Empire Healthchoice Assurance, Inc. v. Mcveigh

547 U.S. 677 (2006)

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Nature of the Case

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Facts

The Federal Employees Health Benefits Act of 1959 (FEHBA) establishes a comprehensive program of health insurance for federal employees. FEHBA contains a preemption clause, § 8902(m)(1), displacing state law on issues relating to 'coverage or benefits' afforded by health-care plans. The Act contains no provision addressing the subrogation or reimbursement rights of carriers. FEHBA itself provides for federal-court jurisdiction only in actions against the United States. FEHBA assigns to OPM responsibility for negotiating and regulating health benefits plans for federal employees. OPM entered into a contract in 1960 with the BCBSA to establish a nationwide fee-for-service health plan, the terms of which are renegotiated annually. The Federal Government pays about 75% of the premiums; the enrollee pays the rest. Premiums thus shared are deposited in a special Treasury Fund, the Federal Employees Health Benefits Fund, § 8909(a). Carriers draw against the Fund to pay for covered health-care benefits. The contract between OPM and the BCBSA provides: 'By enrolling or accepting services under this contract, [enrollees and their eligible dependents] are obligated to all terms, conditions, and provisions of this contract.' An appended brochure sets out the benefits the carrier shall provide, and the carrier's subrogation and recovery rights. Concerning reimbursement and subrogation, the BCBSA Plan's statement of benefits reads in part: All recoveries you obtain (whether by lawsuit, settlement, or otherwise), no matter how described or designated, must be used to reimburse us in full for benefits we paid. Our share of any recovery extends only to the amount of benefits we have paid or will pay to you or, if applicable, to your heirs, administrators, successors, or assignees. 'If you do not seek damages for your illness or injury, you must permit us to initiate recovery on your behalf (including the right to bring suit in your name). This is called subrogation. P is the entity that administers the BCBSA Plan as it applies to federal employees in New York State. D is the administrator of the estate of Joseph E. McVeigh (Decedent), a former enrollee in the Plan. Decedent was injured in an accident in 1997. Plan payments for the medical care he received between 1997 and his death in 2001 amounted to $157,309. D, on behalf of herself, the Decedent, and a minor child, commenced tort litigation in state court against parties alleged to have caused Decedent's injuries. The parties to the state-court litigation had agreed to settle the tort claims, P sought to recover the $157,309 it had paid out for the Decedent's medical care. Of the $3,175,000 for which the settlement was provided, D agreed to place $100,000 in escrow. P sued D alleging that D was in breach of the reimbursement provision of the Plan. P demanded $157,309, with no offset for attorney's fees or other litigation costs D incurred in pursuing the state-court settlement. D moved to dismiss for lack of subject-matter jurisdiction. P claimed that the District Court had jurisdiction under § 1331 because federal common law governed its reimbursement claim. P also asserted that the Plan itself constituted federal law. The District Court rejected both arguments. The Court of Appeals for the Second Circuit affirmed, holding that 'P's claim arises under state law.' The appeals court stated that courts may create federal common law only when 'the operation of state law would (1) 'significantly conflict' with (2) 'uniquely federal interests.'' P appealed.