In the
United States Court of Appeals
For the Seventh Circuit

No. 99-2574

DEBRA C. MORAN,

Plaintiff-Appellant,

and

STATE OF ILLINOIS,

Intervenor-Appellant,

v.

RUSH PRUDENTIAL HMO,
INCORPORATED,

Defendant-Appellee.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 442--Suzanne B. Conlon, Judge.


Argued April 18, 2000--Decided October 19, 2000



  Before FLAUM, Chief Judge, and RIPPLE and WILLIAMS,
Circuit Judges.

  RIPPLE, Circuit Judge. Section 4-10 of Illinois’
Health Maintenance Organization Act ("the HMO
Act"), 215 ILL. COMP. STAT. ANN. 125/1-1 et seq.,
requires HMOs to submit to an independent
physician review when there is a disagreement
over whether a course of treatment is medically
necessary between a patient’s primary care
physician and the HMO. In the event that the
independent reviewer determines that the
treatment is necessary, the HMO is required under
sec. 4-10 of the HMO Act to cover the treatment.

  Debra Moran’s primary care physician recommended
a specific surgery for her, but Rush Prudential
HMO, Inc. ("Rush"), the service provider for Ms.
Moran’s ERISA-governed medical benefits plan,
denied coverage for that surgery. Rush offered
instead to cover a less expensive surgery to be
performed by a Rush-affiliated doctor. At her own
expense, Ms. Moran underwent the surgery proposed
by her physician. She later sought to enforce her
rights under sec. 4-10 of the HMO Act by bringing
an action in state court. Rush removed the action
to federal district court on ERISA preemption
grounds. After additional proceedings, including
a remand to state court and another removal by
Rush, the district court granted summary judgment
to Rush. The district court determined that sec.
4-10 of the HMO Act, and Ms. Moran’s claims based
on that act, were preempted by the Employee
Retirement Income Security Act ("ERISA"), 29
U.S.C. sec. 1001 et seq. The district court also
concluded, upon reviewing Rush’s decision to deny
coverage, that Rush’s denial of coverage was not
improper. Ms. Moran now appeals./1 For the
reasons set forth in the following opinion, we
reverse the judgment of the district court.


I
BACKGROUND
A.

  Ms. Moran is covered by a medical benefits plan
sponsored by her husband’s employer. The plan is
governed by ERISA, and it is fully insured. Rush
is the HMO provider for the plan. Two aspects of
the plan are worth noting. First, the plan’s
member certificate delegates to Rush "the
broadest possible discretion" to interpret the
terms of the plan and to determine which benefits
the participants are entitled to receive. R.1-1,
Ex.A. at 7. Second, the certificate provides that
services that are not "medically necessary" will
not be covered by the plan. Id. at 21./2

B.

  Starting in 1996, Ms. Moran began experiencing
pain, numbness, loss of function, and decreased
mobility in her right shoulder. Ms. Moran sought
treatment for these symptoms from Dr. Arthur
LaMarre, her primary care physician and a Rush-
affiliated physician. At first Dr. LaMarre
treated Ms. Moran through physiotherapy and other
conservative therapies, but these efforts did not
relieve her symptoms. While she was undergoing
these conservative therapies, Ms. Moran obtained
the name of Dr. Julia Terzis, an out-of-network
surgeon in Virginia who specializes in
microreconstructive surgery. After Rush denied
Ms. Moran’s request for a out-of-network referral
to consult with Dr. Terzis, Ms. Moran traveled on
her own accord to Virginia to be examined by Dr.
Terzis. Dr. Terzis diagnosed Ms. Moran with
brachial plexopathy and thoracic outlet syndrome
("TOS"), a nerve compression syndrome caused by
the compression of nerves in Ms. Moran’s brachial
plexus.

  Most nerve compression syndromes are mild and
effectively treated with conservative
physiotherapy, and surgery is not indicated
unless more conservative measures fail to manage
the symptoms. If surgery becomes necessary, the
standard procedure for TOS involves decompression
by way of first rib resection (the complete
removal of the uppermost rib) or first rib
resection with scalenectomy (the removal of the
rib and the attached muscle). If necessary, a
surgeon may use loupe magnification, in which the
surgeon wears a goggle-like apparatus to magnify
the immediate view, to conduct a neurolysis,
which is removal of scar tissue surrounding the
injured nerve. Dr. Terzis, however, performs a
more complicated surgery for patients with Ms.
Moran’s condition. Dr. Terzis’ surgery consists
of rib resection, extensive scalenectomy, and, if
indicated, microneurolysis of the lower roots of
the brachial plexus under intraoperative
microscopic magnification. Dr. Terzis concluded
that Ms. Moran was a candidate for the more
complicated microneurolysis surgery. She also
indicated to Ms. Moran that she had successfully
treated other patients with Ms. Moran’s
condition.

  After meeting with Dr. Terzis, Ms. Moran asked
Dr. LaMarre to obtain approval from Rush for Dr.
Terzis’ proposed surgery. Dr. LaMarre first had
Ms. Moran see two Rush-affiliated thoracic
surgeons, Dr. Raymond A. Dieter and Dr. William
H. Warren. After examining Ms. Moran, both
doctors confirmed Dr. Terzis’ diagnosis of TOS
and recommended that Ms. Moran undergo the
standard TOS surgery. Ms. Moran, however, was not
impressed by the prognosis offered by these
doctors, and she decided that she wanted to have
Dr. Terzis perform her proposed surgery.

