Kentucky Association of Health Plans, Inc. v. Miller
538 U.S. 329 (2003)

Facts:

  • Health maintenance organizations (HMOs) maintain exclusive “provider networks” with selected doctors, hospitals, and other health-care providers.
  • At issue were two Kentucky “Any Willing Provider” (AWP) statutes that were enacted to combat this:

(1) A health insurer shall not discriminate against any provider who is located within the geographic coverage area of the health benefit plan and who is willing to meet the terms and conditions for participation established by the health insurer; and
(2) Any health benefit plan that includes chiropractic benefits shall permit any licensed chiropractor who agrees to abide by the terms, conditions, reimbursement rates, and standards of quality of the health benefit plan to serve as a participating primary chiropractic provider to any person covered by the plan.

  • The HMOs brought suit seeking a determination that the AWP statutes were preempted by the Employee Retirement Income Security Act (ERISA).

Issue:
Whether ERISA preempts either, or both, of the AWP statutes.

Holding:
No.

Reasoning:

  • ERISA preempts all state laws “insofar as they may now or hereafter relate to any employee benefit plan.”
    • However, state “laws which regulate insurance, banking, or securities” are saved from preemption.
  • Here, the HMOs tried to argue that the AWP laws did not “regulate insurers” with respect to an insurance practice because they did not control the actual terms of insurance policies.
  • The court didn’t buy that argument and established a two-part test. For a state law to be deemed a “law which regulates insurance”:

(1) The state law must be specifically directed toward entities engaged in insurance; and
(2) The state law must substantially affect the risk pooling arrangement between the insurer and the insured.

  • Here, the first part was readily established. As for the second, because Kentucky insureds may no longer seek insurance from a closed network of health-care providers in exchange for a lower premium, the AWP prohibition substantially affected the type of risk pooling arrangements that insurers may offer.

This case made a clean break from the McCarran-Ferguson factors.

Rule: For a state law to be deemed a “law which regulates insurance” and thus saved from ERISA preemption:

(1) The state law must be specifically directed toward entities engaged in insurance; and
(2) The state law must substantially affect the risk pooling arrangement between the insurer and the insured.