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Home > Blog > Blog > Health Insurance > Seventh Circuit Holds State Law Claims Seeking Payment and Penalties for Unpaid Medical Bills from Self-Funded Health Plan Are Preempted by ERISA

Seventh Circuit Holds State Law Claims Seeking Payment and Penalties for Unpaid Medical Bills from Self-Funded Health Plan Are Preempted by ERISA

In Carnes v. HMO Louisiana, Inc., No. 23-2903, __F.4th__, 2024 WL 3873528 (7th Cir. Aug. 20, 2024), Plaintiff-Appellant Carnes appealed the district court’s dismissal of his lawsuit against Defendant HMO Louisiana, Inc., the administrator of his employer’s self-funded health plan. Plaintiff sought remedies under Illinois state insurance law. The district court determined that ERISA preempts his claims and gave him leave to amend to plead an ERISA claim. Rather than re-plead his lawsuit, he moved to reconsider, which the district court denied. The Seventh Circuit agreed that Plaintiff’s state law insurance claims are preempted by ERISA and affirmed the dismissal.

Plaintiff worked for Consolidated Grain and Barge Co. and received treatment for degenerative disc disease. HMO Louisiana paid for just some of his treatments. He filed a workers’ compensation claim against Consolidated Grain, which was settled without the company accepting any responsibility for payment of his medical claims. This left Plaintiff with an outstanding balance of around $190,000 in unpaid medical bills, for which he received at least one collection notice.

Plaintiff then filed a lawsuit against HMO Louisiana “claiming that it violated Article IX of the Illinois Insurance Code (without identifying a specific provision) and requesting penalties pursuant to 215 ILCS 5/155 for its alleged ‘vexatious and unreasonable’ failure to pay the amount of his outstanding medical claims.” The district court granted Defendant’s motion to dismiss on the basis of ERISA preemption. Rather than file an amended complaint, Plaintiff filed a procedurally improper Rule 60(b)(6) motion to reconsider that the district court denied. On appeal, the Seventh Circuit noted that the standard of review of a Rule 60(b)(6) determination is for abuse of discretion. But there was no final judgment when Plaintiff filed his motion. Regardless, the court affirmed the district court under de novo review.

The court found that because Plaintiff was a participant in a self-funded, employer-sponsored health plan, it is governed by ERISA. ERISA supersedes any and all State laws that relate to any benefit plan. Plaintiff’s claim falls squarely within ERISA’s broad preemption and is not saved by ERISA’s savings clause because self-funded ERISA plans are exempt from state laws that regulate insurance. The court also rejected Plaintiff’s attempt to frame his lawsuit as a coordination of benefits dispute rather than one seeking to enforce his rights under the plan. The court explained that he cannot creatively plead his way out of ERISA’s extensive preemption.

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*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.

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