Facts
- Rush Prudential HMO, Inc. provided medical coverage through employer-sponsored welfare benefit plans governed by ERISA.
- Debra Moran, an enrollee, had a serious shoulder condition.
- Moran’s in-network physician recommended surgery by an out-of-network specialist.
- Rush denied authorization, finding the requested treatment not “medically necessary.”
- Moran invoked Illinois law requiring independent medical review of medical-necessity disputes and making the reviewer’s medical-necessity determination binding on the HMO.
- Rush refused to participate in the independent review, and Moran sued to compel compliance.
- An independent physician found the treatment medically necessary, but Rush continued to deny coverage.
- Moran obtained the surgery and sought reimbursement for the out-of-network procedure.
Issues
- Whether ERISA § 514 preempted Illinois’s independent medical review requirement as applied to an HMO administering benefits under an ERISA welfare benefit plan.
- Whether the Illinois requirement was saved from preemption as a state law that “regulates insurance” under ERISA’s saving clause, § 514(b)(2)(A).
- Whether the state-law independent review mechanism conflicted with ERISA’s exclusive civil enforcement scheme in § 502(a).
Decision
- The Supreme Court affirmed the judgment upholding the Illinois independent review requirement.
- The Court held that the Illinois provision was a law that “regulates insurance” and therefore was saved from ERISA preemption.
- The Court rejected the argument that the independent review mechanism created an impermissible alternative enforcement scheme inconsistent with ERISA § 502(a).
- The decision was 5–4, authored by Justice Souter.
Legal Principles
- A state law may be saved from ERISA preemption if, in a common-sense view, it is directed toward the insurance industry and is confirmed as insurance regulation by the McCarran-Ferguson factors.
- An external review requirement can regulate insurance when it affects coverage determinations that influence risk allocation, governs the insurer-policyholder relationship, and targets entities acting as insurers (including HMOs in their risk-bearing role).
- A state process that supplies an expert medical-necessity determination can be compatible with ERISA if it defines what benefits are owed under the plan without creating a separate cause of action or expanding the remedies available under ERISA § 502(a).
- ERISA’s interest in national uniformity is limited by the saving clause, which preserves state authority to regulate insurance even when the regulation impacts ERISA plans indirectly.
Conclusion
The Court held that Illinois’s binding independent medical review requirement for HMO medical-necessity disputes regulated insurance and was saved from ERISA preemption, because it functioned as a coverage-defining insurance regulation rather than a separate remedial system outside ERISA’s enforcement scheme.