  On October 14, 1997, Dr. LaMarre asked Rush to
approve Dr. Terzis’ microneurolysis surgery for
Ms. Moran. In his recommendation letter, Dr.
LaMarre stated that, in his opinion, Ms. Moran
would be "best served" by having Dr. Terzis’
procedure performed. R.45, Ex.5. Rush denied
approval on the grounds that Dr. Terzis’ surgery
was out of network. Ms. Moran appealed the
administrator’s decision. In response to her
appeal, Rush requested additional information
from Dr. Dieter and Dr. Warren about Dr. Terzis’
proposed surgery and the need for
microneurolysis. Both doctors reported that
microneurolysis was unnecessary for Ms. Moran.
After reviewing the reports of Dr. Dieter and Dr.
Warren, and after conducting its own analysis of
relevant medical literature, Rush affirmed its
denial of coverage for Dr. Terzis’
microneurolysis surgery on the ground that the
procedure was not "medically necessary" as
defined by the plan. In a letter to Ms. Moran,
Rush provided a detailed discussion of its
reasons for denying coverage for Dr. Terzis’
proposed surgery and informed Ms. Moran that it
would cover the standard TOS surgery, by a
network surgeon, of first rib resection with
scalenectomy. Ms. Moran then made a final appeal
to Rush’s Membership Advisory Committee, but the
committee voted to uphold Rush’s denial.

  The next month, in February 1998, Ms. Moran
underwent Dr. Terzis’ microneurolysis surgery.
The surgery took nearly 14 hours and, with post-
operative care, cost $94,841.27. Ms. Moran paid
for the surgery herself. Ms. Moran submitted a
copy of the bill for her surgery to Rush, and she
and Dr. Terzis also submitted other materials
related to the surgery. Rush treated these
submissions as a renewed benefits claim, and it
opened another investigation into whether Ms.
Moran’s now-completed surgery should be covered.

  As part of its investigation, Rush sought the
opinions of additional experts, and it provided
these experts with Ms. Moran’s medical records as
well as information concerning Dr. Terzis’
microneurolysis surgery. The first two opinions
obtained by Rush were from Dr. Gerald Harris and
Dr. John C. Alexander. These doctors were
skeptical of the need for microneurolysis in Ms.
Moran’s case, but they admitted that they lacked
expertise in the area. Rush next consulted with
Dr. Susan E. MacKinnon, the Chief of Plastic and
Reconstructive Surgery at Washington University
School of Medicine in St. Louis. Dr. MacKinnon
opined that Dr. Terzis’ microneurolysis was
unnecessary.

C.

  In January 1998, the month before she underwent
surgery, Ms. Moran made a written demand to Rush
for it to comply with sec. 4-10 of the HMO Act.
Under the Act, HMOs are required to provide a
mechanism for a review by an independent
physician when the patient’s primary care
physician and HMO disagree about the medical
necessity of a treatment proposed by the primary
care physician. See 215 ILL. COMP. STAT. ANN. 125/4-
10. Section 4-10 further provides that the HMO
must provide the proposed treatment in the event
that the reviewing physician determines that it
is medically necessary. See id. Rush did not act
on Ms. Moran’s request, and Ms. Moran then filed
a complaint in Illinois circuit court seeking a
court order requiring Rush to appoint an
independent physician to review her claim. Rush
removed the action to federal district court on
the ground that ERISA completely preempts Ms.
Moran’s claim.

  The district court remanded the case to the
state court. The court noted that preemption is
generally a defense and that, under the well-
pleaded complaint rule, an anticipated federal
defense could not be the basis for removal.
Nonetheless, the district court also noted that a
"completely preempted" state law claim could be
removed, but the court explained, in the ERISA
context, only state law claims that conflicted
with ERISA’s civil enforcement provisions were
completely preempted by ERISA. In this case, the
district court concluded, Ms. Moran’s request for
specific performance was not a claim under
ERISA’s civil enforcement provisions and
therefore was not completely preempted. The
district court left open the possibility that a
claim for reimbursement under sec. 4-10 of the
HMO Act, in contrast to a request to have the
independent review performed, might be a claim
for benefits that would be completely preempted
by ERISA’s civil enforcement provisions.

D.

  Upon remand, the state court ordered Rush to
submit to the independent physician review
mandated by the HMO Act. The state court reserved
ruling on whether ERISA preempted the portion of
sec. 4-10 that requires the HMO to cover the
procedure in the event that the independent
physician determines the procedure is medically
necessary. Rush and Ms. Moran agreed to have Dr.
A. Lee Dellon, an expert in plastic and
reconstructive surgery at Johns Hopkins Medical
Center, perform the independent review. After
reviewing Ms. Moran’s case and the details of the
surgery performed by Dr. Terzis, Dr. Dellon
concluded that the surgery was medically
necessary, including the microneurolysis. Dr.
Dellon, however, reported that he would have used
loupe magnification, instead of Dr. Terzis’
technique, to perform the neurolysis. The
procedure proposed by Dr. Dellon would have been
less intrusive and less time consuming than the
one performed by Dr. Terzis. After Dr. Dellon had
completed his independent review, Rush concluded
its renewed investigation into whether Ms.
Moran’s surgery should be covered. Rush’s medical
director, after reviewing the reports of Dr.
MacKinnon and Dr. Dellon along with the reports
of the other doctors, concluded that Dr. Terzis’
surgery had not been medically necessary. In
January 1999, Rush again denied Ms. Moran’s
benefits claim.

E.

  Following the independent review by Dr. Dellon,
Ms. Moran asked the state court to require Rush
to reimburse her for the surgery. The state court
requested that Ms. Moran amend her complaint to
clarify the relief she was seeking. Ms. Moran
then filed an amended complaint, the First
Amended Complaint, seeking enforcement of sec.
4-10 of the HMO Act and reimbursement for the
surgery in the amount of $94,841.27.

