Mid-Atlantic Health Law TOPICS

Several states require health insurers to contract with any doctor, and certain other health care providers, who are willing to abide by the insurers' contractual terms, including the insurer's fee schedule. These laws are called "any willing provider" (AWP) laws.

Health care insurers have long argued that the federal Employee Retirement Income Security Act (ERISA) barred enforcement of the AWP laws against insurers that provide health coverage to employee benefit plans, because ERISA governs employee benefits. However, in April of 2003, the U.S. Supreme Court, in Kentucky Association of Health Plans v. Miller, held that Kentucky's AWP laws were saved from federal preemption because these laws regulate insurance. The Court also announced a new test for determining when a state law regulates insurance so as to be saved from ERISA preemption.

A. The Case

The bottom line of the Kentucky Association decision is that individual states may, in fact, require health care insurers to accept "any willing provider" into their panels, if the provider meets the plan's terms and conditions.

The insurers had argued that AWP laws were barred by ERISA, the federal law that regulates employee benefit plans. More specifically, ERISA supersedes all state laws that "relate to" employee benefit plans, unless the state law regulates insurance, banking, or securities. The insurers argued that the AWP laws related to employee health plans, and did not regulate insurance, and were therefore preempted.

First, the insurers argued that the AWP laws did not regulate insurance because the laws also regulated health care providers who sought to form exclusive provider networks. Not surprisingly, the Court ruled that insurance regulations may have an impact outside the insurance industry and still be saved from ERISA preemption as laws that regulate insurance.

The insurers also argued that the AWP laws did not regulate insurance because the laws did not control the terms of insurance policies, and focused instead on the relationship between insurers and providers. The Supreme Court ruled that the AWP laws imposed conditions on the right to engage in the business of insurance, and substantially affected the risk pooling arrangement between the insurer and the insured, and therefore regulated insurance, even though the laws did not address the specific terms of insurance policies.

B. The New Test

The Supreme Court also used its decision in Kentucky Association to announce a change in the test to determine whether a state law regulates insurance. Previously, the Court had used a test that looked first to whether, as a matter of common sense, the law in question regulated insurance, and then looked to three factors to determine whether the law regulated the business of insurance under the McCarran-Ferguson Act, a federal law that leaves to the states the regulation of insurance.

The three-factor test under the McCarran-Ferguson Act (whether the practice transfers or spreads a policyholder's risk; whether the practice is an integral part of the policy relationship between the insurer and the insured; and whether the practice is limited to entities within the insurance industry had already been brought into question by a 1999 Supreme Court decision (UNUM Life Ins. Co. of America v. Ward) in which the Court held that it was not necessary for all three factors to be present to find that a state law regulated insurance.

However, neither the earlier Supreme Court decision, nor subsequent decisions, offered clarification as to how many of the three factors had to be satisfied, how clearly the factors had to be satisfied, and whether the state law itself or the conduct regulated by the state law was the proper subject of inquiry.

Recognizing these difficulties, the Supreme Court stated in Kentucky Association that it was making a "clean break" from the three-factor test. Instead, the Court described the new test for determining whether a state law regulates insurance sufficiently to be saved from ERISA preemption as having two requirements: "First, the state law must be specifically directed toward entities engaged in insurance [and second] the state law must substantially affect the risk pooling arrangement between the insurer and the insured."

The Court determined that the Kentucky AWP laws met both requirements, and therefore the laws were saved from preemption under ERISA and could be enforced against the insurers.

C. The Potential Effects

The Kentucky Association decision is likely to affect both insurers and providers, and may ultimately affect the cost of health care. Providers who were left out of exclusive networks may be able to participate on an equal footing with network providers, thereby increasing their patient volume and revenues. On the other side of the coin, providers who participated in exclusive networks may find that their patient volume and revenues decrease.

Insurers that relied on exclusive networks may find that their administrative costs increase as the number of providers submitting claims increases, and that providers who were once willing to accept lower reimbursement rates in exchange for higher patient volume are no longer willing to accept the lower rates.

Insurers may also turn to other methods of achieving some of the quality and cost controls that they argued went hand-in-hand with exclusive networks, such as imposing more demanding credentialing criteria or basing reimbursement rates on quality assessment or outcome evaluations. Finally, the Kentucky Association decision may encourage states that do not currently have AWP laws to consider adopting them.

Maryland is one of the states that does not currently have an AWP law, although insurers, HMOs, and other health plans (collectively carriers) must allow any provider to apply to be on a provider panel. A carrier is required to process a provider's application within specified time limits, and may not reject an application on the basis of gender, race, age, religion, national origin, disability, or the type or number of appeals, grievances, or complaints previously filed by the provider. However, a carrier is permitted to reject an application if there are already a sufficient number of similarly qualified providers on its provider panel.

Maryland law also provides that if a group health plan offers coverage through an HMO, the HMO must offer the group members a point-of-service option, which permits enrollees to receive services outside the HMO's provider panel. Enrollees who choose the point-of-service option may be charged a higher premium and may be subject to different cost-sharing requirements than those enrollees who choose the HMO coverage.