                 IN THE SUPREME COURT OF IOWA
                           No. 81 / 05–1853

                          Filed May 30, 2008

MAGELLAN HEALTH SERVICES, INC.

      Appellee,

vs.

HIGHMARK LIFE INSURANCE COMPANY,

      Appellant,

WELLMARK, INC., d/b/a
WELLMARK BLUE CROSS AND
BLUE SHIELD OF IOWA and
WELLMARK HEALTH PLAN OF
IOWA, INC.,

      Appellee.


      Appeal from the Iowa District Court for Polk County, Douglas F.

Staskal, Judge.



      Defendant appeals district court grant of summary judgment to the

plaintiff, which determined that defendant was the primary insurer and

thus liable for coverage. AFFIRMED.



      Denny M. Dennis of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des

Moines, and Stephen F. Ban of Metz Lewis LLC, Pittsburgh, Pennsylvania,

for appellant.



      Michael A. Dee of Brown, Winick, Graves, Gross, Baskerville and

Shoenebaum, P.L.C., Des Moines, and Erica J. Dominitz of Dickstein,

Shapiro, Morin & Oshinsky LLP, Washington, D.C., for appellee Magellan.
                                   2
      Hayward L. Draper and Thomas H. Walton, Nyemaster, Goode, West,

Hansell & O’Brien, P.C., Des Moines, for appellee Wellmark.
                                      3
APPEL, Justice.

      In this case, we are called upon to determine the legal ramifications of

conflicting coordination of benefits provisions in a self-funded welfare

benefit plan governed by the Employee Retirement Income Security Act of

1975 (ERISA) and an individual health insurance policy issued pursuant to

Iowa Code chapter 513C.

      I. Factual Background and Prior Proceedings.

      John Doe was diagnosed with leukemia in the 1990s. His medical
bills were initially paid through group health insurance coverage provided

by his mother Jane Doe’s employer, Principal Financial Group. At the same

time, John was also covered as a dependent under his father’s group

insurance plan—the Magellan “90/60 Preferred Provider Option” (Magellan

90/60 Policy). The Magellan 90/60 Policy was administered by CareFirst of

Maryland, Inc. d/b/a CareFirst BlueCross BlueShield (CareFirst).          The

Magellan 90/60 Policy was issued under a self-funded plan governed by

ERISA.

      In 1997, Jane left Principal for other employment. She exercised her

COBRA rights, and John’s medical bills continued to be paid by Principal
for eighteen months.      After COBRA benefits were exhausted, John

continued to be covered as a dependent under his father’s insurance plan.

      Although John was covered by the Magellan 90/60 Policy, Jane was

concerned that group plan administrators might deny her son specialized

treatment because such care was not “medically necessary.” In order to

guarantee that benefits would be available for desired care, Jane obtained

an individual insurance policy for John from Wellmark (Wellmark Policy).

The Wellmark Policy was issued pursuant to Iowa Code chapter 513C,

which requires health insurers operating in Iowa to provide a basic or

standard level of health insurance coverage to an Iowa resident regardless
                                     4
of the person’s health status. The Wellmark Policy became effective on May

1, 1999.

      In July 1999, the Iowa Insurance Commissioner promulgated

regulations mandating that policies issued pursuant to Iowa Code section

513C.9 “shall not duplicate benefits paid under any other health insurance

coverage.” Iowa Admin. Code r. 191—75.7(4). As a result of this mandatory

regulation, John’s Wellmark Policy was amended to state that “[b]enefits

covered . . . will not duplicate benefits covered under any other health
insurance coverage.” Such a limitation is commonly referred to as “always

secondary” language.

      The Magellan 90/60 Policy also had a provision related to

coordination of benefits, often referred to by the acronym COB.           The

relevant COB language in the Magellan 90/60 Policy is as follows:

      This plan determines its order of benefits using the first of the
      following rules that applies:

      1) Non-dependent/dependent. The benefits of the plan which
      covers the person as an employee, member or subscriber (that
      is, other than as a dependent) are determined before those of
      the plan which covers the person as a dependent . . . .

      ....

