Connecticut General Life Insurance v. Insurance Commissioner

ELDRIDGE, Judge. We issued a writ of certiorari in this case to determine whether certain provisions of the Maryland Insurance Code, in the Health Insurance title, are preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 832 , 29 U.S.C. § 1001 et seq. ⁴⁵⁸ I. In 1998, Maryland’s General Assembly enacted a comprehensive program establishing standards for health insurers and their agents for reviewing benefit determinations, and providing claimants with an administrative remedy to recover health insurance benefits improperly denied by insurers. See Ch. 111 and Ch. 112 of the Acts of 1998, codified in Maryland Code (1997, 2002 Repl.Vol.), title 15, subtitles 10A, 10B and 10C of the Insurance Article. This legislation, effective January 1, 1999, established standards for licensed health insurers to undertake utilization review, a system used by insurers to determine whether a particular health care service is covered under a health insurance contract. 1 The legislation also dealt with the manner in which these reviews were to be conducted.

The new legislation was enacted because of concerns about the “ability of patients and providers to contest decisions rendered by managed care plans,” and in recognition of the fact the insurers were increasingly using utilization review in making coverage decisions under health insurance contracts. See House Environmental Matters Committee Report on House Bill 3, Health Insurance-Complaint Process for Adverse Decisions and Grievances at 4 (1998). The 1998 legislation, in subtitle 10A of the Insurance Article, requires a health insurance provider to establish an internal grievance process allowing an insured, who allegedly has been denied medically necessary services covered under an insurance contract, to seek reconsideration. See § 15-10A-01 (c), (e); § 15-10A-02. 2 If the insured is not satisfied with the ⁴⁵⁹ insurer’s decision, the insured can seek external review by filing a complaint with the Maryland Insurance Commissioner, who is the head of the Maryland Insurance Administration.

See § 15-10A-02 (d); § 15-10A-03. The Commissioner then makes a determination of whether the service was covered and medically necessary. The decision concerning medical necessity may be based “on the professional judgment of an independent review organization or medical expert.” § 15-10A-05(a). If the Commissioner finds that the insurer has failed to fulfil its obligations under the insurance contract, the Commissioner may issue an order requiring the insurer to fulfil its contractual obligations, by paying for or providing the health care service that has been denied. § 15-10A-04(c).

In addition, the Commissioner may impose any penalty on the insurer, including a fine, which is authorized by the Insurance Article. Ibid. The insurer can then request an administrative hearing to challenge the Commissioner’s decision, § 15-10A-04(a)(3), and § 2-210 specifies that the hearing is to be “conducted in accordance with Title 10, Subtitle 2 of the State Government Article (Administrative Procedure Act — Contested Cases).” Subtitle 10B of the Insurance Article outlines procedural and substantive requirements for entities performing utilization review. The utilization review may be conducted by the health insurance company itself, and, if the insurer chooses to do this, it has to be certified as a private review agent by the Commissioner.

Alternatively, the health insurance company can assign the task to a third party, who must be a certified private review agent under state law. In order to be certified, a private review agent must submit to the Commissioner, inter alia, information regarding the specific criteria that will be used to make the determination of medical necessity in the utilization review, as well as an attestation that the criteria are objective, clinically valid, and compatible with established principles of health care. The agent must also submit the qualifications of the persons performing the utilization review. See § 15-10B-05. ⁴⁶⁰ Violations of Subtitles 10A and 10B are among the list of prohibited practices in the Unfair Claim Settlement Practices Act, codified in the Insurance Article as § 27-801 et seq.

The Unfair Claim Settlement Practices Act explicitly states that penalties for violations of the Act are limited to the imposition of administrative penalties on the insurer by the Commissioner; it creates no state cause of action for the insured. See § 27-305.

II

This case arises from two administrative complaints, MIA Case No. 349-7/00 and MIA Case No. 375-7/00, initiated under § 15-10A. Each complaint sought review by the Maryland Insurance Administration of a decision by Connecticut General to deny benefits under a group health insurance policy issued to an employer pursuant to an employee benefit plan regulated by ERISA. A. In MIA Case 349-7/00, a complaint was filed with the Insurance Administration on May 3, 2000, by an employee who was covered by a group health insurance policy issued by Connecticut General Life Insurance Company to her employer, and who contributed to the premium through payroll deductions. The policy provided comprehensive medical benefits and covered expenses “to the extent that the services or supplies provided were recommended by a Physician and are essential for the necessary care and treatment of an Injury or a Sickness.” The employee had undergone a right and left frontal cranio-tomy for a brain tumor.