  After Ms. Moran filed her First Amended
Complaint, Rush removed the suit to federal court
once again. This time, Rush argued that Ms.
Moran’s suit was a claim for benefits that was
completely preempted and that her claim,
therefore, had to be made under ERISA’s civil
enforcement provision, sec. 502(a), 29 U.S.C.
sec. 1132(a). Ms. Moran argued that removal was
improper because her claim for reimbursement was
a state law claim. The district court, relying on
our decision in Jass v. Prudential Health Care
Plan, Inc., 88 F.3d 1482, 1487 (7th Cir. 1996),
held that Ms. Moran’s claim for reimbursement
properly was recharacterized as a claim for
benefits, which meant that her claim was
completely preempted because it fell within sec.
502(a)(1)(B) of ERISA’s civil enforcement
provision.
  Turning to the merits, the district court then
addressed Rush’s contention that ERISA preempted
sec. 4-10 of the HMO Act and that, therefore, its
provisions did not cabin the discretion of the
administrator. The court held that ERISA’s
"saving clause" did not apply because sec. 4-10
did not meet one of the McCarran-Ferguson factors
used to determine whether a law regulates
insurance for purposes of that clause. According
to the district court, sec. 4-10 of the HMO Act
did not transfer or spread policyholders’ risk.

  Ms. Moran subsequently moved for reconsideration
of the district court’s ruling. Ms. Moran argued
that the district court should reconsider its
previous decision in light of the Supreme Court’s
opinion in UNUM Life Insurance Co. v. Ward, 526
U.S. 358 (1999). In Ward, the Supreme Court held
that a state law need not satisfy all three
McCarran-Ferguson factors in order for the law to
fall within ERISA’s saving clause. See id. at
374. The district court denied Ms. Moran’s motion
for reconsideration on the ground that, even if
the saving clause saved sec. 4-10 from
preemption, sec. 4-10 was preempted nonetheless
because it fell within the "deemer clause"
exception to the saving clause. Under the deemer
clause, the district court held, ERISA preempted
sec. 4-10 of the HMO Act "[b]ecause the Illinois
HMO Act has the effect of directly regulating
employee benefit plans rather than an insurance
company." R.53.

F.

  Ms. Moran amended her complaint a second time in
April 1999, ostensibly to state a claim for
reimbursement under sec. 4-10 of the HMO Act and
to avoid stating a claim for benefits under
ERISA. In the alternative, the Second Amended
Complaint also alleged ERISA claims under sec.
502(a)(1)(B) for breach of contract and for
breach of fiduciary duty. The parties then filed
cross motions for summary judgment, and the
district court granted summary judgment to Rush.
The district court explained that, regardless of
Ms. Moran’s efforts to plead only state law
claims, she still was making a claim for benefits
under sec. 502(a)(1)(B) because she was seeking
reimbursement for her surgery. Proceeding to its
analysis of Ms. Moran’s claim for benefits, the
district court noted that the certificate
governing Ms. Moran’s benefits gave Rush the
"broadest possible discretion" to interpret the
plan’s terms and to make benefits determinations.
R.79 at 10 (citation omitted). Given the standard
of review for plans bestowing this kind of
discretion, the district court held that Rush was
entitled to summary judgment because it had not
abused its discretion or acted arbitrarily in
denying Ms. Moran’s claim for benefits.

II
DISCUSSION
A.

  A district court’s preemption ruling is a
question of law that we review de novo. See
Carpenters Local Union No. 26 v. United States
Fidelity & Guar. Co., 215 F.3d 136, 139 (1st Cir.
2000); Burlington N. & Santa Fe Ry. v. Doyle, 186
F.3d 790, 794 (7th Cir. 1999). We also review de
novo the propriety of the removal of a state
action to federal court. See Tylka v. Gerber
Prods. Co., 211 F.3d 445, 447 (7th Cir. 2000).
Likewise, we review de novo a district court’s
grant of summary judgment. See Anstett v. Eagle-
Picher Indus., Inc., 203 F.3d 501, 503 (7th Cir.
2000). It is appropriate to grant summary
judgment only when "the pleadings, depositions,
answers to interrogatories, and admissions on
file, together with the affidavits, if any, show
that there is no genuine issue as to any material
fact and that the moving party is entitled to a
judgment as a matter of law." Fed. R. Civ. P.
56(c); see Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986).

B.

  A defendant may remove to federal court actions
originally brought in a state court only when
those actions fall within the federal court’s
original jurisdiction, see 28 U.S.C. sec.
1441(a), which would include "federal question"
jurisdiction over cases "arising under the
Constitution, laws, or treaties of the United
States," 28 U.S.C. sec. 1331. Ms. Moran
maintained throughout the proceedings in the
district court that removal was improper because
her claims based on sec. 4-10 of the HMO Act do
not arise "under the Constitution, laws, or
treaties of the United States." Ms. Moran also
makes this argument on appeal.

  As we explained in Speciale v. Seybold, 147 F.3d
612 (7th Cir.), cert. denied, 525 U.S. 1017
(1998) "[t]he determination of jurisdiction on
removal involving an ERISA issue is based upon
the well-pleaded complaint rule, the ERISA
’complete preemption’ exception to that rule and
the defense of ’conflict preemption’ under
ERISA." Id. at 614. Under the well-pleaded
complaint rule, we look to the state court
complaint and not to the defendant’s response to
determine whether the plaintiff’s claim falls
under federal question jurisdiction. See, e.g.,
Jass v. Prudential Health Care Plan, Inc., 88
F.3d 1482, 1486 (7th Cir. 1996). "It is long
settled law that a cause of action arises under
federal law only when the plaintiff’s well-
pleaded complaint raises issues of federal law."
Metropolitan Life Ins. Co. v. Taylor, 481 U.S.
58, 63 (1987). A defendant’s federal defense to a
claim arising under state law, therefore, "does
not create federal jurisdiction and therefore
does not authorize removal." Blackburn v.
Sundstrand Corp., 115 F.3d 493, 495 (7th Cir.),
cert. denied, 522 U.S. 997 (1997).

