1 Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1338 (5th Cir. 1992).

2 29 U.S.C. §§ 1001-1461 (1994).

3 Fisk, Catherine L., Lochner Redux: The Renaissance of Laissez-faire Contract in the Federal Common Law of Employee Benefits, 56 Ohio St. L.J. 153Google Scholar, 169 n.57 (1995) (citing Gordon, Michael S., Overview: Why Was ERISA Enacted, in U.S. Senate Special Comm. On Aging, 98Th Cong., 2D Sess., The Employee Retirement Income Security Act Of 1974: The First Decade 25 (Comm. Print 1984).Google Scholar

4 For the purposes of this Article, managed care organization (MCO) means an organization that accepts a premium or capitation payment for providing comprehensive, medically necessary health care.

5 The Health Maintenance Organization Act of 1973 encourages the voluntary formation of federally defined health maintenance organizations (HMOs), but does not regulate organizations that are not brought within its purview. See 42 U.S.C. §§ 300e to 300e-17 (1994). HMOs are health care delivery and underwriting organizations that offer benefits prescribed by state and federal law to subscribers on a prepaid basis.

6 It is reported that more than 58 million Americans are enrolled in prepaid health plans. See Freudenheim, Milt, Market Place; HMOs Are Having Trouble Maintaining Financial Health, N.Y. Times, June 19 , 1996, at D12.Google Scholar

7 Conventional insurance and managed care companies force that bidding out of the provider market and into the underwriting market.

8 California Proposition 219 would have imposed limitations and procedures in managed care utilization reviews. Part of the November 1996 California voter referendum, the measure failed to pass.

9 See generally Sparer, Michael S., Commentary, Great Expectations: The Limits of State Health Care Reform, Health Aff., Winter 1995, at 191, 193CrossRefGoogle ScholarPubMed (describing obstacles to state health reform).

10 For instance, the fact that Congress has power under Article I to regulate commerce among the states does not mean that the states may not also regulate such commerce, so long as such regu lation does not conflict with congressional legislation or burden interstate commerce.

11 See generally Pike v. Bruce Church, 397 U.S. 137 (1970) (invalidating a state official’s or der regarding cantaloupe packaging as burdensome on interstate commerce); South Carolina State Highway Dep't v. Barnwell Bros., 303 U.S. 177 (1938) (upholding a state’s rule limiting the weight and width of vehicles using its highways and bridges as a reasonable safety measure); Eule, Julian N., Laying the Dormant Commerce Clause to Rest, 91 Yale L.J. 425 (1982)CrossRefGoogle Scholar (proposing a diminished role for the dormant commerce clause); Tushnet, Mark, Rethinking the Dormant Commerce Clause, 1979 WIs. L. Rev. 125Google Scholar (arguing for a smaller judicial role in state commerce legislation).

12 See Tushnet, supra note 11, at 126-27.

13 In Kassel v. Consolidated Freightways Corp., 450 U.S. 662, 670 (1981), Justice Powell noted:

14 The two constitutional grounds for invalidation of the exercise of concurrent regulatory authority by the states—conflict preemption and commerce clause preemption—sometimes seem to involve the same weighing of local and national interests. See Note, Pre-emption as a Preferential Ground: A New Canon of Construction, 12 Stan. L. Rev. 208, 220-21 (1959)CrossRefGoogle Scholar; see also City of Bur- bank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 633 (1973) (invalidating local noise abatement ordinance as preempted by Federal Aviation Act).

15 29 U.S.C. § 1144(a) (1994).

16 Shaw v. Delta Airlines, Inc., 463 U.S. 85, 95 (1983).

17 See, e.g., Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977).

18 See, e.g., id. For a discussion of the implications of this assumption, see Gardbaum, Stephen, Rethinking Constitutional Federalism, 74 Tex. L. Rev. 795 (1996)Google Scholar. Gardbaum contends that there are constitutional constraints on Congress’s powers of express preemption based on principles of federalism emanating from the Constitution which require that Congress engage in a deliberative process weighing the consequences of eliminating concurrent authority and the need for national uniform legislation before expressly preempting state law. See id. at 823-28. This Article contends that such limitations should be applied as a matter of sound jurisprudence rather than constitutional mandate.

19 See generally Fisk, Catherine L., The Last Article About the Language of ERISA Preemption? A Case Study of the Failure of Textualism, 33 Harv. J. On Legis. 35, 38-39 (1996)Google Scholar (discussing how textual interpretations affect the development of law and public policy).

20 Shaw, 463 U.S. at 97-98 (considering whether state law prohibiting sex-based discrimination fell inside or outside the express preemption provision of ERISA).

21 See, e.g., District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 129 (1992).

22 Shaw, 463 U.S. at 96-97 n.16.

23 115 S. Ct. 1671, 1677(1995).

24 See id. at 1679.

25 Id. at 1672.

26 See id. at 1681-82. The Court notes that the same Congress which enacted the ERISA pre-emption provision enacted the National Health Planning and Resource Development Act of 1974, Pub. L. No. 93-641, 88 Stat. 2225, §§ 1-3, repealed by Pub. L. No. 99-660, tit. VII, § 701(a), 100 Stat. 3799 (1987), which sought to encourage the kind of cost-containment regulation involved in New York’s surcharge system. See Travelers, 115 S. Ct. at 1672.

27 Justice Souter, writing for the majority, observed that “[i]f ‘relate to’ were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes pre-emption would never run its course, for ‘really, universally, relations stop nowhere.’” Id. at 1677 (quoting Henry James, Roderick Hudson at xli (World’s Classics 1980)).

28 This exercise is much like the effort to fathom the intent of the Constitution’s framers regarding the permissibility of state regulation of something like cloning, that they could not have imagined. The Court supports its assumptions about the 1974 intentions of Congress with citation to Congress’s almost simultaneous passage of the National Health Planning and Resources Development Act of 1974, which recognized state rate-making authority over the provision of health services without requiring exemption from ERISA preemption. See id. at 1681-82. That the Act was completely repealed is not mentioned, presumably because it was thought irrelevant for interpretative purposes. Neither the justices nor we can plumb the depths of that intent for there was none. Our imagining of it is pure fiction.