      7) Longer/shorter length of coverage. If none of the above
      rules determines the order of benefits, the benefits of the plan
      that covered an employee, member or subscriber longer are
      determined before those of the plan that covered that person
      for the shorter term.

(Emphasis in original).

      After Jane obtained the individual “always secondary” Wellmark

Policy, CareFirst, acting on behalf of Magellan, discovered the dual coverage

for John. Wellmark informed CareFirst that it believed the Wellmark Policy

provided coverage that was secondary to the coverage in the Magellan
                                      5
90/60 Policy.     CareFirst reviewed the issue and came to the same

conclusion.

      Unfortunately, in late 2001, John’s leukemia returned. Substantial

medical expenses incurred on behalf of John in 2001 and 2002 were paid

by CareFirst pursuant to its determination that the Magellan 90/60 Policy

was the primary insurer.

      In late 2001, Magellan purchased a stop-loss reinsurance policy with

Highmark to cover health care claims made under the Magellan 90/60
Policy during calendar year 2002. In November 2002, Magellan submitted a

claim with Highmark to recover the catastrophic costs that it incurred on

John’s behalf.   In February 2003, Highmark denied the claim, having

determined that the Magellan 90/60 Policy was secondary to the primary

coverage of the Wellmark Policy.      As a result, according to Highmark,

coverage under the Wellmark Policy had to be exhausted before the

Magellan 90/60 Policy became liable for John’s medical expenses.

      On October 3, 2003, Magellan filed suit against Highmark and

Wellmark.     Among other claims, Magellan alleged that Highmark had

breached the provisions of its stop-loss policy by failing to reimburse
Magellan for John’s medical expenses in 2002. Highmark countered that

ERISA preempted application of the “always secondary” regulation and that

the COB language of the Magellan 90/60 Policy rendered the Wellmark

Policy primarily liable for the claims submitted by John. All parties filed for

summary judgment.

      On October 10, 2005, the district court granted Magellan’s motion for

summary judgment and denied Highmark’s motion. The court’s resolution

mooted Wellmark’s motion. The district court held that ERISA did not

preempt Iowa Code chapter 513C and the accompanying “always

secondary” regulation. According to the district court, the provisions of
                                    6
Iowa Code chapter 513C and the accompanying regulation lacked the

required “reference to” or “connection with” an ERISA plan to trigger

preemption because the statute did not “touch on the main purposes

underlying ERISA.” As a result, the mandatory provisions of Iowa Code

chapter 513C and the accompanying regulation supported Magellan and

Wellmark’s claim that the Wellmark Policy coverage was secondary to that

provided by the Magellan 90/60 Policy. Although the district court did not

so state, the logical impact of the district court’s determination was that
Magellan was legally required under the mandate of Iowa Code chapter

513C and the accompanying “always secondary” regulation to pay the claim

of its insured, and that Highmark was in turn required to reimburse

Magellan pursuant to the stop-loss policy Highmark issued to Magellan.

      Based on the above rationale, the district court entered judgment in

favor of Magellan and Wellmark against Highmark. After the ruling, the

parties stipulated that the amount of damages involved in the case was

$919,596.

      On appeal, Highmark seeks to overturn the district court’s judgment

by advancing two propositions.      First, Highmark argues that ERISA
preempts Iowa Code chapter 513C, thereby preventing Magellan and

Wellmark from relying upon the command in Iowa Administrative Code rule

191—75.7(4) that the Wellmark Policy is an “always secondary” policy.

Second, assuming Iowa Code chapter 513C as implemented by Iowa

Administrative Code rule 191—75.7(4) is preempted, Highmark asserts that,

as a matter of federal common law, the Magellan 90/60 Policy coverage is

secondary under the contractual terms of both policies.

      Magellan and Wellmark counter that regardless of the preemption

analysis, the Magellan 90/60 Policy is primary under federal common law.

In any event, Magellan and Wellmark contend that chapter 513C and the
                                            7
accompanying “always secondary” regulation are not preempted by ERISA.

