Express Scripts, Inc. Associated Industries of Missouri Missouri Chamber of Commerce St. Louis Area Business Health Coalition v. Keith Wenzel, Acting Director of the Missouri Department of Insurance, - Secretary of Labor, Amicus on Behalf Of

Citations: 262 F.3d 829; 26 Employee Benefits Cas. (BNA) 1961; 2001 U.S. App. LEXIS 18824Docket: 00-2788

Court: Court of Appeals for the Eighth Circuit; August 22, 2001; Federal Appellate Court

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The case involves Express Scripts, Inc. and various business organizations challenging the Missouri Department of Insurance's enforcement of state statutes regulating health maintenance organizations (HMOs) related to prescription drug provision. Specifically, the plaintiffs argue that these Missouri provisions are preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The statutes in question, enacted in 1997, require HMOs to charge uniform copayments across network pharmacies and to apply quantity limits on prescriptions uniformly to all pharmacies. The district court ruled in favor of the Missouri Department of Insurance, concluding that the provisions are not preempted by ERISA, a decision that was upheld on appeal. The court determined that the Missouri laws fall within ERISA's savings clause, thereby affirming the district court's ruling.

Appellants Express, Associated Industries of Missouri, Missouri Chamber of Commerce, and St. Louis Area Business Health Coalition initiated a lawsuit against Keith Wenzel, the acting director of the Missouri Department of Insurance, seeking an injunction against the enforcement of certain Missouri statutes and a declaration that these statutes and the related regulation, 20 C.S.R. 400-7.400, are preempted by the Employee Retirement Income Security Act (ERISA). Following discovery, both parties filed cross motions for summary judgment. The district court favored Wenzel, concluding that the Missouri statutes do not "relate to" employee benefit plans under ERISA preemption because they act only indirectly on such plans and their operation does not depend on ERISA plans. The court also determined that the statutes were exempt from ERISA preemption as they regulate Health Maintenance Organizations (HMOs), which are considered part of the insurance business.

The appellants contend that the district court erred, asserting that the statutes directly regulate health benefit plans and influence their structure, administration, and finances, thereby falling within ERISA's preemptive scope. They also argue that the provisions do not qualify for the insurance exception because HMOs are not truly in the insurance business. In response, Wenzel and the U.S. Secretary of Labor argue that the statutes only affect employee benefit plans indirectly and are saved from preemption because they regulate HMOs.

ERISA comprehensively regulates employee benefit plans established by employers, including retirement and health care benefits, with the primary goal of protecting employees' anticipated retirement benefits. The Act contains a broad preemption provision, stating that it supersedes state laws that may relate to employee benefit plans, to prevent states from undermining ERISA’s protections through conflicting legislation. This preemption has been interpreted broadly, indicating that a state law is preempted if it has a connection with or reference to an ERISA plan, regardless of whether it acts directly on such a plan. State laws that indirectly compel plan administrators to act can also be considered related to employee benefit plans.

ERISA includes a savings clause that protects certain state laws from federal preemption, specifically stating that it does not exempt any person from state laws regulating insurance, banking, or securities (29 U.S.C. 1144(b)(2)(A)). The legislative history of ERISA lacks specific discussions on employee health plans or the savings clause. In *Metropolitan Life*, the Supreme Court referenced the McCarran-Ferguson Act, which predates ERISA and similarly safeguards state insurance laws from federal preemption. The purpose of the McCarran-Ferguson Act is to ensure state regulation and taxation of the insurance business is in the public interest, with no congressional action interpreted as a barrier to state regulation (15 U.S.C. 1011). Under this act, state insurance laws are only preempted by federal statutes if Congress clearly expresses an intent to do so (15 U.S.C. 1012(b)). The ERISA preemption could have encompassed state insurance regulations without the savings clause.

The Supreme Court concluded that the ERISA savings clause was intended to preserve the McCarran-Ferguson Act's reservation of insurance regulation to the states. To determine whether a state law is saved from ERISA preemption, a two-step inquiry is employed: first, assessing if the law regulates insurance in a "common-sense view," and second, evaluating if the law meets three criteria regarding the "business of insurance" as defined by the McCarran-Ferguson Act—whether it transfers or spreads risk, relates to the policy relationship between insurer and insured, and is limited to entities within the insurance industry.

Courts start with a presumption against the preemption of state law, particularly in healthcare regulation, requiring a clear congressional intent to preempt. In the case concerning Missouri laws, if they regulate insurance, they are exempt from ERISA preemption even if related to ERISA plans. Appellants argue that Missouri HMOs do not qualify as insurers and instead regulate pharmacies, while Wenzel contends that HMOs do spread risk akin to insurance. The Secretary of Labor supports the view that HMOs are a form of insurance, with Missouri regulating them similarly to traditional insurance companies.

Under Missouri law, health maintenance organizations (HMOs) are classified as "insurers" and are subject to similar regulations as traditional insurance companies. The definition of "insurance company" encompasses any legal entity involved in insurance, including HMOs, unless explicitly excluded by context in specific statutes (Mo. Rev. Stat. 375.012.5). Both HMOs and insurance companies are regulated by the Missouri Department of Insurance, adhering to stringent standards for customer contracts, financial reporting, minimum net worth, regular examinations, and actuarial analysis for healthcare rates. In cases of financial failure, both HMOs and insurance companies can be rehabilitated, liquidated, or conserved by the Department of Insurance.

