The Sixth Circuit Court of Appeals recently upheld Kentuckys AWP statute, arguing that it regulates the business of insurance and thus is not preempted by the Employee Retirement Income Security Act.

Health plans and employers say that if the Sixth Circuits opinion is allowed to stand, the implications for health plans are severe.

“The holding of the Sixth Circuit Court of Appeals threatens the financial ability of the nations employers to provide comprehensive health benefits to their employees, who depend upon their employment for health care coverage for themselves and their dependents,” according to a brief filed jointly by the National Association of Manufacturers, the American Association of Health Plans, the Health Insurance Association of America, and the Blue Cross/Blue Shield Association.

“That holding, if allowed to stand, eliminates long-standing and effective means of cost control utilized by HMOs and other MCOs,” the brief says.

But physicians are just as adamant in defending AWP statutes. The statute, according to a brief filed by the American Medical Association, regulates the relationship between physicians, as well as other health care professionals, and health insurers. It is, AMA says, one of a myriad of laws that regulate health care.

“This court has repeatedly indicated that, in the absence of a clear expression of congressional intent, federal statutes should not displace traditional state regulation of health care,” AMA says.

AWP statutes have become the focal point of the dispute between physicians and insurers over managed care. The NAM brief says that the inability of MCOs to control the number of providers in the network deprives them of the ability to negotiate rates on the basis of volume discounts.

AWP statutes effectively prevent MCOs from assuring providers that their direct competitors will be excluded from the network and from having access to the MCOs members, NAM says.

“Consequently, providers have little, or no, incentive to agree to charge the MCO materially discounted rates for their services to the MCOs members,” NAM says.

The issue in the case, Kentucky Assn. of Health Plans v. Miller, involves whether Kentuckys AWP statute is preempted by ERISA or “saved” from preemption as regulating the business of insurance. Under ERISA, state laws that “relate to” employee benefit plans, including health plans, are preempted. However, because the business of insurance is state regulated, state laws that regulate the business of insurance are “saved” from preemption.

The Sixth Circuit ruled that while the AWP statute does relate to employee benefit plans, it is saved from preemption. The statute, the Sixth Circuit said, is specifically directed towards insurers. Indeed, the court said, it excludes self-insured ERISA plans.

The court said the AWP statute deals directly with the relationship between insurers and insureds under health benefit plans. The statute affects restrictions by insurers on the number of health care providers available to insureds, it increases benefits to insureds by giving them greater freedom to choose providers, and it is aimed at regulating the insurance relationship, the court said.

The statute is clearly one which, as a matter of common sense, regulates insurance, and thus is saved from preemption, the court added.`

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.