  There exists, however, an exception to the well-
pleaded complaint rule for state law claims that
have been "completely preempted" by Congress. See
Speciale, 147 F.3d at 615. This so-called
"complete preemption" doctrine really "is not a
preemption doctrine but rather a federal
jurisdiction doctrine." Lister v. Stark, 890 F.2d
941, 943 n.1 (7th Cir. 1989). Even though a
complaint may not mention a federal basis of
jurisdiction, the complete preemption doctrine
"permits ’recharacterization’ of a plaintiff’s
state law claim as a federal claim so that
removal is proper." Speciale, 147 F.3d at 615
(quoting Lister, 890 F.2d at 943).

  In Metropolitan Life, the Supreme Court held
that the civil enforcement provision of ERISA,
sec. 502(a), completely preempts state law causes
of action that fall within the scope of that
provision. See 481 U.S. at 67; Speciale, 147 F.3d
at 615. One of ERISA’s civil enforcement
provisions, sec. 502(a)(1)(B), allows a plan
participant or beneficiary to bring a civil
action "to recover benefits due to him under the
terms of his plan, to enforce his rights under
the terms of the plan, or to clarify his rights
to future benefits under the terms of the plan."
29 U.S.C. sec. 1132(a)(1)(B).

  In Jass, we identified three factors to be used
to determine whether a state law claim should be
recharacterized as an ERISA claim under sec.
502(a): (1) "whether the plaintiff is eligible to
bring a claim under that section"; (2) "whether
the plaintiff’s cause of action falls within the
scope of an ERISA provision that the plaintiff
can enforce via sec. 502(a)"; and (3) "whether
the plaintiff’s state law claim cannot be
resolved without an interpretation of the
contract governed by federal law." 88 F.3d at
1487 (quotation marks and citations omitted).
When all three factors are present, the state law
claim is properly recharacterized as an ERISA
claim under sec. 502(a). See id. at 1489-90.

  We agree with the district court that Ms.
Moran’s state law claims are properly
recharacterized as claims for benefits under sec.
502(a)(1)(B) of ERISA and, therefore, are
completely preempted. Ms. Moran’s claims
certainly satisfy the first two Jass factors.
First, she is a plan participant and is,
therefore, eligible to bring an action under sec.
502(a)(1)(B). Second, she is seeking to enforce
her right to a benefit under her plan. Ms. Moran
seeks payment for the surgery. Finally, Ms.
Moran’s claims meet the third Jass factor because
they require an interpretation of the insurance
contract governing Ms. Moran’s right to the
independent review. As we explained in Plumb v.
Fluid Pump Serv., Inc., 124 F.3d 849 (7th Cir.
1997), Illinois laws automatically are
incorporated into all contracts of insurance in
that state. See id. at 861. Thus, the provisions
of sec. 4-10 of the HMO Act have been
incorporated into Ms. Moran’s insurance contract.
Therefore, the extent and the enforceability of
Ms. Moran’s right to an independent review
necessarily requires an examination of the
contract. Thus, Ms. Moran’s claims properly are
recharacterized as claims for benefits under
ERISA’s civil enforcement provision, sec.
502(a)(1)(B), and removal was proper.

C.

  Now that we have determined that removal of Ms.
Moran’s state court claims based on sec. 4-10 of
the HMO Act was proper, we turn to Rush’s
preemption defense.
  The comprehensive scope of ERISA extends to the
regulation of employee welfare benefit plans
providing "medical, surgical, or hospital care or
benefits" for plan participants "through the
purchase of insurance or otherwise." 29 U.S.C.
sec. 1002(1); see New York State Conference of
Blue Cross & Blue Shield Plans v. Travelers Ins.
Co., 514 U.S. 645, 650-51 (1995). As the Supreme
Court explained in Travelers, ERISA "does not go
about protecting plan participants and their
beneficiaries by requiring employers to provide
any given set of minimum benefits." Travelers,
514 U.S. at 651. Rather, the statute "controls
the administration of benefit plans." Id. "It
envisions administrative oversight, imposes
criminal sanctions, and establishes a
comprehensive civil enforcement scheme." Id.

  As provided by sec. 514 of the statute, ERISA
also preempts some state laws. Specifically,
ERISA’s preemption clause, sec. 514(a), "broadly"
states that state laws are preempted "to the
extent that those laws ’relate to any employee
benefit plan.’" UNUM Life Ins. Co. of Am. v.
Ward, 526 U.S. 358, 363 (1999) (quoting sec.
514(a), 29 U.S.C. sec. 1144(a)). Section 514,
however, contains a saving clause, sec.
514(b)(2)(A), which qualifies sec. 514(a) by
excepting state laws from preemption when those
laws "regulate[ ] insurance." 29 U.S.C. sec.
1144(b)(2)(A); see Ward, 526 U.S. at 367. Still
another clause in sec. 514 serves as an exception
to the saving clause exception: the deemer
clause, sec. 514(b)(2) (B), "makes clear that a
state law that ’purports to regulate insurance’
cannot deem an employee benefit plan to be an
insurance company." Pilot Life Ins. Co. v.
Dedeaux, 481 U.S. 41, 45 (1987) (quoting sec.
514(b)(2)(B), 29 U.S.C. sec. 1144(b)(2)(B)).

  We address each clause in turn.

1.