29 See id. at 1675.

30 See Gordon, supra note 3, at 6-25.

31 See id. at 19-20.

32 See id. at 7 (noting that the selection of the Department of Labor as the administering agency for ERISA “was intended to validate the Labor interest in benefit fund regulation”).

33 29 U.S.C. § 1144(b)(1) (1994).

34 See id. § 1144(b)(2).

35 See Shaw v. Delta Airlines, Inc., 463 U.S. 85, 98-100 nn.18-20 (1983) (analyzing legislative history of preemption provision). But see FMC Corp. v. Holliday, 498 U.S. 52, 67 (1990) (Stevens, J., dissenting) (“Although the compromise that produced the statutory language ‘relate to any em ployee benefit plan’ is not discussed in the legislative history, the final version is perhaps best ex plained as an editorial amalgam of the two bills rather than as a major expansion of the section’s coverage.”).

36 See Fox, Daniel M. & Schaffer, Daniel C., Semi-Preemption in ERISA: The Legislative Proc ess and Health Policy, 7 Am. J. Tax Pol'y 47, 48-52 (1988).Google Scholar

37 Nor can ERISA’s broad preemptive sweep be justified as necessary for the growth of multi- state health insurers and MCOs, which were largely undeveloped at the time the ERISA-preemption scheme was conceived. Congress did not address that issue, and to the extent that HMOs were being developed, they were largely regulated by state insurance laws and hence excepted from ERISA’s preemptive effect.

38 See supra Part I.A.

39 See supra Part I.A.

40 Many small employers can only “afford" to self-insure because they can purchase stop-loss insurance to protect them against certain large losses. States have an interest in assuring employees whose benefits are underwritten by stop-loss insurance that those insurance companies do not as sume unacceptably large risks from “self-insuring" employers.

41 An exposition of those principles is beyond the scope of this Article, but they would include the principles used to determine whether state law burdens interstate commerce. See generally Tribe, Laurence H., American Constitutional Law § 6-13, at 436 (2d ed. 1988)Google Scholar (describing elements considered by the Court: the distinction between economic and social regulation, the stress on local concerns, and the availability of less restrictive alternatives).

42 See New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 115 S. Ct. 1671, 1676(1995).

43 See supra Part LA.

44 See supra Part LA.

45 See Southern Pac. Co. v. Arizona ex rel. Sullivan, 325 U.S. 761, 766 (1945).

46 See Jones v. Rath Packing Co., 430 U.S. 519, 526, 543 (1977); Hines v. Davidowitz, 312 U.S. 52, 67(1941).

47 See,e.g., Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 737 (1985) (noting that the rejection of conflict-based analysis of the “relate to" general preemption provision in Shaw does not preclude a conflict-based analysis of the application of the “savings clause”); see also John Han cock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 114 S. Ct. 517, 540 (1993) (noting that ERISA leaves room for dual federal and state regulation but calls for federal supremacy if the two regimes cannot be harmonized); FMC v. Holliday, 498 U.S. 52, 72 (1990) (Stevens, J., dissenting) (“While the saving clause ... exempts from the pre-emption clause all state laws that have the broad effect of regulating insurance, the deemer clause simply allows pre-emption of those state laws that expressly regulate insurance.”).

48 See Travelers, 115 S. Ct. 1671, 1677 (“The goal was to minimize the administrative and fi nancial burden of complying with conflicting directives among States or between States and the Federal Government.”).

49 Under traditional fee-for-service (FFS) payment structures, providers had an incentive to overprovide insurance subsidized care. Capitated managed care arrangements, on the other hand, create the reverse incentive for providers to underprovide care. See generally Malinows, kiMichael J., Capitation, Advances in Medical Technology, and the Advent of a New Era in Medical Ethics, 22 Am. J.L & Med. 331 (1996)CrossRefGoogle Scholar (contrasting FFS and managed care regimes).

50 See id. at 347.

51 29 U.S.C. § 1144(a) (1994).

52 Id. §§ 1001-1461.

53 The Supreme Court has stated, with respect to ERISA’s preemption provision, that “[sjection 514(a) was intended to ensure that plans and plan sponsors would be subject to a uniform body of benefit law; the goal was to minimize the administrative and financial burden of complying with conflicting directions among the States or between States and the Federal Government.” Ingersoll- Rand Co. v. McClendon, 498 U.S. 133, 142 (1990).

54 In 1993, 69% of employees at companies with 100 or fewer employees were covered by em ployer-based health insurance and 83% of employees at larger companies had employer-based cov erage. See Gary A. Francesconi, Note, ERISA Preemption of “Any Willing Provider" Laws—An Essential Step Toward National Health Care Reform, 73 Wash. U. L.Q. 227, 228 n.7 (1995)Google Scholar. In 1991, of the 212 million Americans covered by private health insurance, 67% obtained such cover age through an employer. See id. (citing Ernst & Young, health care data reference card (Dec. 1993)).

55 29 U.S.C. § 1144 (1994). ERISA governs welfare benefit plans, including health plans, that are established or maintained by an employer for the purpose of providing medical, surgical or hospital care benefits. See id. § 1002(1).

56 U.S. Const, art. VI. See generally Tribe, supra note 41, § 6-26, at 481.

57 See Tribe, supra note 41, § 6-26, at 481.

58 See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). As Justice Blackmun subsequently observed:

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 745 (1985).

59 Metropolitan Life, 471 U.S. at 739. For a detailed analysis of the legislative history, see Shaw v. Delta Airlines, Inc., 463 U.S. 85, 98-100 nn.18-20 (1983).

