MA - Consumer Protection Preemption

Protect Private Medicare Enrollees from Marketing Abuses: Limit Federal Preemption

While there have been reforms in the marketing of Private Medicare Advantage (MA)[1] plans,[2] problems remain. Plans continue to use aggressive or fraudulent tactics to enroll Medicare beneficiaries. In some instances, plans have told Medicare beneficiaries that they are required by Medicare to enroll in an MA plan; other plan representatives tell beneficiaries that they are buying only supplementary insurance (Medigap). Beneficiaries with cognitive disabilities such as dementia have been enrolled in plans without the knowledge or consent of their legal representatives.[3]

In addition to the legislative and regulatory changes against fraudulent marketing practices mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MIPPA), federal courts are limiting the reach of federal "preemption" under the Medicare statute.[4] "Preemption" occurs when a federal court determines that it is the court of jurisdiction to hear a case that was originally brought in state court because federal law supersedes state law in the case in question. In the Medicare arena, preemption has largely been at issue when private plans sought to find ways around state consumer protection laws and claims brought against them in state court. One method used by plans to avoid the application of state consumer protection laws is removing cases to federal court. Several decisions show a trend toward narrowing the reach of federal preemption law, allowing consumer protection cases to proceed in state courts.[5] A recent example of this trend is Ackermann v. United Healthcare Service, Inc.[6]

In Ackermann, plaintiffs claimed that a home health agency employee stole Mr. Ackermann's personal information and enrolled him in a Medicare Advantage plan, thereby taking him out of the traditional Medicare program against his will. The Ackermanns brought suit in state court and the defendants tried to have the case removed to federal district court. The federal district court recently remanded the case to state court, citing a lack of jurisdiction. The court stated, "[the] plaintiffs' state law claims…are neither completely preempted by, nor 'inextricably intertwined' with claims under the Medicare Act…."[7]

Complete preemption "is a narrowly drawn jurisdictional rule for assessing federal removal jurisdiction when a complaint purports to raise only state law claims."[8] Complete preemption becomes an issue when, even though a case supposedly concerns only state law, the area of law in question is so heavily pervaded by federal law that the federal court automatically exercises jurisdiction.

Complete preemption is difficult to prove. In Harris v. Pacific Life & Health Insurance,[9] for example, plaintiffs filed an action in state court for common-law fraud and other state law claims arising from the sale of a Medicare insurance policy. The defendants sought to dismiss the case based on preemption or, in the alternative, to remove the case to federal court. In ruling against defendants on the issue of preemption, the Harris court pointed to Geddes v. American Airlines, Inc.,[10] which held that a federal law could substantively displace state law and still not have the force needed to create "federal removal jurisdiction under the doctrine of complete preemption."[11] Harris held that complete preemption was not proper because the state law fraud claims are not preempted by the Medicare Act.

Although the issue of complete preemption of state consumer protection laws against fraudulent MA practices is relatively new, the recent trend in federal court decisions is that the Medicare statute[12] does not allow for complete preemption.

In Ackermann v. United Healthcare Service Inc.,[13] defendants based their arguments for removal to federal court largely on language in the Medicare statute, 42 U.S.C. 1395w-26(b)(3), which states: "The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to [private Medicare] plans which are offered by [Medicare Advantage] organizations under this part." The Harris court interpreted this provision of the Medicare statute as not applying to state common-law claims for purposes of complete preemption. The Ackermann court agreed.

Defendants in Ackermann claimed that the Medicare Act completely preempted state law claims because the plaintiffs' claims concerned the denial of Medicare benefits to be provided by the MA plan under Medicare Part C, and disenrollment from traditional Medicare. The court cited Harris,[14] to show that state law fraud claims are not automatically preempted when there is a provision in a statute that allows federal law to control on most Medicare-related issues.

The court also said that the state law claims brought by the Ackermanns were not "inextricably intertwined" with a Medicare benefits claim. The court stated "plaintiffs are not complaining about the denial of benefits under the Medicare Part C plan."[15] In its holding, the court found that the plaintiffs' claim was not that they were denied a Medicare benefit, but rather that the plaintiffs did not want Medicare Part C (Medicare Advantage) at all. The plaintiffs' claims were based on having been fraudulently enrolled in a plan they did not want. Thus, the court found that there was nothing present to give the federal court subject matter jurisdiction.

The rulings in Ackermann and Harris pave the way for broader use of state consumer protection laws in addressing fraudulent and misleading MA plan enrollment practices. The cases clarify that state consumer protection laws are not necessarily preempted by the Medicare statute. In addition, the cases put Medicare Advantage plans on notice that they can now be held accountable directly to Medicare beneficiaries under state law. As a result, they provide an additional incentive against engaging in the fraudulent marketing practices that have continued despite repeated efforts at reform.