  For purposes of sec. 514(a), a state law
"relates to" a covered employment benefit plan if
it either has (1) "a connection with" or (2)
"reference to" such a plan. E.g., California Div.
of Labor Standards Enforcement v. Dillingham
Constr., N.A., Inc., 519 U.S. 316, 324 (1997);
Travelers, 514 U.S. at 656; Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 96-97 (1983). We agree
with the parties that sec. 4-10 of the HMO Act
"relates to" ERISA plans because its provisions
have a connection with such plans.

  To determine whether sec. 4-10 of the HMO Act
"relates to" ERISA plans, we begin by looking at
the state statute. Section 4-10 provides, in
relevant part:
Each Health Maintenance Organization shall
provide a mechanism for the timely review by a
physician holding the same class of license as
the primary care physician, who is unaffiliated
with the Health Maintenance Organization, jointly
selected by the patient (or the patient’s next of
kin or legal representative if the patient is
unable to act for himself), primary care
physician and the Health Maintenance Organization
in the event of a dispute between the primary
care physician and the Health Maintenance
Organization regarding the medical necessity of a
covered service proposed by a primary care
physician. In the event that the reviewing
physician determines the covered service to be
medically necessary, the Health Maintenance
Organization shall provide the covered service.

215 ILL. COMP. STAT. ANN. 125/4-10. From the text of
the HMO Act it is apparent that the law does not
make "reference to" an ERISA-governed employee
benefit plan; no mention is made of ERISA plans,
and the law applies to HMOs regardless of whether
a patient’s coverage is through an ERISA plan.
Cf. Travelers, 514 U.S. at 656 (noting that the
law in question in that case did not make
"reference to" ERISA plans because the law’s
provisions applied regardless of whether the
coverage was "secured by an ERISA plan, private
purchase, or otherwise").

  State laws that "risk subjecting [ERISA] plan
administrators to conflicting state regulations"
undoubtedly have a "connection with" ERISA plans
within the meaning of sec. 514(a). FMC Corp. v.
Holliday, 498 U.S. 52, 59 (1990). Here, sec. 4-10
of the HMO Act requires HMOs, including those
that are service providers for ERISA plans, to
provide an independent review mechanism and,
should the independent reviewer agree with the
primary care physician, to pay claims that
otherwise might not be paid under the plan. As
the Court explained in Travelers, state laws that
"mandate[ ] employee benefit structures or their
administration" fall within the ambit of ERISA’s
preemption clause. Travelers, 514 U.S. at 658.
Section 4-10 of the HMO Act has an effect on how
benefit determinations are made and, thus,
squarely falls within ERISA’s preemption clause.

2.

  As we already have noted, however, a state law
that "relates to" ERISA plans may nonetheless
avoid preemption if that law "regulates
insurance" within the meaning of ERISA’s saving
clause, sec. 514(b)(2)(A), 29 U.S.C. sec.
1144(b)(2)(A). See Ward, 526 U.S. at 363. To
determine whether a state law "regulates
insurance" within the meaning of the saving
clause, we first ask "whether, from a
’common-sense view of the matter,’ the contested
prescription regulates insurance." Id. at 367
(quoting Metropolitan Life Ins. Co. v.
Massachusetts, 471 U.S. 724, 740 (1985)). Next,
we consider "three factors employed to determine
whether the regulation fits within the ’business
of insurance’ as that phrase is used in the
McCarran-Ferguson Act." Id. (citing 15 U.S.C.
sec. 1011 et seq.). Of these three factors, the
first is "whether the practice has the effect of
transferring or spreading a policyholder’s risk."
Id. (quotation marks and citation omitted). The
second factor is "whether the practice is an
integral part of the policy relationship between
the insurer and the insured." Id. (quotation
marks and citation omitted). And the third is
"whether the practice is limited to entities
within the insurance industry." Id. (quotation
marks and citation omitted). A state law may fall
within the saving clause even if it cannot
satisfy all three of the McCarran-Ferguson
factors. See id. at 373-74 (stating that the
McCarran-Ferguson factors are "guideposts" and
rejecting the argument that all three are
required).

  We conclude that sec. 4-10 of the HMO Act falls
within the saving clause because it "regulates
insurance" under a common sense understanding and
because it meets at least two of the McCarran-
Ferguson factors. As a matter of common sense,
sec. 4-10 of the HMO Act regulates insurance
because the law is directed at the HMO industry
as insurers. We previously have explained that
HMOs "are insurance vehicles under Illinois law,"
Anderson v. Humana, Inc., 24 F.3d 889, 892 (7th
Cir. 1994), and sec. 4-10 of the HMO Act is aimed
exclusively at members of the insurance industry,
even if the law does not affect the entire
insurance industry in Illinois.

  Section 4-10 of the HMO Act further regulates
insurance under a common sense understanding
because the Act’s provisions go to the core of
the relationship between the insurer and the
insured. "It is fundamental insurance law that
’existing and valid statutory provisions enter
into and form a part of all contracts of
insurance to which they are applicable, and,
together with settled judicial constructions
thereof, become a part of the contract as much as
if they were actually incorporated therein.’"
Plumb, 124 F.3d at 861 (quoting 2 Lee R. Russ &
Thomas F. Segalla, Couch on Insurance 3d sec.
19:1, at 19-2 to 19-4 (1996)). The provisions of
sec. 4-10 of the HMO Act, therefore, are
substantive terms of all insurance policies in
Illinois by operation of law. When a law mandates
a contract term between parties, whether that
term is characterized as creating a "procedural"
or "substantive" right, that law is "integral" to
the insurer/insured relationship. Ward, 526 U.S.
at 374-75 & n.5.

 Having determined that sec. 4-10 of the HMO Act
regulates insurance under a common sense
understanding, we look next to the McCarran-
Ferguson factors. Section 4-10 clearly satisfies
the second and third McCarran-Ferguson
factors./3 The second McCarran-Ferguson factor
is satisfied because sec. 4-10 creates a
mandatory term in the insurance contract and,
thus, "changes the bargain between insurer and
insured," id. at 374. Moreover, sec. 4-10
satisfies the third McCarran-Ferguson factor
because, as we already have explained, the
section applies only to HMOs acting as insurers.
Thus, the law is limited to entities within the
insurance industry.