60 See 29 U.S.C. § 1144(a) (“preemption clause”).

61 See id. § 1144(b)(1) (“saving clause”).

62 See id. § 1144(b)(2) (“deemer clause”).

63 See, e.g., Standard Oil Co. of California v. Agsalud, 633 F.2d 760 (9th Cir. 1980).

64 See generally Sparer, supra note 9, at 193.

65 See, e.g., Dearmas v. Av-Med., Inc., 865 F. Supp. 816 (S.D. Fla. 1994).

66 Shaw v. Delta Airlines, Inc., 463 U.S. 85, 97 (1983).

67 See Mackey v. Lanier Collection Agency & Serv., 486 U.S. 825 (1988) (Georgia statute barred garnishment of ERISA benefits); see also District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 (1992) (District of Columbia law required employers to provide health insurance coverage as broad as that given under workers’ compensation laws).

68 Corcoran v. United Healthcare, Inc., 965 F.2d 1321 (5th Cir. 1992).

69 Settles v. Golden Rule Ins. Co., 927 F.2d 505 (10th Cir. 1991) (ERISA preempts common law claims for death of health plan beneficiary who suffered heart attack when wrongly informed his coverage was terminated).

70 Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137 (1990) (state common law cause of ac tion seeking damages for wrongful discharge to avoid paying pension benefits related to a qualified plan and thus preempted by ERISA).

71 Ricci v. Gooberman, 840 F. Supp. 316, 317 (D.N.J. 1993); Dukes v. United States Health Care Sys., 848 F. Supp. 39, 43 (E.D. Pa. 1994) (holding both vicarious and direct causes of action against an HMO were preempted by section 514), rev'd on other grounds, 57 F.3d 350 (3d Cir. 1995) (holding district court lacked removal jurisdiction to determine preemption issue).

72 115 S. Ct. 1672 (1995).

73 See id. at 1675.

74 See id.

75 See id. The Court emphasized the judicial presumption against federal preemption in areas of local concern, such as health care, but left open the possibility of preemption when state law has an indirect but “acute" effect on health plans. See id. at 1679.

76 Id. at 1677-78.

77 See id. at 1679-80.

78 See id. at 1678.

79 The Court distinguished Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724 (1985), in which it had found that a state law mandating coverage for mental health benefits imposed a substantive benefit requirement on ERISA plans and thus “related to" qualified plans. See Travelers, 115 S. Ct. at 1679.

80 See Travelers, 115 S. Ct. at 1674.

81 Cf. id. at 1679 (noting that state regulation schemes with indirect economic effects are not preempted by ERISA).

82 See Macey, Jonathan R. & Macey, Geoffrey P., The McCarran-Ferguson Act of 1945: Recon- ceiving the Federal Role in Insurance Regulation, 68 N.Y.U. L. Rev. 13, 14 (1993).Google Scholar

83 29 U.S.C. § 1144(b)(2)(A) (1994).

84 See Francesconi, supra note 54, at 237.

85 See Metropolitan Life, 471 U.S. at 724. In 1993, states regulated only 24% of the total health care insurance market, due largely to Medicare, Medicaid and ERISA coverage. See U.S. Gen. accounting office, health insurance regulation: wide variations in states’ authority, oversight and resources, GAO/HRD-94-26 (Dec. 27,1993).

86 See Metropolitan Life, 471 U.S. at 743.

87 See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982); Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 231-33 (1979).

88 See Macey & Miller, supra note 82, at 47.

89 See U.S. Dep't of Treasury v. Fabe, 508 U.S. 491 (1993), on remand, 9 F.3d 1548 (6th Cir. 1993) (finding Ohio law giving preference to policyholders of insolvent insurance companies not preempted by conflicting federal statutory preference because it was a law regulating the business of insurance within the meaning of the McCarran-Ferguson Act’s provision recognizing the state’s authority to regulate insurance).

90 See Farmer v. Monsanto Co., 517 S.W.2d 129, 133 (Mo. 1974) (overturning a lower court decision imposing $185 million in penalties on Monsanto Company for providing a self-funded medical benefit plan without obtaining a license to do business as an insurance company). There was general concern at the time that insurance departments would seek to replace premium tax reve nues lost when employers turned to self-insurance by taxing self-insuring companies like Monsanto. See Conison, Jay, ERISA and the Language of Preemption, 72 Wash. U. L.Q. 619, 648-49 (1994).Google Scholar

91 See 29 U.S.C. § 1144(b)(1) (1994).

92 See FMC v. Holliday, 498 U.S. 52 (1990); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 738 (1985).

93 In Holliday, the Court examined a state law that precluded any program, group contract or arrangement paying benefits from exercising subrogation rights arising out of a tort recovery. See id. at 54. The law was challenged by a self-insured plan, and the Court held the law was preempted by virtue of the deemer clause. See id. at 65.

94 Interpreting state laws mandating health insurance benefits as laws regulating insurance, the Supreme Court noted that the deemer clause

Metropolitan Life, 471 U.S. at 747.

95 See FMC Corp. v. Holliday, 498 U.S. 52 (1990) (Stevens, J., dissenting). See generally Fox & Schaffer, supra note 36, at 47-52.

96 This “semi-preemption" of self-insuring employers has increased their number because such employers seek to avoid mandated benefits, premium taxes, licensure, equal treatment of employees in different states, and to gain the profit to be made from high interest rates on retained earnings. See Fox & Schaffer, supra note 36, at 47-52.

97 Cf. Sullivan, Cynthia B. et al., Employer Sponsored Health Insurance in 1991, Health Aff., Winter 1992, at 172, 172.CrossRefGoogle ScholarPubMed

98 See id. at 176-77.

99 “Stop loss insurance is acquired by a self-insurer to protect against excessive claims. A stop loss insurer reimburses a self-insured for all or an agreed upon portion of actual claims that exceed an amount preset by the insurer and self-insured.” Reich v. Lancaster, 55 F.3d 1034, 1041 n.4 (5th Cir. 1995). See generally Russ, Lee R. & Russ, Thomas F., Couch On Insurance § 1:33 (3d ed. 1995).Google Scholar

100 See, e.g., Thompson v. Talquin Bldg. Prods. Co., 928 F.2d 649, 653 (4th Cir. 1991) (self- insured plan with stop-loss insurance for claims above $25,000 is self-funded for purposes of the deemer clause because the employer insured employees’ liability for medical expenses and the rein surer merely insured the employer); Drexelbrook Eng'g Co. v. Travelers Ins. Co., 710 F. Supp. 590, 595 (E.D. Pa. 1989) (stop-loss insurance coverage did not prevent a self-insured plan from enjoying protection of the deemer clause).