Further, Magellan and Wellmark contend that regardless of the preemption

and federal common law analysis, the decision of Magellan and its

administrator, CareFirst, should be upheld as reasonable and made in good

faith. Finally, Wellmark advances the argument that when the relevant

language is properly interpreted, there is no conflict between the Magellan

90/60 Policy and the Wellmark Policy.

       II. Standard of Review.
       Summary judgment is reviewed for correction of errors at law.

Buechel v. Five Star Quality Care, Inc., 745 N.W.2d 732, 735 (Iowa 2008).

Summary judgment should be upheld where there is no genuine issue of

material fact and the moving party is entitled to judgment as a matter of

law. Id. In reviewing the record, the evidence is considered in the light

most favorable to the nonmoving party. Id.

       III. Discussion.

       A. Introduction. This case requires the court to determine how the

benefits of a self-funded ERISA group health policy and a non-ERISA

individual health insurance policy should be coordinated with respect to a
claim admittedly covered by both policies. There is no question that the

insured is entitled to benefits and, in fact, the benefits have been paid. The

fighting issue presented in this case is which insurer must bear the loss.

       The threshold question is whether the “always secondary” mandate of

Iowa Code chapter 513C as implemented by Iowa Administrative Code rule

191—75.7(4) is preempted by ERISA.1                If not preempted, the “always

secondary” provision is fully applicable, Magellan is liable for the loss, and

Highmark, as the stop-loss insurer, must pay Magellan. If, on the other

       1Highmark does not challenge the validity of the administrative rule or Magellan’s

interpretation that it amounts to an “always secondary” mandate for chapter 513C policies.
                                      8
hand, the “always secondary” provision is subject to ERISA preemption, the

statutory command has no force and effect and does not resolve the case.

      If the “always secondary” provision of Iowa Code chapter 513C as

implemented by Iowa Administrative Code rule 191—75.7(4) is preempted,

however, a second set of questions must be addressed, namely, whether the

COB provisions of the Magellan 90/60 Policy and the Wellmark Policy

conflict and, if they do, how the conflict should be resolved. We do not

reach this second set of questions, however, as we find that the “always
secondary” regulation is not preempted by ERISA.

      B. ERISA Preemption of Iowa Code Chapter 513C.

      1. Framework for ERISA preemption analysis. ERISA provides three

clauses that relate to the relationship between ERISA and state law: the

preemption clause, the savings clause, and the deemer clause. Under

ERISA, any provision of state law which “relates to” an ERISA plan is

superseded under what is known as the preemption clause of ERISA.

29 U.S.C. § 1144(a).   On the other hand, state insurance, banking, or

securities laws are explicitly removed from preemption under ERISA’s

savings clause. Id. § 1144(b)(2)(A). What is known as the ERISA deemer
clause, however, further provides that an employee benefit plan may not be

“deemed to be an insurance company . . . or to be engaged in the business

of insurance or banking for purposes of any law of any State purporting to

regulate insurance companies, [or] insurance contracts. . . .”             Id.

§ 1144(b)(2)(B).

      Analysis of ERISA preemption ordinarily requires three steps. The

first step is whether the state statute in question “relates to” an ERISA plan

and is therefore within the scope of the preemption clause. If so, the next

question is whether the state statute is nonetheless saved through

application of the savings clause. Finally, where a state statute falls within
                                     9
the scope of the preemption clause but is also within the scope of the

savings clause, the analysis moves on to a determination of whether the

savings clause does not apply as a result of the deemer clause.

      2. Highmark arguments in favor of ERISA preemption of Iowa Code

chapter 513C. Highmark asserts that Iowa Administrative Code rule 191—

75.7(4) is unenforceable because it is preempted by ERISA. According to

Highmark, the “always secondary” provision “relates to” or is “connected

with” the ERISA plan in this case. In support of its position, Highmark cites
FMC Corp. v. Holliday, 498 U.S. 52, 111 S. Ct. 403, 112 L. Ed. 2d 356

(1990). In FMC, the United States Supreme Court held that a Pennsylvania

anti-subrogation statute which prohibited self-funded ERISA plans from

requiring reimbursement in the event of recovery from a third party was

preempted by ERISA. Id. at 65, 111 S. Ct. at 411, 112 L. Ed. 2d at 369.