The key distinction between HMOs and traditional insurers lies in their operational model; while traditional insurers assume the risk of healthcare costs exceeding premiums, HMOs contractually guarantee specific health care for a fixed fee, managing risk through arrangements with healthcare providers. This structure allows HMOs to effectively spread and underwrite risk, aligning with the definition of insurers as established in various court rulings, which also support the classification of HMOs as insurers.

Appellants contend that even if HMOs are classified as insurers, specific Missouri provisions do not regulate insurance but rather target pharmacies, arguing for preemption similar to the Arkansas law in Prudential Ins. Co. v. Nat'l Park Med. Ctr. However, Wenzel argues that Missouri's legislative intent was consumer protection, distinguishing it from the National Park case. A law is considered to regulate insurance if it is specifically directed at the insurance industry, affecting the insurer-insured relationship and benefiting consumers in their dealings with insurers.

Mo. Rev. Stat. 354.535.3 and 354.535.4 are specifically aimed at Health Maintenance Organizations (HMOs), as indicated by their explicit references to "health maintenance organization." The statutes prohibit HMOs from imposing contractual barriers that limit enrollees' access to maintenance prescriptions. Before these statutes, enrollees often had to use mail order pharmacies for a 90-day supply of medications, leading to delays and higher costs when prescriptions were not filled on time. Testimony from Missouri pharmacists revealed that enrollees faced issues with mail order fulfillment, sometimes resorting to expensive retail options or going without necessary medications. The statutes facilitate easier access to prescriptions and interactions with local pharmacists, thereby enhancing consumer protection in the HMO-insured relationship.

The statutes are categorized as regulations of the insurance industry under the common-sense test, contrasting with broader statutes like the Arkansas law discussed in National Park. They are designed to protect enrollees' interests and regulate their interactions with HMOs, aligning with the consumer protection intent of the McCarran-Ferguson Act and the ERISA savings clause. The Supreme Court has recognized these statutes as part of the "business of insurance," focusing on the insurer-policyholder relationship. While appellants argue that the Missouri statutes do not meet the McCarran-Ferguson criteria, they reference Group Life, Health Ins. Co. v. Royal Drug Co., where an antitrust case involved insurance company practices that limited pharmacists’ pricing.

Price fixing agreements between an insurance company and pharmacies were determined not to fall under the business of insurance, as indicated in prior case law. The Royal Drug case was deemed inapplicable since it focused solely on the pharmacies' arrangement with the insurance company, which was viewed skeptically due to the narrow interpretation of antitrust law exemptions. The court did not examine whether contracts between the insurance company and its policyholders constituted the business of insurance.

Missouri laws at issue directly impact the contractual relationships between Health Maintenance Organizations (HMOs) and their enrollees, with a presumption against federal preemption. The first question under the McCarran-Ferguson test concerns whether these laws shift or transfer risk. Prior to the laws, enrollees faced higher copayments for retail pharmacy prescriptions, thus bearing the risk of increased drug costs due to delays in mail orders. The new statutes prevent HMOs from exclusively using mail order pharmacies for 90-day prescriptions, resulting in higher prescription costs that HMOs must manage.

The second question evaluates whether state law alters a fundamental aspect of the insurer-insured relationship. Missouri statutes require HMOs to permit enrollees to obtain maintenance prescriptions from retail pharmacies without penalty, thereby changing the type of policies HMOs can offer, satisfying this criterion.

The third question addresses whether the regulation is confined to the insurance sector. While the law affects pharmacies, it specifically regulates only HMOs, and pharmacies are not penalized for non-compliance. The McCarran-Ferguson test does not necessitate that regulations avoid indirect effects on other entities.

Conclusively, the Missouri provisions successfully meet the McCarran-Ferguson criteria, regulating the business of insurance. As Missouri HMOs qualify as insurers and the statutes are deemed to regulate insurance, they fall under the ERISA savings clause and are not preempted. The district court's summary judgment in favor of Wenzel is affirmed, and there is no need to determine if the statutes relate to any employee benefit plan.

The document outlines key judicial figures involved in the case, including Judge Richard W. Goldberg and Judge Nanette K. Laughrey. It references Section 1012(b), which asserts that no federal law can invalidate state laws regulating insurance unless explicitly related to insurance, while also clarifying that federal antitrust laws apply to insurance businesses not regulated by state law. The intent behind the 1997 Missouri statutes remains ambiguous, as the legislature did not document debates or reports. Affidavits from Representative Timothy Harlan and George Oestreich suggest the statutes aimed to enhance prescription filling options for enrollees and support retail pharmacies, but these do not conclusively establish legislative intent. Additionally, the appellants claim the statutes benefit retail pharmacies, yet the documents they cite lack evidence of legislative intent, being issued by the Missouri Department of Insurance rather than the legislature itself. The discussion also touches on "any willing provider" laws, indicating that the classification of state laws in relation to the ERISA savings clause is determined by specific case facts, with certain such laws having been upheld in various court rulings.