101 Nevertheless, some courts seem to hold that state laws governing this reinsurance sold to “self-insured plans" are free of ERISA preemption. See, e.g., Union Health Care, Inc. v. John Alden Life Ins. Co., 908 F. Supp. 429, 436 (S.D. Miss. 1995) (remanding state contract action by ERISA health plan against reinsurer to state court finding that ERISA did not preempt the claims).

102 See Fox & Schaffer, supra note 36, at 47-52.

103 See DeBuono v. NYSA-ILA Med. & Clinical Servs. Fund, 74 F.3d 28 (2d Cir.), cert. granted, 117 S. Ct. 292 (1996) (granting certiorari to consider whether New York’s tax on plan- owned hospitals is preempted by ERISA).

104 See Victor Fuchs, The Health Economy 17 (1986).

105 See Fox & Schaffer, supra note 36, at 49.

106 See id. at 50.

107 See id. at 49. Unions and other interest groups wanted to preclude state bar associations from dictating the terms of prepaid legal service plans offered as a welfare benefit by employers through state regulation. See id.

108 See id. at 50.

109 See generally id. at 47-52.

110 “I am persuaded that Congress did not intend this clause to cut nearly so broad a swath in the field of state laws as the Court’s expansive construction will create.” FMC Corp. v. Holliday, 498 U.S. 52, 66 (1990) (Stevens, J., dissenting).

111 115 S. Ct. 1672(1995).

112 See id. at 1679.

113 Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1331 (5th Cir. 1992).

114 Metropolitan Life Ins. v. Massachusetts, 471 U.S. 724 (1985).

115 United Health Servs. v. Upstate Admin. Servs. Inc., 573 N.Y.S.2d 851, 854 (Sup. Ct. 1991).

116 Cf. NYSA-ILA Med. & Clinical Servs. Fund v. Axelrod, 27 F.3d 823 (2d Cir. 1994), vacated, 115 S. Ct. 1671 (1995), reaff'd, 74 F.3d 28 (2d Cir. 1996) (tax on gross receipts from patient care services of all hospitals and medical facilities to fund a high risk pool was preempted when directly applied to jointly administered, multi-employer welfare benefit trust fund serving longshore workers and their dependents exclusively).

117 Altogether, 43 states have adopted laws to facilitate more adequate coverage for small business employees. See U.S. Gen. Accounting Office, Access To Health Insurance: States Efforts To Assist Small Businesses, Gao/hrd-92-90 (May 14,1992).

118 Proposition 216 on the California ballot in November 1996 evidenced that fact. Although rejected, the proposition would have required HMOs to obtain a second opinion before denying services, prohibited HMOs from imposing “gag orders" on physicians (limiting the information they can give to patients), and proscribed the use of financial incentives for doctors to deny care. See, e.g., Reuben, Richard C., In Pursuit of Health, A.B.A. J., Oct. 1996, at 55, 58.Google Scholar

119 See 42 U.S.C. §§ 300e to 300e-17 (1994).

120 See, e.g., Pa. Stat. Ann. tit. 40, §§ 1550-1567 (1995).

121 See id.; Furrow, Barry ET AL., Health Law § 11-11(b) (1995)Google Scholar; see also Jordan v. Group Health Ass'n, 107 F.2d 239, 247 (D.C. Cir. 1939) (holding that HMO-like group practice was not subject to insurance regulation though it assumed risk, because the group’s primary purpose was to deliver health services).

122 See Overbay, Allison & Hall, Mark, Insurance Regulation of Providers That Bear Risk, 22 Am. J.L. & Med. 361, 375 (1996).CrossRefGoogle ScholarPubMed

123 See id.

124 See Furrow Et Al., supra note 121, § 11-11(b).

125 It can be argued that an employee benefit plan that contracts with an MCO to provide promised benefits is not a self-insured plan if enough underwriting risk is born by the MCO.

126 State regulation of solvency is part of the traditional regulation of insurance saved from ERISA preemption and state regulation of quality health care in the state does not “relate to" ERISA plans sufficiently to trigger preemption. As Justice Souter observed in Travelers, “[n]othing in the language of the Act or the context of its passage indicates that Congress chose to displace general health care regulation, which historically has been a matter of local concern.” Travelers, 115 S. Ct. at 1680. On the other hand, picking up the failed arguments in Metropolitan Life, such regulation could be characterized as public health regulation and thus preempted insofar as it “relates to" ERISA plans.

127 The District of Columbia Council recently passed legislation setting standards for the for mation, operation and regulation of HMOs. See District of Columbia: D.C. Council Approves Bill to Set Standards for HMO Formation, Operation, 5 Health L. Rep. (BNA) No. 48, at d22 (Dec. 12, 1996)Google Scholar. Interestingly, the legislation would require employers who offer health benefit plan coverage through an HMO also to offer a point of service option. See id. Applied to self-insuring employers, this requirement would seem to run afoul of the deemer clause.

128 Several states have enacted laws requiring hospitals to provide new mothers at least forty- eight hours of care after delivery. See, e.g., Oregon: ‘Patient Protection’ Bill Passes House, Ex pected to be Signed Soon by Governor, 6 Health L. Rep. (BNA) No. 24, at d27 (June 12, 1997)Google Scholar. These laws essentially impose mandatory benefit requirements on insurance companies, HMOs and self-insuring employers alike, and thus could be challenged as preempted by ERISA. Those who oppose preemption maintain that such laws are not “related to" ERISA health plans, but, in the words of the Travelers opinion, are essentially “quality standards ... in one subject area of hospital services.” Travelers, 115 S. Ct. 1671, 1679 (1995). As such, they have only an indirect economic effect on plans, which the Travelers Court found it unlikely Congress meant to preempt. In any event, congressional prohibition of “drive-through deliveries" in the Kennedy-Kassebaum legisla tion moots the. point. For a discussion of the Kennedy-Kassebaum bill, see infra Part IV.D.

