Labor's Own Benefits Problems Reach Supreme Court

The U.S. Supreme Court will review a case that involves a question about whether the U.S. Department of Labor created an employee's health coverage headaches or a health carrier erred.

The court has granted certiorari to Health Care Service Corp. vs. Juli A. Pollitt et al., a case involving the "federal preemption" provision of the Federal Employees Health Benefits Act.

FEHBA normally blocks efforts by states to oversee federal employees' health benefits, but a 3-judge panel at the 7th U.S. Circuit Court of Appeals ruled earlier this year that, as a result of earlier Supreme Court rulings, "federal law does not completely occupy the field of health-insurance coverage for federal workers."

The Labor Department may have paid Health Care Service Corp., Chicago, only for family coverage for Juli Pollitt, a federal employee, even though she had asked for family coverage, according to court pleadings.

In July 2007, when Health Care Service, the parent of Blue Cross and Blue Shield of Illinois, found that Pollitt seemed to have only individual coverage, it stopped paying for care for her son and tried to get back all payments made to his providers since 2003.

The company started paying claims again in October 2007, but Pollitt says it did not tell providers of the change.

Pollitt filed a bad-faith complaint against Health Care Service in state court.

Health Care Service succeeded at shifting the case to U.S. District Court. The federal court dismissed the case, saying it was preempted by FEHBA.

The 7th Circuit dismissed the lower-court ruling, saying a conflict between Health Care Service's account of what went wrong and the Labor Department's account of what went wrong was a state-court issue.

A federal district judge cannot accept Health Care Service's account of what went wrong and use that as the basis for removing the case to federal court, the 7th Circuit ruled.

"Disputes about jurisdictional facts must be resolved after a hearing under Fed. R. Civ. P. 12(b)(1)," the 7th Circuit said. "The district court must receive evidence, make appropriate findings, and then either retain or remand the case as the facts require."

"To the extent that HCSC was doing nothing but following the agency's orders, the case belongs in federal court and must be dismissed--not because of 'complete preemption' but because suits related to a federal agency's health-benefits-coverage decisions must name as the defendant the Office of Personnel Management or the employing agency rather than the insurance carrier," the court said. "But if the Department of Labor did not direct HCSC to change Pollitt's coverage, and just paid too little into the fund, then this case must be remanded to state court."

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