§ 5.12 Federal Employee Health Benefits Act (“FEHBA”) Plan Recovery Rights

JurisdictionArizona

§ 5.12 – Federal Employee Health Benefits Act (“FEHBA”) Plan Recovery Rights

Enacted in 1959, FEHBA, 5 U.S.C. §§ 8901 to 8913, is a program to provide federal employees, retirees, and their eligible family members with subsidized healthcare benefits from private health insurers. See generally 5 C.F.R §§ 890.101 to 890.1308. The United States, therefore, does not serve as an insurer under the FEHBA program, but it does regulate otherwise private FEHBA plans.

FEHBA authorizes the Office of Personnel Management (“OPM”), which serves as the federal government’s human resource agency, to contract with qualified private health insurance carriers to provide healthcare benefits to eligible enrollees and to supervise the administration of FEHBA plans—called “Health Benefit Plans.” See 5 U.S.C. § 8902(a); 5 C.F.R §§ 890.201 to 890.205.

FEHBA requires these health insurance carriers to issue a comprehensive “Statement of Benefits” that includes various terms and conditions related to the plan. 5 U.S.C. § 8902(d). Each Health Benefit Plan enrollee, in turn, receives the Statement of Benefits conveying information about the terms and conditions of coverage under the plan. 5 U.S.C. § 8907(b).

In many ways, FEHBA is structurally similar to Medicare Advantage. See supra § 5.10. Like Medicare Advantage, for example, FEHBA contemplates health benefits being provided through contractual arrangements with private health insurers subject to the supervision of the federal government. Also like Medicare Advantage, as interpreted by Parra v. PacifiCare of Ariz., Inc., 715 F.3d 1146 (9th Cir. 2013), FEHBA does not by itself create federal subject matter jurisdiction (i.e., a private right of action) for insurance carriers seeking subrogation or reimbursement and so, absent diversity jurisdiction, carriers must assert contractual recovery rights in state court. Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 683 (2006).

But there are differences too. Unlike Medicare Advantage, for example, the federal government pays approximately 75% of FEHBA premiums with enrollees paying the balance. See 5 U.S.C. § 8906(b). These premiums are deposited into a special Treasury Fund, called the Federal Employees Health Benefits Fund. See 5 U.S.C. § 8909(a). Unlike Medicare Advantage, where the government pays health insurance carriers a fixed amount each month per enrollee, FEHBA carriers instead draw against the special Treasury Fund to pay for covered healthcare benefits provided to enrollees. See 48 C.F.R.
§ 1632.170(b).

These differences seem to have led to the OPM’s involvement in recently establishing expansive FEHBA plan recovery rights for participating health insurance carriers. See infra § 5.12(a). The OPM clearly sees such recovery rights as an opportunity to increase the balance of the Treasury Fund. See McVeigh, 547 U.S. at 685 (“Pursuant to the OPM–BCBSA master contract, reimbursements obtained by the carrier must be returned to the Treasury Fund.”).

a. The Scope of FEHBA Plan Recovery Rights

FEHBA itself “contains no provision addressing carriers’ subrogation or reimbursement rights.” McVeigh, 547 U.S. at 697. As a result, FEHBA plan recovery rights are contract-derived and based upon terms of the Statement of Benefits. See id. at 688-89. As discussed in more detail below, however, the OPM now requires all Health Benefit Plans to include subrogation and reimbursement provisions in favor of participating health insurance carriers.

i. Determining the Terms of the Plan

The terms of a FEHBA plan are found in the Statement of Benefits. See id. at 698 (“[T]he BCBSA Plan’s statement of benefits links together the carrier’s right to reimbursement from the insured and its right to subrogation.”). In fact, FEHBA itself provides “[e]ach contract under this chapter shall contain a detailed statement of benefits offered and shall include such maximums, limitations, exclusions, and other definitions of benefits as the [OPM] considers necessary or desirable.” 5 U.S.C. § 8902(d).

Although Congress had not included a provision in the underlying Act either requiring or barring subrogation or reimbursement provisions, in mid-2015 the OPM promulgated new regulations, which require all Health Benefit Plans to include provisions allowing FEHBA insurance carriers “to pursue subrogation and reimbursement recoveries.” 5 C.F.R. § 890.106(a); Final Rule, Federal Employees Health Benefits Program; Subrogation and Reimbursement Recovery, 80 Fed. Reg. 29203 (May 21, 2015).

Pursuant to these regulations, the OPM requires Health Benefit Plans contain contractual rights for insurance carriers to recover “all amounts available to or received by or on behalf of the covered individual by judgment, settlement, or other recovery” to the extent of the amount of benefits that “have been paid or provided by the carrier.” 5 C.F.R. § 890.106(f). The regulations provide that carriers will have the right to recover...

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