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Helfrich v. Blue Cross and Blue Shield Association

United States District Court, District of Kansas

August 5, 2014

LEE ANN HELFRICH, Plaintiff,
v.
BLUE CROSS AND BLUE SHIELD ASSOCIATION and BLUE CROSS AND BLUE SHIELD OF KANSAS CITY, Defendants.

MEMORANDUM AND ORDER

ERIC F. MELGREN UNITED STATES DISTRICT JUDGE

This matter comes before the Court on Defendants’ Motion for Judgment on the Pleadings (Doc. 21) for Plaintiff Lee Ann Helfrich’s petition for declaratory judgment. Helfrich seeks an order declaring that Kansas law prohibits the Defendants from requiring her to reimburse them for benefits paid under a health insurance policy issued to federal employees. The Defendants maintain that under a preemption clause in the Federal Employees Health Benefits Act, the terms of the insurance contract preempt Kansas law and that Helfrich must reimburse them $76, 561.88 because she recovered $100, 000 from the other driver’s insurance after a car accident. The Court agrees, finding that a natural reading of the statute reveals clear congressional intent to preempt any state law that prohibits reimbursement. For the following reasons, the Court grants Defendants’ Motion for Judgment on the Pleadings.

I. Factual and Procedural Background

In 2012, Plaintiff Lee Ann Helfrich was a federal employee working as an air traffic controller in Olathe, Kansas. Helfrich was enrolled in a health insurance plan offered to federal employees. Defendant Blue Cross and Blue Shield Association is a private insurance carrier that entered into a contract with the United States Office of Personnel Management to offer health insurance to federal employees under the Federal Employees Health Benefit Act (FEHBA). The plan was administered locally by Defendant Blue Cross and Blue Shield of Kansas City.

In December 2012, Helfrich was severely injured in an automobile accident. Blue Cross paid $76, 561.88—after adjustments for unrelated and additional payments—to Helfrich’s health care providers for medical expenses. The other driver’s insurance paid Helfrich $100, 000 as part of a settlement for the other driver’s policy limit. The $100, 000 was deposited in a trust account held by Helfrich’s counsel pending the outcome of this litigation.

Helfrich’s Blue Cross health insurance plan requires that the insured reimburse Blue Cross for any benefits Blue Cross paid to treat an injury caused by a third party if the insured obtains a separate recovery in connection with the injury. Blue Cross has asserted a reimbursement right of $76, 561.88 against Helfrich’s recovery from the other driver’s insurance. Under Kansas law, such a contractual term in an insurance policy requiring reimbursement for medical expenses is prohibited. But Blue Cross contends that the FEHBA, in 5 U.S.C. § 8902(m)(1), preempts Kansas law and that this preemption clause applies to reimbursement.

Helfrich filed a Petition for Declaratory Judgment, which was removed to this Court in December 2013. Helfrich’s petition requests this Court to declare that 5 U.S.C. § 8902(m)(1) does not preempt the Kansas regulation that prohibits a reimbursement clause in an insurance contract. Additionally, Helfrich seeks a declaration that the reimbursement clause in the contract violates Kansas public policy and is unenforceable. The Defendants filed a counterclaim, asserting that Helfrich breached her obligations under the insurance plan and seeking declaratory judgment that Helfrich is obligated to reimburse the plan for all benefits paid for the treatment of injuries and that a lien exists against Helfrich’s settlement proceeds. In February 2014, Blue Cross filed a Motion for Judgment on the Pleadings (Doc. 21), which is now before this Court.

II. Legal Standard

Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed as long as the motion is made early enough not to delay trial.[1] The standard for dismissal under Rule 12(c) is the same as a dismissal under Rule 12(b)(6).[2] So to survive a motion for judgment on the pleadings, a complaint must present factual allegations, assumed to be true, that “raise a right to relief above the speculative level, ” and must contain “enough facts to state a claim to relief that is plausible on its face.”[3] All reasonable inferences from the pleadings are granted in favor of the non-moving party.[4] Judgment on the pleadings is appropriate when “‘the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.’”[5] Documents attached to the pleadings are exhibits and may be considered in deciding a Rule 12(c) motion.[6]

III. Analysis

Blue Cross argues that Helfrich must reimburse Blue Cross because Kansas’ anti-reimbursement regulation is preempted by an express provision of the FEHBA that requires reimbursement. Helfrich argues that Blue Cross’ motion should be denied and declaratory judgment entered in her favor because the Kansas regulation is not preempted by the FEHBA. Neither party has alleged that there are any material issues of fact that remain to be resolved. Thus, a judgment on the pleadings is appropriate.

Kansas has established a public policy against subrogation clauses in insurance contracts, and this policy includes forbidding clauses that require reimbursement of medical expenses to an insurance company. This policy is codified in the Kansas Administrative Regulations as follows:

No insurance company or health insurer, as defined in K.S.A. 40-4602 and amendments thereto, may issue any contract or certificate of insurance in Kansas containing a subrogation clause, or any other policy provision having a purpose or effect similar to that of a subrogation clause, applicable to coverages providing for reimbursement of medical, surgical, hospital or funeral expenses.[7]

The FEHBA includes a provision, 5 U.S.C. § 8902(m)(1), that describes when state law is preempted. Under 5 U.S.C. § 8902(m)(1), the terms of a federal employee health insurance contract may preempt state law under the following conditions:

The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation ...

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