According to the Supreme Court in FMC, the anti-subrogation statute was

an insurance statute under the ERISA savings clause, but could not be

applied against a self-funded ERISA plan by virtue of the deemer clause. Id.

Highmark asserts that like the Pennsylvania statute in FMC, Iowa Code

chapter 513C impermissibly overrides benefit provisions in self-funded
ERISA plans.

      Highmark claims that the approach in FMC has been followed in at

least three federal circuits. For example, in LaRocca v. Borden, Inc., 276

F.3d 22, 30 (lst Cir. 2002), the First Circuit Court of Appeals held that

“ERISA preempts state legislation designed to limit plans’ . . . coordination

of benefit provisions.” Similarly, in Auto Owners Insurance Co. v. Thorn

Apple Valley, Inc., 31 F.3d 371, 375 (6th Cir. 1994), the Sixth Circuit Court

of Appeals held that COB provisions of self-insured ERISA plans trump

state laws which seek to make no-fault policies always secondary payers.

Further, the Eighth Circuit Court of Appeals in Prudential Insurance Co. of
                                     10
America v. National Park Medical Center, Inc., 413 F.3d 897, 912–13 (8th Cir.

2005), utilizing FMC concepts, held that an Arkansas “any willing provider”

law was preempted by the deemer clause as applied to self-funded plans.

      Highmark recognizes that in several cases subsequent to FMC, the

United States Supreme Court “sharpened” its review of ERISA preemption.

See De Buono v. NYSA-ILA Med. & Clinical Serv. Fund, 520 U.S. 806, 117

S. Ct. 1747, 138 L. Ed. 2d 21 (1997) (finding gross receipts tax not

preempted); Cal. Div. of Labor Standards Enforcement v. Dillingham Constr.,
N.A., Inc., 519 U.S. 316, 117 S. Ct. 832, 136 L. Ed. 2d 791 (1997) (finding

wage payment statute not preempted); N.Y. State Conference of Blue Cross &

Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S. Ct. 1671, 131

L. Ed. 2d 695 (1995) (finding surcharges on hospital rates not preempted).

According to Highmark, however, these cases did not represent a sea

change from the approach in FMC, but only a refinement of ERISA

preemption analysis.    Further, Highmark emphasizes that unlike, for

instance, the wage payment statute involved in Dillingham, the payment of

plan benefits is a core area of ERISA concern.

      Highmark asserts that its position is supported by the relatively
recent case of Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 121 S. Ct.

1322, 149 L. Ed. 2d 264 (2001). In that case, the United States Supreme

Court held that a state statute providing for automatic revocation of

beneficiary designations upon divorce was preempted as applied to ERISA

plans. Id. at 152, 121 S. Ct. at 1330, 149 L. Ed. 2d at 274–75. The Court

noted that the state statute that bound plan administrators to a particular

choice of rules in determining beneficiary status involved an area of core

ERISA concern including ERISA’s provision that a plan shall “ ‘specify the

basis on which payments are made to and from the plan.’ ” Id. at 147, 121

S. Ct. at 1327, 149 L. Ed. 2d at 271 (quoting 29 U.S.C. § 1102(b)(4)). The
                                     11
Supreme Court further stated that the payment of benefits was “a central

matter of plan administration.” Id. at 148, 121 S. Ct. at 1328, 149 L. Ed.

2d at 272. Finally, the Supreme Court in Egelhoff stressed the need for

nationally uniform plan administration in such core matters. Id. According

to Highmark, the Supreme Court’s emphasis in Egelhoff on the core nature

of payment of benefit provisions and the need for national uniformity apply

with equal force in this case.

      Additionally, Highmark notes that the Eighth Circuit has adopted a
multi-factored test to determine whether a state law has sufficient

“connection with” ERISA plans to trigger preemption. See Ark. Blue Cross &

Blue Shield v. St. Mary’s Hosp., Inc., 947 F.2d 1341, 1344–45 (8th Cir.