129 Most state HMO laws require qualified HMOs to provide comprehensive medical and other health services.

130 See Furrow ET Al., supra note 121, § 11 -4(b) (reporting that as of 1989, state governments had imposed 732 mandates).

131 In Metropolitan Life Insurance Co. v. Massachusetts, the Supreme Court addressed whether Massachusetts’ requirement that all insurance companies provide certain mental health benefits was preempted by ERISA. 471 U.S. 724, 727 (1985). The Court found that the regulation had the req uisite effect on ERISA health plans to be “related to" ERISA plans. See id. at 739. The Court then applied the McCarran-Ferguson three-prong test to determine whether benefit coverage was part of the business of insurance that the states may regulate. See id. at 743. Finding that it was, the Court held the mandated benefit law was saved from preemption. See id. at 744. Metropolitan had argued that the mandated benefits laws were public health regulation, not the regulation of insurance and thus “related to" ERISA plans. See id. at 741. The Court rejected this argument and in Travelers indicated that most public health regulation will not be viewed as “related to" ERISA plans. See Travelers, 115 S. Ct. at 1680.

132 Preferred Provider Organizations (PPOs) vary broadly in the kinds of services they offer, the level of benefits and the way they pay providers.

133 See Any Willing Provider Laws Spreading, Managed Care L. Outlook, July 1994, at S4- 5.Google Scholar

134 See Furrow Et Al., supra note 121, § 11-12, at 60.

135 See generally Recent Legislation, Arkansas Requires HMOs to Accept Any Provider Willing to Join Their Networks: Patient Protection Act, 1995, 109 HARV. L. Rev. 2122 (1996); Francesconi, supra note 54, at 227.

136 See, e.g., VA. Code Ann. § 38.2-3407 (Miehie 1994).

137 995 F.2d 500, 502 (4th Cir. 1993).

138 See supra Part II.B.

139 See Texas Pharmacy v. Prudential Ins. Co. of Am., 907 F. Supp. 1019, 1025-26 (W.D. Tex. 1995) (holding Texas’s any willing provider law saved from preemption in part because it excludes self-insured plans from regulation).

140 82 F.3d 642, 650 (5th Cir. 1996).

141 See id. at 647-49.

142 See, e.g., Zuniga v. Blue Cross & Blue Shield of Mich., 52 F.3d 1395 (6th Cir. 1995).

143 680 A.2d 127, 131 (Conn. 1996).

144 See id. at 133.

145 See id. at 144.

146 See, e.g., Stroker v. Rubin, 1994 WL 71969L (E.D. Pa. Dec. 22, 1994); Visconti v. U.S. Health Care, 857 F. Supp. 1097 (E.D. Pa. 1996).

147 Independence HMO v. Smith, 733 F. Supp. 983, 987 (E.D. Pa. 1990). See generally Dorros, Torin A. & Stone, T. Howard, Implications of Negligent Selection and Retention of Physicians in an Age of ERISA, 21 Am. J.L. & Med. 383 (1995).CrossRefGoogle Scholar

148 See, e.g., Rebaldo v. Cuomo, 749 F.2d 133 (2d Cir. 1984).

149 See id. at 137.

150 For instance, in Rebaldo v. Cuomo, the Second Circuit reversed a lower court’s holding that New York’s hospital rate-setting program was preempted by ERISA. See id. at 140. The appeals court held ERISA did not preempt the law, despite the fact that the law prohibited hospitals from negotiating with self-insuring employers for rates lower than prevailing discounted rates with Blue Cross. See id. at 138. In an effort to control health care costs in 1982, New York expanded its 1970 demonstration hospital rate-setting program approved for Medicare reimbursement by the Secretary of Health and Human Services (HHS) as authorized by Congress. See id. at 136. In reaching its decision, the court relied, in part, on its review of the ways in which Congress had sought to control costs of Medicare. See id.

151 See id. at 139.

152 Blue Cross & Blue Shield v. Neilsen, 917 F. Supp. 1532, 1539-42 (N.D. Ala. 1996).

153 See id. at 1542.

154 See id. at 1540-41.

155 See id.

156 See discussion supra Part III.B.

157 481 U.S. 41 (1987).

158 See id. at 57.

159 See id. at 42. The Court reiterated its rulings that state laws referring to or having a con nection with qualified plans relate to them within the meaning of the ERISA preemption provision, and found the bad faith claim affected claims administration and, therefore, related to the plan. See id. at 46-47 (citing Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985); Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983)). Furthermore, the common law bad faith action could not be considered the regulation of insurance, because it was not specifically directed toward the insurance industry, and because it did not regulate “insurance,” as defined by the McCarran-Ferguson three- prong test. See id. at 42; Union Labor Life Ins. Co. v. Perino, 458 U.S. 119 (1982) (The Court ap plied the three-prong test in a McCarran-Ferguson Act case, requiring that the regulated activity effect the spreading of policyholder risk, be an integral part of the insurer-insured relationship, and not affect those outside the insurance industry.).

160 Pilot Life, 481 U.S. at 52-54. The Court reasoned as follows: "In sum, the detailed provisions of section 502(a) set forth a comprehensive civil enforcement scheme that represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans ....” Id. at 54.

161 Id. at 54.

162 See, e.g., Kuhl v. Lincoln Nat'l Health Plan, 999 F.2d 298 (8th Cir. 1993) (ERISA pre-empted claim against independent practice (IPA) association-type HMO for negligent denial of pre-certification for surgery); Elsesser v. Hospital College of Osteopathic Med., 802 F. Supp. 1286 (E.D. Pa. 1992) (claim against HMO for failure to fund the use of diagnostic medical device was preempted by ERISA).

