Obamacare Dispute Sent to State Court

CHICAGO (CN) - The 7th Circuit sent back to state court a dispute between an insurer and policyholders over federal money divvied out by the Affordable Care Act.

WEA Insurance administers health-care programs on behalf of many school districts in Wisconsin.

The Patient Protection and Affordable Care Act provided WEA Insurance, as the health plans' sponsor, with $5 billion to reimburse employers and their proxies for expenses related to early retirees' medical care.

The insurance company decided that the best use of the money would be to reduce premiums in future years.

But this decision entailed that school districts that switch insurance carriers would never see a penny of the federal money.

Three districts that switched insurance providers sued WEA Insurance, claiming that the money spent to reduce future payments was a windfall for the company, and that the insurer should have provided school districts with rebates instead.

The case was removed from state to federal court, because a magistrate judge found the principal issue involved federal law.

But the 7th Circuit reversed, finding "it is difficult to see a federal defense," even if the issue is a federal one.

While the Affordable Care Act underlying this action is federal legislation, the school districts made state law claims for conversion.

"Treating every dispute about what insurers do with money received under §18002 as arising under federal law, and ignoring state-law doctrines about insurers' duties to their clients, would disrupt the state-federal allocation approved by Congress in the McCarran-Ferguson Act and ERISA," Judge Frank Easterbrook wrote for the three-judge panel.

Congress did not explicitly authorize federal litigation between competing beneficiaries of federal money under the Act, according to the judgment.

Therefore, "a dispute between rival beneficiaries of the program about who ultimately gets the money is outside the scope of the federal rule," Easterbrook concluded.

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