She had received acute rehabilitative services at two different facilities for a total of approximately seven weeks. She was then transferred to a nursing home without acute rehabilitative services. The private review agent, acting on behalf of Connecticut General, denied a request for authorization for continued inpatient rehabilitation care. An expedited appeal, through the insurer’s internal ⁴⁶¹ process, was filed, but acute care was once again denied.

Neither Connecticut General nor its private review agent issued a written decision at the time of the denials. The first written notice was sent a month later, which contained no information regarding the basis for the decision. The complaint filed with the Maryland Insurance Administration requested review of the denial of benefits, and the Administration undertook an investigation. Connecticut General could not provide the Administration with the medical criteria used to deny the requested care as required by § 15-10A-02(f).

Thereafter, the Administration found the following specific violations: Connecticut General had failed to generate a required notice to the member within the required time period, and the notice, when issued, did not include the statutorily required information, § 15 — 10A—02(f),(i), (j); Connecticut General’s private review agent had failed to make an initial determination, and failed to notify the patient or health provider of the denial, within the time prescribed, § 15-10B-08; the insurer had failed to pay benefits for medically necessary services, § 15-10A-04(c); and Connecticut General’s failure to pay was arbitrary or capricious, § 27-303(2). The Administration issued an administrative order directing the insurer to pay for the medical services. The order also assessed a penalty of $125,000 against Connecticut General for the violations of the Insurance Article and for failure to comply with two previous orders of the Commissioner. The sanctions were imposed pursuant to § 4-113(d).

B. In MIA Case 375-7/00, a complaint was filed with the Maryland Insurance Administration on May 31, 2000. Connecticut General had retrospectively denied coverage to an insured party for a one day inpatient hospital stay following a hysterectomy and related surgical procedures. The patient was covered under a group health insurance policy issued by Connecticut General to her husband’s employer, who had established an employee benefit plan, funded by the group insurance policy. The patient’s husband contributed to the ⁴⁶² premium through payroll deductions.

The policy provided comprehensive medical benefits and covered expenses “to the extent that the services or supplies provided were recommended by a Physician, and are essential for the necessary care and treatment of an Injury or a Sickness.” The hospital stay was deemed not medically necessary by the insurer. The denial was made by a pediatrician, even though the patient had undergone gynecological surgery. The patient filed a complaint with the Maryland Insurance Administration following the denial, which then undertook an investigation. As part of this investigation, the Administration referred the file to an Independent Review Organization (IRO), which selects a physician from its panel with the appropriate speciality to review the carrier’s medical necessity determination.

The IRO physician, a gynecologist, determined that the one day hospitalization was medically necessary. The Administration thereafter determined that the insurer had violated state law by failing to pay benefits for medically necessary services. § 15-10A-04(c). In addition, the Administration found that Connecticut General’s denial of benefits was not based on the professional judgment of at least one physician with a certification in the area of the medical service in question, as is required by § 15-10B-07(a)(l). The Administration assessed against Connecticut General an administrative penalty of $2500 for these violations, and ordered the insurer to authorize payment for the hospital stay. ■ C. Asserting that both administrative orders were preempted by ERISA, Connecticut General requested a hearing before the Insurance Administration pursuant to § 2-210(a)(2)(ii).

This resulted in staying the orders pending a hearing. The two cases were consolidated for hearing purposes, and following the hearing, the Insurance Commissioner issued a Final Order and Memorandum concluding that the administrative orders, and the state laws on which they were based, were not preempted by ERISA. ⁴⁶³ Thereafter, Connecticut General filed a petition for judicial review in the Circuit Court for Baltimore County and also requested, under § 2-215(d), (f), a stay of the Commissioner’s orders. The Circuit Court granted the stay, and, after a hearing, reversed those parts of the Commissioner’s orders which required payment for the services. The Circuit Court affirmed those parts of the Commissioner’s orders with respect to administrative penalties but stayed its judgment pending appeal.

Both Connecticut General and the Insurance Commissioner filed notices of appeal, and this Court issued a writ of certiorari prior to proceedings in the Court of Special Appeals. Connecticut General v. Insurance Commissioner, 366 Md. 273 , 783 A.2d 653 (2001).

III

The sole question before us is whether the Maryland health insurance laws at issue are preempted' by ERISA. We shall hold that the state laws, while they relate to ERISA plans, fall under the “savings clause” contained in 29 U.S.C. § 1144 (b)(2), as laws regulating insurance and are, therefore, not preempted. The administrative orders issued by the Insurance Commissioner are enforceable in their entirety. A. ERISA was Congress’s response to the rapid and substantial “growth in size, scope, and numbers of employee benefit plans,” which made them an “important factor” in interstate commerce. 29 U.S.C. § 1001 (a).