For more information, contact attorney Vicki Gottlich (vgottlich @ medicareadvocacy.org) in the Center for Medicare Advocacy's Washington, DC office at (202) 293-5760.

[1] The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. No. 108-173 (Dec. 8, 2003), Section 201, created the Medicare Advantage program under Medicare Part C. The Medicare Advantage program, which replaced the Medicare+Choice program, sets forth the Medicare program's coordinated care plan options, including Health Maintenance Organizations (HMOs), regional or local Preferred Provider Organizations (PPOs), and other network plans with some exceptions; MA-Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) options; and MA-PFFS and Religious Fraternal Benefit Society plan options. The MMA established a new category of Part C plans, Special Needs MA plans (SNPs).

[2] Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), Pub. L. No. 110-275, (July 2008), Section 103 (Consumer protections against fraudulent marketing practices, effective during federal fiscal year 2009.). See also the CMA Weekly Alert explaining the changes, "Important New Medicare Law Provisions: a Beneficiary's Perspective (Part 1)," http://www.medicareadvocacy.org/Print/2008/Reform_08_08.07.MIPPAKeyProvisions.htm. See also, 73 Fed. Reg. 54220, adding 42 C.F.R. §422 Subpart V, Medicare Advantage Marketing Requirements.

[3] Patricia Barry, "Don't Fall for the Hard Sell on Medicare Enrollment Plans; Some beneficiaries have been duped into buying Medicare Advantage plans, "AARP Bulletin (Oct. 1, 2007), http://bulletin.aarp.org/yourhealth/medicare/articles/don_t_fall_for_the.html

[4] 42 U.S.C. §1395w-26(b)(3).

[5] Williams v. Viva Health, Inc., 2008 WL 220799 (M.D. Ala. 2008) (The court found that there was no complete preemption. The case was remanded to the state court. The court also stated that finding complete preemption is rare.). Lassiter v. Pacificare Life & Health Ins. Co., 2007 WL 4404051 (M.D. Ala. 2007) (The court found that there was no complete preemption. The case was remanded to the state court.). Dial v. Healthspring of Alabama, Inc., 612 F. Supp. 2d 1205 (S.D. Ala. 2007) (Defendants removed action to state court. The District Court found that there was jurisdiction and denied plaintiffs' motion for remand. Plaintiffs sought and were granted an interlocutory appeal (before a final decision by the trial court). Plaintiffs also sought a supplemental motion for remand. Because the interlocutory appeal was granted, the supplemental motion for remand was denied. Dial v. Healthspring of Alabama, Inc., 541 F. 3d 1044 (11th Cir. 2008). (On the interlocutory appeal, the Circuit Court found that there was no federal jurisdiction.). Uhm v. Humana Inc., 540 F.3d 980 (9th Cir. 2008) (The court found that state claims were preempted, but a re-hearing was granted in this case on July 22, 2009). Zolezzi v. PacifiCare, 105 Cal. App. 4th 573 (Cal. App. 4th Dist., 2003) (The court found that the Medicare statute did not preempt the state consumer protection statutes).

[6] Ackermann v. United Healthcare Service Inc., Slip Copy 2009 WL 1769393 (S.D. Miss. 2009). The U.S. District Court for the Southern District of Mississippi recently held that state law claims against PacifiCare Life & Health Insurance Co. (PacifiCare), which is owned by United, could not be preempted by federal law. The court ruled that the case could not be removed to federal court on federal preemption grounds.

[7] Id.

[8] Harris v. Pacificare Life & Health Ins. Co., 514 F. Supp. 2d 1280 (M.D. Ala. 2007).

[9] Harris, 514 F. Supp. 2d 1280 (M.D. Ala. 2007).

[10] Geddes v. American Airlines, Inc., 321 F. 3d 1349 (11th Cir. 2003). An employee filed state tort claims against his employer. The employer removed the case to a federal court. The United States District Court for the Southern District of Florida refused the employee's request to remand the case, stating that a federal statute, the Railway Labor Act (RLA), created complete preemption. The United States Court of Appeals for the Eleventh Circuit disagreed.

[11] Harris, 514 F. Supp. 2d 1280 (M.D. Ala. 2007).

[12] 42 U.S.C. 1395w-26(b)(3)

[13] Ackermann v. United Healthcare Service Inc., Slip Copy 2009 WL 1769393 (S.D. Miss. 2009).

[14] Harris v. Pacificare Life & Health Ins. Co., 514 F. Supp. 2d 1280 (M.D. Ala. 2007).

[15] Ackermann, Slip Copy 2009 WL 1769393 (S.D. Miss. 2009).