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Supreme Court To Consider Regulation of Self-Funded Health Care Plans

February 20, 1990

WASHINGTON (AP) _ The Supreme Court said Tuesday it will decide whether self-funded employee health care plans, which cover some 9.5 million Americans, are subject to state insurance laws and regulations.

The justices said they will use the case of a seriously injured Pennsylvania teen-age girl to decide whether federal regulation of such plans pre-empts any state regulation. A decision is expected sometime in 1991.

Self-funded plans are those in which all benefits are paid directly by an employer, and not purchased through an independent insurance company.

The Illinois-based FMC Corp. has such a plan for its employees and their dependents, and that plan paid for a substantial part of the more than $178,000 in medical expenses incurred by Cynthia Ann Holliday since a January 1987 automobile accident in Indiana County, Pa.

Miss Holliday, then 15, suffered permanent injuries when the car in which she was a passenger crashed.

Her father, Gerald, is an FMC employee.

Holliday sued the car’s driver, Robert Lyons, in state court. Under a September 1987 settlement, Miss Holliday’s recovery was limited to $49,875.50 plus interest.

When FMC sought to recover some of its expenses by claiming the lawsuit settlement funds, Holliday successfully invoked a Pennsylvania law that prohibits such action.

FMC then turned to a federal trial judge for help, contending that the federal Employee Retirement Income Security Act (ERISA) was meant to be a sole means of regulating self-funded health plans and that it therefore pre-empts the prohibitive Pennsylvania law.

The judge, upheld by the 3rd U.S. Circuit Court of Appeals last Sept. 11, ruled that state regulation of self-funded health care plans is not pre-empted by ERISA.

FMC’s appeal was supported by the U.S. Chamber of Commerce, the Self- Insurance Institute of America and numerous self-funded health and welfare plans.

The case is FMC Corp. vs. Holliday, 89-1048.