3.

  The "deemer clause," sec. 514(b)(2)(B), is an
exception to the saving clause exception. A law
saved from preemption by the saving clause may
still be preempted if it falls within the deemer
clause. See FMC Corp., 498 U.S. at 61. Under this
clause, state laws that purport to regulate
insurance by "deeming" a plan to be an insurance
company are outside of the saving clause and are
subject to preemption. See id.

  The "deemer clause" is inapplicable to this
case. In FMC Corp., the Supreme Court explained
that the deemer clause exempts "self-funded ERISA
plans from state laws that ’regulate insurance’
within the meaning of the saving clause." Id. The
ERISA plan at issue before us, however, is not a
self-funded plan; it is an insured plan. The
Supreme Court’s interpretation of the deemer
clause "makes clear that if a plan is insured, a
State may regulate it indirectly through
regulation of its insurer and its insurer’s
insurance contracts." Id. at 64. Rush is the
insurer to the ERISA plan at issue in our case,
and therefore the deemer clause does not apply.
See Ward, 526 U.S. at 367 n.2 (stating that,
because the plan at issue in that case was not
self-insured, the deemer clause was "not at
issue"); Plumb, 124 F.3d at 859 n.6 (explaining
that, because the plan at issue was an insured
plan, the deemer clause was inapplicable).

4.

  A state law that falls within the saving clause
nevertheless may be preempted if that law
conflicts with a substantive provision of ERISA.
See Pilot Life, 481 U.S. at 57. Rush argues that
sec. 4-10 of the HMO Act conflicts with sec.
502(a)(1)(B) of ERISA’s civil enforcement scheme.
That provision establishes the right of plan
participants or beneficiaries to sue "to recover
benefits" under the plan, "to enforce . . .
rights" under the plan, or "to clarify . . .
rights" under the plan. 29 U.S.C. sec.
1132(a)(1)(B). Rush invites our attention to a
decision from the Court of Appeals for the Fifth
Circuit, Corporate Health Insurance, Inc. v.
Texas Department of Insurance, 215 F.3d 526 (5th
Cir. 2000), in which the court considered an
independent review statute from Texas that is
quite similar to sec. 4-10 of Illinois’ HMO Act.

  The Texas independent review statute, like sec.
4-10 of the HMO Act, essentially "allow[s] a
patient who has been denied coverage to appeal to
an outside organization." Id. at 537. The law
requires HMOs to provide a mechanism for patients
to obtain an independent review of the need for a
course of treatment. Specifically, the court
explained, the Texas statute states that patients
may appeal "adverse determinations," which are
defined as determinations that a health care
service is not "medically necessary" or
"appropriate," to an independent reviewer. Id.
(quotation marks and citations omitted).
Moreover, under the Texas statute, the HMO must
"comply" with the independent reviewer’s
determination of medical necessity. Id.
(quotation marks and citation omitted).

  Our colleagues in the Fifth Circuit took the
view that the Texas law conflicted with ERISA’s
civil enforcement scheme and therefore was
preempted. The court concluded that Texas’
independent review statute was preempted, even
though it regulated insurance within the meaning
of the saving clause, because the statute’s
provisions were contrary to the civil enforcement
scheme established in sec. 502(a). See id. at
539. According to the court, the Texas
independent review statute "establish[ed] a
quasi-administrative procedure for the review of
[a decision to deny benefits] and [bound] the
ERISA plan to the decision of the independent
[reviewer]." Id. "This scheme," the court held,
"creates an alternative mechanism through which
plan members may seek benefits due them under the
terms of the plan--the identical relief offered
under [sec. 502(a)(1)(B)]." Id.

  In denying the petition for rehearing, the court
further explained that, in its view, the Texas’
independent review provision "substitutes the
medical judgment of a third party physician for
the HMO’s, or treating physician’s, judgment as
to medical necessity." Corporate Health Ins., Co.
v. Texas Dep’t of Ins., 220 F.3d 641, 644 (5th
Cir. 2000). In the view of the court, "the law is
clear that Texas cannot provide a supplementary
claims process by binding the HMO to pay for a
treatment that is simply a second opinion on
medical necessity about which reasonable doctors
might reach differing conclusions." Id. at 645.
Although the court left open the possibility that
an independent review statute might not run afoul
of the exclusivity of ERISA’s civil enforcement
provisions if the independent review mechanism
"regulate[d] the minimal quality level of medical
care provided for covered conditions," the court
explained that the Texas statute was "plainly a
state regime for reviewing benefit decisions and
not a system for implementing a mandated term of
insurance regulating a minimal standard of care."
Id.

  In our view, sec. 4-10 of the Illinois HMO Act
cannot be characterized as creating an
alternative remedy scheme that conflicts with
sec. 502(a). The independent review scheme
created by the Illinois statute is not tantamount
to the relief offered under sec. 502(a)(1)(B). As
we already have explained, the provisions of sec.
4-10 of the HMO Act have been incorporated into
Ms. Moran’s insurance contract./4 Thus, a suit
by her to enforce the HMO Act’s provisions is
simply a suit to enforce the terms of the plan--
precisely the sort of suit that is contemplated
by sec. 502(a)(1)(B) "to enforce rights" and "to
recover benefits" under the plan. Notably, the
"sole launching ground" for Ms. Moran’s claims to
enforce sec. 4-10 of the HMO Act remains sec.
502(a). Ward, 526 U.S. at 377./5 Rather than
providing an alternative remedy for Ms. Moran to
recover benefits, sec. 4-10 of the HMO Act simply
establishes an additional internal mechanism for
making decisions about medical necessity and
identifies who will make that decision in those
instances when the HMO and the patient’s primary
care physician cannot agree on the medical
necessity of a course of treatment. Rather than
eliminate the review procedures established by
the plan, it simply adds to the contract, by
operation of law, an additional dispute resolving
mechanism when, despite exhausting the internal
review system otherwise provided by the plan,
there remains a disagreement between the plan’s
own experts and the attending physician on the
issue of medical necessity.