1991). According to Highmark, the “always secondary” regulation meets

most of the criteria of the multi-factored test by negating a provision of the

Magellan 90/60 Policy, affecting the relationships between primary ERISA

entities and the structure of ERISA plans, adversely impacting the uniform

administration of ERISA plans, causing an economic impact on an ERISA

plan, and being inconsistent with the deemer clause, which provides that

self-funded ERISA plans are not subject to the state regulation.
      3. Magellan and Wellmark arguments against ERISA preemption of

Iowa Code chapter 513C.      Magellan and Wellmark provide a markedly

different analysis of ERISA preemption.       They assert that the “always

secondary” regulation does not fall within the scope of the preemption

clause and that as a result, the statute is fully applicable and Magellan is

entitled to reimbursement.

      While Magellan and Wellmark recognize the broad preemption

analysis in FMC, they claim the Supreme Court significantly narrowed the

scope of preemption in De Buono, 520 U.S. at 806, 117 S. Ct. at 1747, 138

L. Ed. 2d at 21, Dillingham, 519 U.S. at 316, 117 S. Ct. at 832, 136 L. Ed.
                                     12
2d at 791, and Travelers Insurance, 514 U.S. at 645, 115 S. Ct. at 1671,

131 L. Ed. 2d at 695. Specifically, Magellan and Wellmark note that in

Travelers Insurance, the United States Supreme Court stated that Congress

addressed the claims of preemption “with the starting presumption that

Congress does not intend to supplant state law.” Travelers Ins., 514 U.S. at

654, 115 S. Ct. at 1676, 131 L. Ed. 2d at 704. Further, Magellan and

Wellmark cite Dillingham for the proposition that a state law has “reference

to” ERISA only “[w]here a State’s law acts immediately and exclusively upon
ERISA plans . . . or where the existence of ERISA plans is essential to a

law’s operation. . . .” Dillingham, 519 U.S. at 325, 117 S. Ct. at 838, 136

L. Ed. 2d. at 799.

      Magellan and Wellmark further assert that under Dillingham, the

“connection with” test of ERISA preemption requires the court to look at

both “ ‘the objectives of the ERISA statute as a guide to the scope of the

state law that Congress understood would survive’ . . . as well as the nature

of the effect of the state law on ERISA Plans.” Id. (quoting Travelers Ins.,

514 U.S. at 656, 115 S. Ct. at 1677, 131 L. Ed. 2d at 705). Under these

authorities, Magellan and Wellmark argue, the district court correctly held
that Iowa’s “always secondary” regulation has no “relation to” ERISA plans

because it does not operate directly and exclusively on them. Nor is it

“connected with” ERISA plans, according to Magellan and Wellmark,

because the statute does not clearly touch on the objectives of ERISA.

Congress thus must have understood that it is the type of law that would

survive ERISA preemption.

      Magellan and Wellmark also argue that Highmark’s reliance upon

Egelhoff is misplaced. In Egelhoff, the Supreme Court held that a state

statute which automatically revoked beneficiary designations where the

beneficiary is a divorced spouse, had a “connection with” a core area of
                                     13
ERISA concern, namely, rules for determining the status of beneficiaries.

Egelhoff, 532 U.S. at 147, 121 S. Ct. at 1327, 149 L. Ed. 2d at 271–72.

According to Magellan and Wellmark, Egelhoff is distinguishable from the

present case because the state statute interfered with the relationship

between an ERISA plan and a plan beneficiary and with national uniform

administration of ERISA. Further, according to Magellan and Wellmark, the

“always secondary” regulation in this case, unlike the beneficiary-

terminating provision in Egelhoff, is a health measure designed to mandate
the availability of a standard or basic insurance policy for residents who do

not otherwise qualify for health care. Magellan and Wellmark assert that

such a generally applicable health care measure is not the kind of

legislation that Congress intended to preempt.

