay the full amount of the bills, and that its subrogation demand of more than $19,000 was therefore inflated. Macera’s lawyer, Jerry Lyons of Joseph Chaiken & Associates, argued that Benefit Concepts breached its fiduciary duties to Macera when it paid the bills in full. But Benefit Concepts’ lawyer, Andrew M. Smith of Bateman & Smith, argued that § 1797(a) did not apply to Don Rosen Cadillac’s employee health plan — a self-funded employee welfare benefit plan — and that, even if it did, the federal Employee Retirement Income Security Act would pre-empt it. Now U.S. District Judge Stewart Dalzell has ruled that although § 1797(a) qualifies for ERISA’s “savings clause,”it is nonetheless pre-empted by ERISA’s “deemer clause.” According to court papers, Macera was injured in an April 1997 accident caused by Howard E. Dade Sr. After she exhausted the $10,000 of personal injury coverage from her own auto insurance policy, Macera turned to the health policy she received through her employer and Benefit Concepts Inc. — the administrator of the plan — began paying the bills, according to the opinion. But Strategic Recovery Partnership Inc. — the subrogation agent for Benefit Concepts — notified Macera’s attorney that it would not pay the bills until she signed a standard subrogation agreement. Rather than simply sign the form, however, Macera added a handwritten limitation on Don Rosen Cadillac’s subrogation rights that said she recognized its claim only “to the extent allowed by Act VI [referring to MVFRL] and all other laws regarding payment of reasonable expenses.” Benefit Concept paid more than $19,000 to Macera’s medical providers. Macera had also sued Dade and settled that case for $60,000 in December 1999, according to the opinion. Strategic Recovery immediately demanded that Macera reimburse Don Rosen Cadillac for the medical expenses that the plan had paid. When Macera disputed the size of the medical bills, Benefit Concepts filed suit in federal court to enforce its subrogation rights. Macera responded with a counterclaim that accused Benefit Concepts of breaching its fiduciary duties to her by overpaying her medical providers. Both sides moved for summary judgment and Dalzell sided with Benefit Concepts on the grounds that § 1797(a) is pre-empted by ERISA. Dalzell found that the U.S. Supreme Court announced a new, two-part test for deciding ERISA pre-emption questions in its 2003 decision in Kentucky Association of Health Plans v. Miller. Under Miller, for a state law to qualify for ERISA’s savings clause, it must “regulate insurance” — a term the justices interpreted to mean that the law must “be specifically directed toward entities engaged in insurance” and “substantially affect the risk-pooling arrangement between the insurer and the insured.” Dalzell concluded that § 1797(a) meets the Miller test because it is specifically directed toward the insurance industry and was enacted “to reduce the rising cost of purchasing motor vehicle insurance.” § 1797(a) authorizes insurance companies to pay less than medical providers’customary charges if those charges exceed statutorily defined thresholds. Dalzell found that, although the phrasing of § 1797(a) “purports to regulate only medical providers, it directly benefits insurers by limiting the amounts that they must pay.” The law also affects the risk-pooling arrangement, Dalzell found, because it limits the rates that medical providers can charge insurers, and therefore “reduces insurers’ actuarial risk thereby permitting them to pass the cost savings onto insureds.” But Dalzell found that, even though § 1797(a) regulates insurance, it is nonetheless pre-empted by ERISA’s so-called “deemer clause.” The deemer clause prohibits treating an employee benefit plan as “an insurance company � for purposes of any law of any state purporting to regulate insurance companies.” Dalzell found that “by preventing states from applying their general insurance regulations to employee benefit plans, the deemer clause relieves plans from state laws purporting to regulate insurance.” As a result, Dalzell said, even if a law “regulates insurance”within the meaning of the saving clause, the deemer clause prevents parties from applying that law to self-funded employee benefit plans. Lyons argued that construing ERISA to pre-empt § 1797(a) would put Macera in an untenable position. Macera, he said, believed that the state judge presiding over her case against Dade would have precluded her from introducing at that trial evidence of the full amount that the plan paid on her behalf because that judge believed that MVFRL precluded her from recovering more than the capped amount. Facing such an adverse ruling, Lyons argued, Macera settled her claim against Dade based on the assumption that she could recover no more than the capped amount. As a result, Lyons argued, requiring Macera to reimburse the plan for the full amount would violate the principle that “a subrogee’s rights can rise no higher than that of its subrogor.” But Dalzell found that Lyons’ argument suffered from “several flaws.” “First, it depends on a wholly speculative assumption about how the state judge might have ruled. Second, even if the judge had made the ruling that Macera believes he or she would have made, that ruling would have been in error because ERISA pre-empts Section 1797(a) to the extent it may have otherwise applied to the plan.” Since it was Macera who chose not to litigate and instead to settle with Dade, Dalzell said, “we perceive no unfairness in holding her responsible for the consequences of her strategic choices.”

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