163 See discussion infra Part III.F.

164 For suits in which state tort claims were asserted against MCOs, see Wilson v. Blue Cross, 271 Cal. Rptr. 876 (Ct. App. 1990); Hughes v. Blue Cross, 263 Cal. Rptr. 850 (Ct. App. 1989) and Wickline v. State, 239 Cal. Rptr. 810 (Ct. App. 1986). See also Corcoran v. United Healthcare, Inc., 965 F.2d 1321 (5th Cir. 1992). MCO subscribers may also bring breach of contract actions for fail ure to provide covered benefits, but contract remedies—recovery of out-of-pocket expenses in obtaining promised treatment or injunctive relief compelling coverage—are often inadequate to compensate injuries resulting from such breaches. At least one state legislature passed a bill that would have entitled subscribers to sue their HMOs for compensatory damages for injuries caused by failure to provided covered health care. See Christine Sexton, Jordan, Fla. Gov. Rejects Plan to Allow Suits vs. HMOs, Nat'l Underwriter, June 10 ,1996, at 10.Google Scholar

165 The California Department of Corporations recently imposed a $500,000 fine on an MCO for denying medically necessary care to a cancer victim. The denial was found to be the result of a decision not shown to be unhindered by fiscal and administrative considerations. See California: FHP Won't Fight Fine Imposed on Health Plan for Denial of Care, 5 Health L. Rep. (BNA) No. 44, at dl5 (Nov. 7, 1996).Google Scholar

166 See 965 F.2d 1321, 1323-24 (5th Cir. 1992).

167 Id. at 1331.

168 See id. at 1332.

169 See id. at 1335.

170 See id. at 1337. Section 502 permits beneficiaries to bring a cause of action for violations of ERISA or plan obligations to obtain “appropriate equitable relief.” See 29 U.S.C. § 1132(a)(3)(B) (1994). Because the Corcorans sought compensatory damages for mental anguish, not plan benefits or relief traditionally available for breach of fiduciary duties or contracts, section 502(a) was held not to encompass their request for relief. See Corcoran, 965 F.2d at 1337.

171 Id. at 1338.

172 See, e.g., Dukes v. United States Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995), cert, denied, 116 S. Ct. 564 (1995).

173 See, e.g., Chaghervand v. CareFirst, 909 F. Supp 304, 309 (D. Md. 1995) (citing Kearney v. United States Healthcare, Inc., 859 F. Supp. 182(E.D. Pa. 1994)) (direct negligence claims pre-empted by ERISA).

174 See Pappas v. Asbel, 675 A.2d 711, 718 (Pa. Super. Ct. 1996).

175 See id. at 716.

176 See, e.g., Burke v. Smithkline, 858 F. Supp. 1181, 1184 (M.D. Fla. 1994); Paterno v. Al- beurne, 855 F. Supp. 1263 (S.D. Fla. 1994). But see Visconti v. United States Healthcare, Inc. 857 F. Supp. 1095 (E.D. Pa. 1994), consolidated on appeal, Dukes v. United States Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995).

177 For a list of relevant cases, see Paciflcare of Oklahoma, v. Burrage, 59 F.3d 151, 153 n.2 (10th Cir. 1995).

178 See id. at 154 (holding that tort laws of general application—not specifically targeting ERISA plans—having some economic impact on the plan, do not require invalidation).

179 See, e.g., Elsesser v. Hospital College of Osteopathic Med., 795 F. Supp. 142, 146 (E.D. Pa. 1992).

180 Id.

181 See Chaghervand v. CareFirst, 909 F. Supp. 304, 311 (D. Md. 1995) (holding direct negli gence claim against the HMO for breaching its contractual duty to provide necessary care was with drawn to avoid justification for removal); see also Prudential Health Care Plan v. Lewis, No. 95- 6255, 1996 WL 77018, at *2 (10th Cir. Feb. 21, 1996).

182 See Prihoda v. Shpritz, 914 F. Supp. 113, 118 (D. Md. 1996).

183 See Russ & Segalla, supra note 99, § 7:35.

184 See Brown v. Granatelli, 897 F.2d 1351, 1355 (5th Cir. 1990) (holding that a policy reim bursing the plan for all losses in excess of $30,000 per person up to $1 million per person was stop- loss insurance and not sickness and accident insurance).

185 See 1 NAIC Model Laws, Regulations And Guidelines: NAIC Stop Loss Model Act 92 (1995). Stop-loss insurers may not assume more than 50% of the risk of loss. See id. If they assume more, they are subject to health insurance regulation. See id.

186 See, e.g., General Motors Corp. v. California Bd. of Equalization, 815 F.2d 1305 (9th Cir. 1987).

187 See Safeco Life Ins. Co. v. Musser, 65 F.3d 647, 651 (7th Cir. 1995) (Assessment of rein surance premiums charged to self-insuring employers had only an indirect economic effect, and therefore, did not relate to ERISA plans.); see also Health Maintenance Org. v. Whitman, Civ. No. 93-5775, 1994 WL 549626, at *4 (D.N.J. Oct. 3, 1994) (holding that ERISA does not preempt a state law designed to distribute insurance losses equitably without specifically targeting ERISA plans).

188 See National Association Of Insurance Commissioners, Draft White Paper On The Regulation Of Risk-Bearing Entities (Sept. 24,1996).Google Scholar

189 It should be noted that the law does not only apply to MCOs. In 1985, Congress amended ERISA to require all employer health plans to provide (generally for a limited time) continued benefits in the event of an employee’s termination, divorce or death. See 29 U.S.C. §§ 1161-1166 (1994); 42 U.S.C. §§ 300bb-l to -8 (1994).

190 See infra Part IV.D.

191 See 42 U.S.C. § 1395. Federally qualified HMOs and Competitive Medical Plans may con tract with the Health Care Finance Administration (HCFA) if they provide adequate and accessible delivery systems, quality assurance programs, grievance procedures, are fiscally sound, have at least 5000 enrollees and not more than 50% are Medicare- or Medicaid-eligible. See id. § 1395mm. Qualifying plans receive, in capitation payments, 95% of the average FFS cost for plan enrollees, taking Part A, Part B, age, gender, employment and Medicaid eligibility into account. See id. § 1395w-4(g)(2)(D).