      Magellan and Wellmark further challenge Highmark’s claim that the

“always secondary” regulation is preempted under the multi-factored ERISA

preemption test utilized by the Eighth Circuit in Arkansas Blue Cross &

Blue Shield, 947 F.2d at 1341. According to Magellan and Wellmark, Iowa

Code chapter 513C and Iowa Administrative Code rule 191—75.7(4) do not

conflict with the terms of the Magellan 90/60 Policy, but instead simply
determine which of the available COB provisions in the Magellan 90/60

Policy applies. Magellan and Wellmark further contend that Iowa Code

chapter 513C and the “always secondary” regulation do not affect the

relations between primary ERISA entities or the structure of the Magellan

90/60 Policy, do not have an economic impact other than a remote or

peripheral one, are not inconsistent with other provisions of ERISA, and

simply involve a health care regulatory issue that is historically a matter of

local concern.

      4. Analysis of Preemption Issue. At the outset, it is clear that Iowa

Code chapter 513C and the accompanying “always secondary” regulation do
                                     14
not make “reference to” ERISA plans and are not targeted directly and

exclusively toward ERISA plans. As a result, the only question regarding

the application of the preemption clause in ERISA is whether the “always

secondary” regulation is sufficiently “connected with” ERISA to trigger

preemption.

       The standard for determining whether a state law is “connected with”

ERISA plans in a fashion sufficient to cause preemption is subject to

considerable controversy. In Dillingham, the Supreme Court stated that
courts should look to “the objectives” of ERISA as well as the “nature of the

effect of the state law” on ERISA plans in determining whether state law is

preempted. Dillingham, 519 U.S. at 325, 117 S. Ct. at 838, 136 L. Ed. 2d at

800.   This formulation hardly provides clear guidance.         In Travelers

Insurance, however, the Supreme Court stated that reviewing courts should

begin the preemption analysis “with the starting presumption that Congress

does not intend to supplant state law.” Travelers Ins., 514 U.S. at 654, 115

S. Ct. at 1676, 131 L. Ed. 2d at 704.

       In this case, the main objective of ERISA, namely, providing

employees with stable benefits, is not seriously eroded by the application of
the “always secondary” language of Iowa Administrative Code rule 191—

75.7(4). John’s mother determined that in order to avoid the possibility of

an unreasonable benefits determination by an ERISA plan, she would

purchase an individual non-ERISA insurance plan as a back-up policy.

When there is multiple coverage of a given loss, COB analysis is

commonplace in the insurance industry.         Unlike Egelhoff, Iowa Code

chapter 513C and the “always secondary” regulation do not affect rules for

determining the status of beneficiaries.

       Further, the objective of Iowa Code chapter 513C and the “always

secondary” regulation is “to promote the availability of health insurance
                                          15
coverage to individuals regardless of their health status or claims

experience. . . .” Iowa Code § 513C.2. The policy underlying Iowa Code

chapter 513C and Iowa Administrative Code rule 191—75.7(4), thus does

not undercut ERISA objectives.            Further, promoting the availability of

health insurance coverage to persons who might not otherwise obtain it is

within the scope of police powers traditionally left to state regulation. De

Buono, 520 U.S. at 814, 117 S. Ct. at 1752–53, 138 L. Ed. 2d at 29. Under

this record, we conclude there is no reason to believe that chapter 513C and
Iowa Administrative Code rule 191—75.7(4) so clearly touch on the

objectives of ERISA that Congress must have understood that this is the

type of law that would not survive ERISA.

        As a result, we hold that the “always secondary” provision in Iowa

Code chapter 513C as implemented by Iowa Administrative Code rule 191—

75.7(4) is not preempted by ERISA.2 Because of the mandate of the “always

secondary” rule, the Magellan 90/60 Policy provides primary coverage in

this case. Therefore, the district court properly granted summary judgment

to Magellan and denied summary judgment to Highmark.

        IV. Conclusion.
        The district court order granting Magellan summary judgment and

denying summary judgment to Highmark is affirmed.

        AFFIRMED.

        All justices concur except Ternus, C.J., and Baker, J., who take no

part.




        2Because   we find the “always secondary” provision in Iowa Code chapter 513C, as
implemented by the Iowa Administrative Code rule 191—75.7(4), is not within the scope of
ERISA’s preemption clause, 29 U.S.C. § 1144(a), the savings and deemer clauses, 29 U.S.C.
§§ 1144(b)(2)(A), (B), have no application.