  Nor does the addition of this statutorily
mandated provision in the contract alter
impermissibly the deferential standard of review
required by the language of the plan. Certainly,
the administrator’s failure to abide by the
decision of the outside medical consultant on the
issue of medical necessity would constitute an
abuse of discretion. The statutorily required
provision of the plan requires that the decision
of the independent review physician be followed,
and it would be an abuse of discretion on the
part of the administrator not to observe the
command of this provision. However, the different
outcome is not because of a change in the
standard of review but because of a change in the
provisions of the contract./6

  We also believe that it is inaccurate to say
that sec. 4-10 of the HMO Act conflicts with the
fiduciary role of the administrator of the plan.
At the outset, it is important to note that the
provisions of sec. 4-10 of the HMO Act apply only
to disputes about whether a covered service is
medically necessary in a given case. Other
issues, most notably the issue of whether a
particular treatment is covered, do not fall
within the ambit of the section. Moreover, as we
have already noted, even with respect to medical
necessity decisions, there is nothing in sec. 4-
10 of the HMO Act that in any way abrogates the
pre-existing fiduciary obligations of the
administrator. Section 4-10 of the HMO Act merely
adds an additional obligation that the fiduciary
must observe.

  In sum, sec. 4-10 of the HMO Act requires
entities in the business of insurance to provide
additional safeguards to preserve the integrity
of the decision-making process. Following the
example of the Supreme Court of the United
States, we believe that such requirements ought
to be treated as mandated contract terms and
treated as part of the insurance contract. See
Ward, 526 U.S. at 375-76; see also Plumb, 124
F.3d at 861. Unlike the situation in Pilot Life,
we are not asked here to recognize a state common
law doctrine of general applicability but a
specific statutory provision aimed at the
regulation of the insurance industry. As in Ward,
we simply accept the state-mandated provision as
a provision of the plan and then enforce the
contract./7

D.

  In this case, there no longer remains a question
of material fact that would preclude judgment as
a matter of law. As we already have explained,
Ms. Moran’s claim for reimbursement really is a
claim for benefits made under sec. 502(a)(1)(B)
to enforce her rights under the plan. Moreover,
sec. 4-10 of the HMO Act, as incorporated into
the plan by operation of law, entitled Ms. Moran
to the independent review conducted by Dr.
Dellon. Dr. Dellon determined, in agreement with
Ms. Moran’s primary care physician, that the
surgery performed by Dr. Terzis was "medically
necessary." Thus, Ms. Moran is entitled to
summary judgment in her favor.

Conclusion

  For the foregoing reasons, we reverse the
judgment of the district court.
REVERSED

/1 The State of Illinois has intervened to defend
the HMO Act. We also have the benefit of three
amicus curiae briefs: one from the United States
Department of Labor; one from the American
Medical Association, the Illinois State Medical
Society, and the American College of Legal
Medicine; and one from the Illinois State Chamber
of Commerce and the Employment Law Council of
Illinois.
/2 The plan documents provide that a service is
"medically necessary" if Rush determines that it
meets all of the following criteria:

(a) It is furnished or authorized by a
Participating Doctor for the diagnosis or the
treatment of a Sickness or Injury or for the
maintenance of a person’s good health.

(b) The prevailing opinion within the
appropriate specialty of the United States
medical profession is that it is safe and
effective for its intended use, and that its
omission would adversely affect the person’s
medical condition.

(c) It is furnished by a provider with
appropriate training, experience, staff and
facilities to furnish that particular service. .
. .

R.1-1, Ex.A at 21.

/3 Because at least two of the McCarran-Ferguson
factors are secured, we need not decide whether
sec. 4-10 of the HMO Act transfers or spreads
risk. Cf. Ward, 526 U.S. at 374.

/4 Indeed, aside from the fact that the Illinois
statute automatically became part of the contract
by operation of law, the certificate defining Ms.
Moran’s rights under the plan incorporated the
provisions of sec. 4-10 of the HMO Act.
Specifically, the certificate provides that "[i]f
the provisions of this Certificate do not conform
to the requirements of any state or federal law
that applies to the Certificate, the Certificate
is automatically changed to conform with the
requirements of that law." R.1-1, Ex.A, at 34.

/5 Although Ms. Moran’s pleadings in this litigation
purported to assert claims under state law, we
already have explained that her claims premised
on sec. 4-10 of the HMO Act must be
recharacterized as claims made under sec.
502(a)(1)(B).

/6 We note that, in this case, the reviewing
physician employed the definition of medical
necessity found in the provisions of the plan.
Although the parties do not bring the issue to
us, and we therefore need not decide it, the use
of the plan’s definition demonstrates even
further that sec. 4-10 of the HMO Act does not
totally disrupt the pre-existing terms of the
plan but merely affords the participant an
additional protection.

/7 To the degree that our views differ from those of
the Fifth Circuit, we find ourselves in
respectful disagreement and therefore have
circulated this opinion under Circuit Rule 40(e).
The opinion has been circulated among all judges
of this court in regular active service. A
majority of the judges in active service did not
wish to rehear the case en banc. Judges Posner,
Coffey, Easterbrook and Diane P. Wood voted to
grant rehearing en banc.