192 See 42 C.F.R. § 417.479 (1996).

193 See id. §417.436.

194 See id. § 417.479. HCFA Final Rule to Set Limits on Physicians’ Risk in Health Plans, 5 Health L. Rep. (BNA) No. 13, at 473 (1996). HCFA is reportedly planning to issue guidelines to provide uniform standards for the marketing of managed care plans to Medicare beneficiaries, such as advertising promotions, information about covered benefits and enrollment letters. See Managed Care: New Medicare HMO Marketing Guidelines to Provide National Standard, HCFA Says, 5 Health L. Rep. (BNA) No. 42, at d35 (1996).Google Scholar

195 See Ardary v. Aetna Health Plans, 98 F.3d 496 (9th Cir. 1996).

196 In a separate action, which some have hailed as a landmark decision, a U.S. district court in Arizona held that the federal government is responsible for providing due process appeals to Medi care beneficiaries enrolled in MCOs, listing ten requisite procedures. See Grijalva v. Shalala, 946 F. Supp. 747, 755 (D. Ariz. 1996). The decision seems to turn on the perception of competitive medi cal plans (CMPs) as extensions of the federal government, used to fulfill the government’s obliga tion to provide Medicare benefits. See Managed Care: Arizona Federal Court Faults HCFA for HMO Notice, Hearing Methods, 5 Health L. Rep. (BNA) No. 43, at d32 (Oct. 31, 1996)Google Scholar [hereinafter Court Faults HCFA]. Consequently, the due process requirements may not apply to CMPs’ treat ment of non-Medicare subscribers. See id. HCFA has concurred with the decision and plans to develop regulations specifying grievance and appeal process requirements for HMOs. See id.

197 See Court Faults HCFA, supra note 196, at d32.

198 See 42 U.S.C. § 1396 (1994). See generally Rosenberg, Judith M. & Zaring, David T., Man aged Medicaid Waivers: Section 1115 and State Health Care Reform, 32 harv. J. On Legis. 545 (1995).Google Scholar

199 See U.S. Gen. Accounting Office, Medicaid: States Turn To Managed Care To Improve Access And Control Costs 3 (1993)Google Scholar [hereinafter 1993 GAO Report].

200 See id.

201 See U.S. Gen. Accounting Office, Medicaid: Tennessee’s Program Broadens Coverage But Faces Uncertain Future (Sept. 1995).Google Scholar

202 See Tennessee: Problems Plague TennCare Program, Result of Hasty Planning, NAPH Says, 3 Health L. Rep. (BNA) No. 18, at d23 (May 5, 1994).Google Scholar

203 See id.

204 See Medicaid: Statewide Managed Care Demonstrations Spreading Rapidly, Despite Resis tance, 3 Health L. Rep. (BNA) No. 40, at d3 (Oct. 13, 1994).Google Scholar

205 See Hsu, Spencer S., Managed Care for the Poor Tough to Manage VA Finds, Wash. Post, Apr. 29 , 1996, at Dl.Google Scholar

206 See 1993 GAO REPORT, supra note 199, at 16.

207 United States v. Health Choice, No. 95-6171-CV-SJ-6, 1996 WL 612878 (W.D. Mo. Oct. 22, 1996); United States v. Healthcare Partners, Inc., Civ. A. No. 395-CV-01946RNC, 1996 WL 193753 (D. Conn. Feb 15, 1996). When proposed, the consent orders were published for public comment. See Proposed Final Judgment and Competitive Impact Statement, 60 Fed. Reg. 52,014-. 01 (proposed Oct. 4, 1995), Proposed Final Judgment and Competitive Impact Statement, 60 Fed. Reg. 51,808-02 (proposed Oct. 3, 1995).

208 See Greaney, Thomas L., Regulating for Efficiency in Health Care Through Antitrust Laws, 2 Utah L. Rev. 465, 486-89 (1995).Google Scholar

209 29 U.S.C. § 1181(a) (1994).

210 See id. § 1181(a)(1).

211 See id. § 1985(a)(1)(A)(i).

212 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989); see also Cutting v. Jerome Foods, Inc., 993 F.2d 1293, 1297 (7th Cir. 1993) (court willing to supply interpretive prin ciples relating to the subrogation rule); Singer v. Black & Decker Corp., 964 F.2d 1449, 1453 (4th Cir. 1992) (to promote nationwide consistency courts should look to federal common law, not the law of particular states); Provident Life & Accident Ins. Co. v. Waller, 906 F.2d 985, 993 (4th Cir.

1990) (the federal common law doctrine of unjust enrichment is available to require beneficiary to repay sums advanced for medical expenses).

213 116 S. Ct. 1065, 1068(1996).

214 See id. at 1074-75.

215 See id. at 1074.

216 See 29 U.S.C. § 1132 (1994).

217 See, e.g., Corcoran v. United Healthcare, Inc., 965 F.2d 1321 (5th Cir. 1992).

218 A civil action may be removed from state to federal court only if the federal district courts have original jurisdiction over the claim as they would if it were a claim arising under the Constitu tion, law or treaties of the United States. See 28 U.S.C. §§ 1441(a), 1331 (1994); Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1994). Thus, the action is within the federal court’s jurisdiction and removable only if the party seeking removal has established that the case arises under federal law in a “well pleaded complaint.” See Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 10 (1983); Taylor v. Anderson, 234 U.S. 74, 75 (1914).

219 The policy behind the rule is that the plaintiff should be the master of his action and be permitted to eschew federal claims so to bring his suit in state court, solely on state claims. How ever, if the relief sought by the plaintiff can be obtained only pursuant to federal law, the defendant may seek jurisdiction in federal court. See Caterpillar Inc. v. Williams, 482 U.S. 386, 398-99 (1987).

220 Section 502(a) authorizes suits: (1) to recover benefits due under the terms of the plan; (2) to enforce rights under the terms of the plan; or (3) to clarify rights to future benefits under the terms of the plan. To do so, beneficiaries or participants may bring a civil action to enjoin any act that violates the Act or to obtain other appropriate equitable relief to redress such violations. See 29 U.S.C. § 1132.

