Supreme Court Ruling Troubles Insurers

By Steven Brostoff

Washington

Health insurers and property-casualty insurers are disappointedwith last weeks United States Supreme Court decision upholdingKentuckys “any willing provider” statutea decision the healthinsurers say will drive up health insurance premiums and maydiminish health care quality.

“Ultimately, it is the American worker who will bear the bruntof this decision,” says Donald Young, president of theWashington-based Health Insurance Association of America, inresponse to the unanimous Supreme Court decision in the case ofKentucky Association of Health Plans v. Miller.

The issue in the Kentucky Association case involvesKentuckys AWP law, which says that health insurers may notdiscriminate against any health care provider who is willing tomeet the terms and conditions for participation in a healthplan.

AWP laws, Mr. Young said, reflect unnecessary governmentinterference in private relationships between doctors and healthplans.

The Supreme Courts decision upholding AWP laws represents“another step for those who believe the government can bestdetermine how health care should be financed and delivered, furtherlimiting choices for health care consumers,” Mr. Young said.

Health plans say that AWP laws may undermine health maintenanceorganizations, because they prevent HMOs from assuring memberphysicians that the physicians will have a sufficient volume ofpatients to make the HMO arrangement economically feasible.

The Kentucky Association of Health Plans sued to preventenforcement of the law, arguing that it is preempted by theEmployee Retirement Income Security Act. ERISA preempts state lawsthat relate to employee benefit plans, but state laws that regulatethe business of insurance are saved from preemption.

The Kentucky Association argued that the AWP law does notregulate the business of insurance and thus is not saved frompreemption.

Both a United States District Court and the Sixth Circuit Courtof Appeals ruled against the Kentucky Association and upheld theAWP law.

The United States Supreme Court, in a unanimous opinion writtenby Justice Antonin Scalia, agreed.

In the first part of the opinion, the court rejected theKentucky Associations argument that the AWP law is not“specifically directed” toward the insurance industry.

The Kentucky Association had argued that the law regulates notonly insurers, but also providers, and thus in not specificallydirected towards insurers.

But the court said that while it is true that as a consequenceof the AWP law, providers will be unable to enter into certainagreements with insurers, it does not necessarily follow that theAWP law is not specifically directed at the insurance industry.

“Regulations directed toward certain entities will almost alwaysdisable other entities from doing, with the regulated entities,what the regulations forbid; this does not suffice to place suchregulation outside the scope of ERISAs savings clause,” the courtsaid.

The Kentucky Association also argued that AWP laws do notregulate the business of insurance because they do not control theactual terms of insurance policies. Rather, the association said,they focus on the relationship between insurers and third-partyproviders.

But the court rejected this argument as well. The Kentuckys AWPlaw, the court said, regulates insurance by imposing conditions onthe right to engage in the business of insurance.

This means, the court added, that the law substantially affectsthe risk pooling arrangement between the insurer and theinsured.

“No longer may Kentucky insureds seek insurance from a closednetwork of health care providers in exchange for a lower premium,”the court said.

“The AWP prohibition substantially affects the type of riskpooling arrangements that insurers may offer,” the court said.

The court added that its decision, in effect, establishes a newtwo-part test for determining whether a state law regulates thebusiness of insurance.

The first part of the test is that the law must be specificallydirected toward entities engaged in insurance. The second part, thecourt said, is that the law must substantially affect the riskpooling arrangement between the insurer and the insured.

The Kentucky AWP law satisfies both parts of the test, the courtsaid.

The Alliance of American Insurers, based in Downers Grove, Ill.,called the decision “a major setback” for p-c insurers.

“While on the surface this would not appear to affectproperty-casualty insurers, it will surely drive up medical costs,”said Keith Bateman, Alliance vice president of workerscompensation, adding that “out-of-control medical costs are a majorfactor in premiums related to workers compensation and autoinsurance.”

In addition, he said, “This decision makes it more difficult fornetworks to keep out doctors who have a history of poor results orthat may engage in fraudulent behavior.”

Reproduced from National Underwriter Edition, April 7, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.