(CN) - A Louisiana law favoring in-state HMOs doesn't violate the Constitution's dormant Commerce Clause, the 5th Circuit ruled, but it does interfere with out-of-state insurers' contracts with Louisiana.
The federal appeals court in New Orleans lifted an order barring enforcement of Act 479, signed into law July 2007, which requires the state to award contracts to Louisiana HMOs that submit "competitive" bids.
The law stemmed from the Office of Governmental Benefits' decision to stop offering a fully insured HMO and to switch to only self-insured plans, which eliminated Louisiana HMO Vantage Health Plan from the running.
United Healthcare Insurance Co. and Humana Insurance Co. sued, claiming the Act is unconstitutionally biased toward in-state insurers. Vantage intervened on the state's behalf.
A federal judge agreed with out-of-state insurers that the Act violates the dormant Commerce Clause, which bars states from passing laws that burden interstate commerce. It issued a permanent injunction based on this finding.
But the judge ruled that the Act does not violate the contract or due process clauses of the Constitution.
On appeal, the 5th Circuit reversed on both grounds. The state can't violate the Commerce Clause when it participates in the market instead of regulating it, the appellate panel ruled.
"[T]he Act falls within the market participant exception and does not violate the dormant Commerce Clause," Judge E. Grady Jolly wrote.
But the Act does violate the contract by impairing Humana and UHC's contracts, the circuit ruled.
"These impairments are substantial and disrupt the purpose of the contracts at issue here," Jolly wrote, adding that the state's only justification appears to have been economic protectionism.
"In sum, we conclude that the Act violates the Contract Clause insofar as it is effective during the course of the plaintiffs' contracts."
The court lifted the injunction, reversed and remanded, finding the law "invalid as applied."
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