ERISA sets “minimum standards ... assuring the equitable character of such plans and their financial soundness.” Ibid. ERISA’s policy was to protect the interests of participants in employee benefit plans “by providing for appropriate remedies, sanctions, and ready access to Federal courts.” 29 U.S.C. § 1001 (b). In an effort to limit differences in administrative requirements imposed on benefits plans, ERISA contains an express preemption provision that it “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit ⁴⁶⁴ plan.” 29 U.S.C. § 1144 (a). A saving clause limits this preemption, however, by stating that “nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” 29 U.S.C. § 1144 (b)(2)(A).

This Court previously considered the scope of ERISA’s savings clause regarding state regulation of insurance in Insurance Commissioner v. Metropolitan Life Ins. Co., 296 Md. 334 , 463 A.2d 793 (1983). In that case we held that a Maryland law that required all group and health insurance policies to provide reimbursement, under certain circumstances, for services performed by duly licensed social workers was “a law ... which regulates insurance within the meaning of ... ERISA, and thus is not preempted by the federal statute.” Insurance Commissioner v. Metropolitan Life Ins.

Co., supra, 296 Md. at 337 , 463 A.2d at 794 (internal quotation marks omitted). The United States Supreme Court has since affirmed that state laws that regulate similar substantive terms of insurance contracts are not preempted by ERISA. See, e.g., Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 , 105 S.Ct. 2380 , 85 L.Ed.2d 728 (1985) (holding that a Massachusetts law that required health insurance policies and benefit plans to provide mental health coverage was not preempted by ERISA).

More recently, in Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 , 122 S.Ct. 2151 , 153 L.Ed.2d 375 (2002), the Supreme Court again considered the issue of state laws that are saved from ERISA preemption as laws regulating insurance. In that case, a Health Maintenance Organization (HMO) challenged an Illinois law requiring an external review by an independent medical expert of a health insurer’s denial of coverage of a medical service as not being medically necessary. 3 If the independent expert found that the service was ⁴⁶⁵ medically necessary, the law required the health insurer to pay for the service under the insurance policy. The United States Supreme Court held that the law, even though it related to an employee benefit plan covered by ERISA, was saved from preemption because it regulated insurance. In addressing the question of which state laws are saved from preemption, Justice Souter for the Court said, “when insurers are regulated with respect to their insurance practices, the state law survives ERISA.” Rush Prudential HMO, Inc. v. Moran, supra, 536 U.S. at-, 122 S.Ct at 2159 , 153 L.Ed.2d at 389 .

In determining whether the Illinois law would survive preemption under ERISA, the Supreme Court began its analysis with a common sense view of the matter, that “ ‘a law must not just have an impact on the insurance industry, but must be specifically directed toward that industry.’” Rush Prudential, ibid., quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 50 , 107 S.Ct. 1549, 1554 , 95 L.Ed.2d 39, 49 (1987). The HMO in Rush Prudential had argued that the state law did not regulate insurance because it was directed at healthcare providers rather than insurers. Nevertheless, the Supreme Court’s “common-sense enquiry” focused on whether the law was directed at entities within the insurance industry that bore risk, as a defining characteristic of an insurer, even if such entities provided healthcare services.

The Court held that an HMO was both an insurer and a healthcare provider. ⁴⁶⁶ The common sense inquiry was satisfied because the Illinois law was directed at organizations that either provided health care plans or arranged for them to be provided, so long as “any part of the risk of health care delivery rest[ed] upon the organization.” Rush Prudential, 536 U.S. at-, 122 S.Ct at 2162 , 153 L.Ed.2d at 393 (internal quotes omitted). The Supreme Court in Rush Prudential then proceeded to use a test based on the McCarran-Ferguson Act to confirm that the Illinois law was aimed at regulating the business of insurance. The McCarran-Ferguson Act delegates to the states the authority to regulate insurance. 4 “A law regulating insurance for McCarran-Ferguson purposes targets practices or provisions that ‘ha[ve] the effect of transferring or spreading a policyholder’s risk; ... [that are] an integral part of the policy relationship between the insurer and the insured; and [are] limited to entities within the insurance industry.’ ” Rush Prudential, 536 U.S. at-, 122 S.Ct at 2163 , 153 L.Ed.2d at 393-394 , quoting Union Labor Life Ins. Co. v. Pireno, 458