221 481 U.S. at 66.

222 See, e.g., Dukes v. U.S. Healthcare Inc., 57 F.3d 350, 354 (3d Cir. 1995) (“That the Su preme Court recognized a limited exception to the well-pleaded complaint rule for state law claims which fit within the scope of Section 502 by no means implies that all claims preempted by ERISA are subject to removal.”).

223 See Warner v. Ford Motor Co., 46 F.3d 531 (6th Cir. 1995).

224 For example, a vicarious liability claim against an IPA-HMO for a physician’s wrongful di agnosis was held not “completely preempted" by section 502(a) of ERISA and, therefore, not remov able. See Prihoda v. Shpritz, 914 F. Supp. 113 (D. Md. 1996).

225 57 F.3d 350, 351-52 (1995).

226 See id. at 358.

227 See id. at 359.

228 See id. at 361.

229 See id.

230 116 S. Ct. 1065, 1076-77 (1996). Section 502(a)(3) authorizes beneficiaries to bring ac tions to enjoin practices violating ERISA or terms of the plan and to obtain other appropriate equi table relief, rather than only on behalf of the plan itself under section 502(a)(2). See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985).

231 See Howe, 116 S. Ct. at 1070.

232 See id. at 1074.

233 See id. at 1079. Dissenting Justices Thomas, O'Connor and Scalia believed that Congress intended to protect only the financial integrity of the plan and plan administration, not the integrity of employers. See id. at 1090 (Thomas, J., dissenting). The majority observed that employee bene ficiaries could not be expected to distinguish between an individual’s role as a corporate officer and his other role as a plan fiduciary. See id. at 1073.

234 See id. at 1085 (Thomas, J., dissenting).

235 107 F.3d 625 (8th Cir. 1997).

236 See id. at 627.

237 See id. at 628.

238 See id. Like many HMOs, Medica Corporation rewarded primary care doctors for not making covered referrals to specialists and reduced their fees if they referred too many patients. See id. at 627. Medica’s failure to disclose its incentive plan allegedly caused the plaintiff deceased beneficiary to rely unduly on his physician’s determination that he did not need to see a cardiologist for the heart condition from which he later died. See id.

239 See 29 U.S.C. § 1132 (1994).

240 See Mertens v. Hewitt Assocs., 113 S. Ct. 2063, 2068-71 (holding section 502(a)’s equita ble remedies do not encompass compensatory damages); cf. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148 (1985) (section 409(a), which provides that fiduciaries who breach ERISA obligations are liable for resulting losses, does not provide a cause of action for extracontrac-tual damages).

241 See generally Medicare Supplement Insurance Policies, Hearing before the Subcomm. on Health of the House Comm. on Ways and Means, 101st Cong. (1990).

242 Pub. L. No. 101-508, § 4358, 104 Stat. 1388 (codified at 42 U.S.C. § 1395ss (1994)).

243 See id.

244 For a discussion of the act’s substantive provisions, see Cabrera, Anthony Sebastian, The Medigap Reforms of the Omnibus Budget Reconciliation Act of 1990: Are the Protections Ade quate?, 6 Adm. l.j. 321 (1992).Google Scholar See generally Hearing before the Subcomm. on Health and Long- term Care of the House Select Comm. on Aging, 101st Cong. (1990) (statement of Anne Jewel & Kathryn M. Kwiatkowski); Rising Medigap Premiums: Symptom of a Failing System?, Hearing be fore the Senate Special Comm on Aging, 101st Cong. (1990); Medigap Fraud & Abuse: How Can Communities Stop These Problems?, Hearing before the Subcomm. on Human Services of the House Select Comm. on Aging, 101st Cong. (1990); High Pressure, Low Benefits: Unfair Practices in Sell ing Medigap and Other Insurance to the Elderly, Hearing before the Subcomm. on Housing & Con sumer Interests of the Senate Select Comm. on Aging, 100th Cong. (1987).

245 See 42 U.S.C. § 1395ss(k); see also How Insurance Laws Are Made: The NAIC & State Adoption of NAIC Model Laws, Hearing before the Subcomm. on Antitrust Monopolies & Business Rights of the Senate Comm. on the Judiciary, 102d Cong. (1991). For a detailed discussion of the provisions of the NAIC model Medigap regulation, see Holloway, Norman D., Standardized Medi care Supplemental Policies Under OBRA 1990, 24 U. Tol. L. Rev. 159 (1992).Google Scholar

246 See 42 U.S.C. § 1395ss(b)(1)(G); see also Social Security Act Amendments of 1994, Pub. L. No. 103-432, 108 Stat. 4398 (1994).

247 See 42 U.S.C. § 1395ss(d).

248 42 U.S.C. §300gg-91.

249 See New York v. United States, 505 U.S. 144, 177, 188 (1992) (holding that Congress’s ef fort to mandate state toxic waste clean up violated the Tenth Amendment).

250 42 U.S.C. § 1395ss(d)(3)(A)-(B). See generally Medigap Improvements, Joint Hearing before the Subcomm. on Health and the Environment and the Subcomm. on Commerce, Consumer Protection and Competitiveness of the House Comm. on Energy and Commerce, 101st Cong. (1990).

251 See Medicare Program; HHS’ Recognition of NAIC Model Standards for Regulation of Medigap Policies, 57 Fed. Reg. 37,980 (1992). See generally Strauss, Peter J., Law and the Aging: Elder Law Issues in the 1990 Budget: Part II, N.Y. L.J., Apr. 25 , 1991, at 3.Google Scholar

252 See 42 U.S.C. § 1395ss(b)(1)(c)(5).

253 The Act provides:

254 Pub. L. No. 101-648, 104 Stat. 4969 (codified at 5 U.S.C. § 561 (1994)). See generally Harter, Philip J., Negotiating Regulations: A Cure for Malaise, 71 Geo. L.J. 1 (1982).Google Scholar