  Posner, Circuit Judge, with whom Circuit Judges
Coffey, Easterbrook, and Diane P. Wood join, dissenting
from denial of hearing en banc. This case is well
worth the attention of the full court. The
panel’s decision creates a square conflict with
another circuit, is very probably unsound, and
will affect an enormous number of cases. It is
also a single-issue case, and the issue is one of
law, so that en banc consideration would be
unlikely to create a fractured result or bog the
court down in factual questions. Rarely have we
had so strong a candidate for en banc review.

  The decision holds that ERISA does not preempt
an Illinois statute that requires HMOs to submit
to review by an independent physician the
decision by the HMO not to cover a treatment
deemed medically necessary by the patient’s
physician. 215 ILCS 125/4-10. An ERISA medical-
benefits plan sponsored by the employer of the
plaintiff’s husband had delegated the provision
of the services to which the plan participants
were entitled to an HMO. The plan did not require
the HMO to submit disagreements with a plan
participant’s doctor to arbitration by an
independent third party. The Illinois statute,
unless preempted by ERISA insofar as the
statute’s application to ERISA plans is
concerned, will thus effect a substantial change
in the employer’s plan. The state law is conceded
to relate to ERISA plans and so it is preempted
unless the law merely regulates insurance. See 29
U.S.C. sec.sec. 1144(a), (b)(2)(A). In UNUM Life
Ins. Co. v. Ward, 526 U.S. 358 (1999), the
principal basis for the panel’s decision, the
Supreme Court held that a state law that limited
insurance companies’ right to ignore late claims
when the lateness did not harm the insurance
company merely regulated insurance and therefore
could lawfully be applied to ERISA plans. As the
Fifth Circuit pointed out in the decision with
which the panel has gone into conflict, Corporate
Health Insurance, Inc. v. Texas Dept. of
Insurance, 215 F.3d 526 (5th Cir. 2000), the
"notice prejudice" law held not preempted in Ward
was a typical regulation of insurance rather than
anything either special to ERISA plans or likely
to be mischievous in its impact on those plans.
All the law provided was that an insurer couldn’t
disregard late claims unless it had been harmed
by the lateness.

  The law in this case, like the materially
identical law held preempted by the Fifth
Circuit, is not a general regulation of
insurance, or even of health insurance; it is a
regulation of HMOs, which are the service
providers under a great many ERISA medical-
benefits plans. The law establishes a system of
appellate review of benefits decisions that is
distinct from the provision in ERISA for suits in
federal court to enforce entitlements conferred
by ERISA plans. 29 U.S.C. sec. 1132(a)(1)(B). By
doing so, the law interferes with the federally
specified system for enforcing such entitlements.
The suit for breach of contract envisaged by the
statute becomes a suit for judicial review of the
independent physician’s decision. The Illinois
law thus adds heavy new procedural burdens to
ERISA plans. These burdens do not come without
cost. The expense of an arbitration by the
independent physician could easily equal the
expense of the medical treatment that the HMO had
refused to authorize. Piling on costs in the
administration of ERISA plans will shrink
benefits and deter some employers from offering
health insurance at all. In addition, the
Illinois law obviously is intended (responding to
the recent torrent of criticisms of HMOs) to tilt
the administration of those plans in favor of
participants by giving them an additional remedy
while not giving any additional remedy to the
plan. The law undermines the statutory purpose of
federal uniformity in the administration of ERISA
plans. If such laws are permissible, the rights
of participants in an ERISA plan will change as
they are transferred by their employer from state
to state, even though they are nominally under
the same plan.

  Although the panel’s opinion is long, it does
not respond to the concerns just expressed,
although they were forcefully argued in the HMO’s
brief and in an amicus brief supporting the HMO.
All that the panel can find to say in defense of
its startling decision, except that it thinks it
supported by Ward, yet without appreciating the
force of the Fifth Circuit’s distinction of that
case, is that the Illinois law makes the
physician-review provision a part of the ERISA
plan and so does not disturb the exclusivity of
ERISA’s scheme for the enforcement of the rights
that ERISA plans confer on participants and
beneficiaries. Under the panel’s view, then, if
the plan does not submit a disagreement to review
by the independent physician, the participant can
sue the plan for a violation of its terms. This
is just a facon de parler. It invites states to
evade the preemptive force of ERISA simply by
deeming its regulations of ERISA plans to be plan
terms. It would authorize a state to require
ERISA plans to double their benefits. I am sure
the panel would not go so far as to permit so
transparent an evasion of ERISA’s preemption
clause, but the opinion contains nothing that
would enable the panel to distinguish that case.
Far from being compelled by Ward, the panel’s
opinion is in tension with Pegram v. Herdrich,
120 S. Ct. 2143 (2000), which it does not cite.
Although Pegram held that combined treatment-
eligibility decisions by an HMO are not fiduciary
decisions under ERISA, it did not doubt that
ERISA applied to HMO-managed ERISA plans; the
panel, by contrast, seems to think ERISA
inapplicable to such plans.

  There is another unresolved tension in the
panel’s opinion. The opinion appears to depend on
two propositions: first, that the Illinois law
regulates insurance rather than ERISA plans and
thus is not preempted; second, that by virtue of
Illinois law the requirement of independent
physician review is written not only into an
insurance contract but also into the plan itself,
which makes the requirement enforceable in
federal court. The two propositions are
incompatible. If the statute merely regulates
insurance and therefore is not preempted, how can
it be part of an ERISA plan and enforceable in
federal court? If, on the other hand, the
requirement imposed by the statute is and must be
incorporated into the plan, then Illinois has
done more than merely regulate the contents of an
insurance policy. It has regulated the contents
of an ERISA plan--which means that its law is
preempted.
