State-Law Claims on Guaranteed Renewable Coverage Do Not Involve Federal HIPAA Jurisdiction, Court Rules

Summary: Congress did not provide a federal right to sue under the Health Insurance Portability and Accountability Act (HIPAA), and intended for states to take a key enforcement role. Therefore, a state-law claims does not have to be held in federal court just because the state law incorporated HIPAA's guaranteed renewability provisions.

(Aug. 31, 2001) - A HIPAA preemption ruling regarding guaranteed renewable coverage in the individual market expands the state-law regulation of health insurance, as apparently intended by Congress. This gives individuals the ability to sue under state law for remedies that are not generally available under ERISA (the individual coverage does not implicate ERISA generally, however). In the case, a federal district court in Texas ruled that just because a state-law claim indirectly involved a state statute that incorporated HIPAA's guaranteed renewability provisions does not mean that the case must be heard in federal court. This is particularly the case when Congress did not provide a federal right to sue under HIPAA, indicating that it intended for states to take a key enforcement role. The case is Brock v. Provident America Insurance Co., 144 F. Supp. 2d 652 (N.D. Tex., April 17, 2001).

Facts of the Case

Carol Brock purchased a health insurance policy from Provident America Insurance Co. (PAI) on Aug. 21, 1997. On June 29, 2000, PAI sent Brock a notice that it was canceling the policies of all enrollees in the state -- including hers -- based on HIPAA's guaranteed renewability provisions. Those rules provide that health insurance issuers that offer individual policies must renew coverage at the individual's option unless, among other things, the insurer ceases to offer coverage in that market based on HIPAA's uniform termination provisions and "applicable state law."

As required by HIPAA, PAI sent Brock a cancellation notice 180 days before her policy cancellation date of Jan. 29, 2001. Because Brock was at some point diagnosed with breast cancer, she was unable to purchase new health insurance.

Brock sued PAI in state court for breach of contract and misrepresentation, making two allegations:

PAI neither disclosed nor explained the exceptions to its "guaranteed renewable" coverage as Texas insurance law mandates. That law requires all Texas-based insurers to provide consumers with "a statement of the renewal provision including any reservation by the insurer of a right to change premiums."
PAI misled her into believing that her coverage was renewable without exception. Brock did not contend that PAI's policy cancellation violated the federal HIPAA law, or that state law prevented PAI from canceling her insurance.

PAI sought removal of the case to federal district court, arguing that the case raised federal law issues. Brock sought a remand back to state court.

No Federal Issues Raised

The court noted that to invoke federal jurisdiction, the defendant must show that the state law raises federal-law issues. PAI argued that even though no federal claim existed on the surface of Brock's complaint, an analysis of HIPAA was a substantial and essential element of her claims.

The court noted that the presence of a federal remedy in a statute is a minimum threshold requirement to determine whether Congress intended for federal courts to adjudicate state-court actions. In this case, no private remedy exists; therefore, "that is the end of the issue" as to federal court jurisdiction, the court found.

Furthermore, the court noted that case law in the 5th U.S. Circuit Court of Appeals (of which this court is a part) has held that, as a general principle, a state's incorporation of federal-law standards does not automatically confer jurisdiction over state-law matters to the federal courts.

The court added that even if a federal private right of action is not a requirement for federal jurisdiction, the facts of this case did not prove that Brock's claim contained a substantial question of federal law, despite PAI's contention.

The court noted that the Texas misrepresentation law requires renewal statements "in order to make its consumers aware that the term 'guaranteed renewable' has significant limitations." In the court's view, the "essence" of Brock's claim was that PAI misled her in selling the policy and failed to abide by Texas law requiring a renewal statement. This is misrepresentation and false advertising -- which are clearly state-law matters. Brock did not claim that PAI did not comply with federal regulations in its policy termination, according to the court. Therefore, it ruled that federal law was not a necessary element of her state claim, and federal jurisdiction was inappropriate.

Furthermore, the court noted that HIPAA's statutory language provides that coverage terminations are to be based on HIPAA's termination provisions and applicable state law. This means that PAI was obligated to follow both the federal HIPAA law and state law when terminating insurance coverage. Brock alleged that PAI did not follow state law. Therefore, the court concluded that the proper forum for Brock's claim was state court and remanded the case back to state court.

Implications

The state-law action primarily has implications for insurers and individuals in the individual market. However, it also may affect employers that are allowing employees to buy individual policies through defined contribution plans. In such situations, employees can sue under state law in the individual market over any disputes about those policies.

Excerpted from the September 2001 supplement to Employer's Guide to the Health Insurance Portability and Accountability Act
©Thompson Publishing Group, Inc., 2001. All rights reserved.

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