Rush Prudential HMO, Inc. v. Moran
The Court ruled that Illinois's law giving patients a right to an independent medical review of denied HMO claims survives despite the federal law (ERISA) that usually overrides state rules touching employee benefit plans.
Because the Illinois law counts as insurance regulation, it fits within a carve-out Congress wrote into ERISA for state insurance laws, so patients covered by employer health plans can still demand a second medical opinion when their HMO says a treatment isn't necessary.
“The answer to Rush is, of course, that an HMO is both: it provides health care, and it does so as an insurer.”
Explaining why HMOs count as insurers subject to state insurance regulation despite also being health care providers.
How it got here: Moran sued in state court; after removals and remands between state and federal court, the Seventh Circuit ruled the Illinois law survived ERISA preemption, and the HMO sought Supreme Court review.
The Case in Depth
What happened
Debra Moran, covered by an HMO through her husband's employer, was denied approval for an unconventional shoulder surgery her HMO called not "medically necessary." She invoked an Illinois law requiring HMOs to submit such disputes to an independent physician for review. The HMO refused to comply and later refused to pay even after an independent reviewer sided with Moran, prompting litigation over whether the federal ERISA law wiped out the Illinois review requirement.
The question before the Court
Could Illinois require HMOs to let an independent doctor review denied claims, even though a federal law usually controls employee health benefit disputes?
The Court's answer
Yes — the Court ruled that Illinois's independent-review law survives because it counts as insurance regulation under ERISA's saving clause, and it does not create a forbidden new legal remedy on top of what ERISA already provides. HMOs are both health care providers and insurers, since they bear the financial risk of members' care, so a law targeting how HMOs handle disputed denials squarely regulates insurance.
The Court also rejected the argument that the review process functions like binding arbitration that bypasses ERISA's court system. Because the independent reviewer only answers a narrow medical-necessity question and any relief still flows through an ordinary ERISA lawsuit, the law does not upset ERISA's uniform system of remedies enough to be preempted.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Millions of people whose health coverage comes through employer-sponsored HMOs can continue to rely on state independent-review laws (roughly 40 states have similar statutes) to challenge denials of care as "not medically necessary," without having ERISA wipe those protections out.
What changes now
The ruling is final on the merits: the Illinois independent-review requirement remains enforceable against HMOs administering ERISA-governed health plans, and the case is not remanded for further proceedings on the preemption question. The decision leaves in place similar independent-review statutes in roughly 40 other states, though the Court left open some related questions, like whether a reviewer's judgment could later be challenged as biased or inaccurate in a benefits lawsuit.
What this does not decide
The Court did not decide whether more elaborate or burdensome state review schemes might someday conflict with ERISA, and it left open whether a reviewer's determination could be challenged in court as inaccurate or biased. It also did not resolve exactly which organizations count as HMOs under the Illinois definition beyond the facts of this case.
Concurrences and dissents
Dissent — Justice Thomas
“Section 4-10 cannot be characterized as anything other than an alternative state-law remedy or vehicle for seeking benefits.”The dissent's core objection that Illinois's review process is a forbidden alternative to ERISA's exclusive remedies.
Justice Thomas argued that Illinois's review process is really binding arbitration in disguise, letting patients get their benefits claim decided outside ERISA's court system by a doctor rather than a judge. He warned this lets states create alternative remedies that Congress specifically excluded from ERISA, undermining the uniform national system for handling benefit disputes. He would have found the law preempted and sent the case back to determine benefits without relying on the independent review.
How the Court got there
The legal reasoning, step by step
- The Court first asked whether the Illinois independent-review law 'relates to' employee benefit plans under ERISA's broad preemption clause, and found it obviously does because it adds an extra review step for plans that buy HMO coverage.
- Because the law relates to ERISA plans, the Court turned to whether it fits ERISA's saving clause, which protects state laws that 'regulate insurance.' Under a commonsense test, a law must be specifically aimed at the insurance industry, not just have some effect on it.
- The Court reasoned that HMOs are insurers as well as health care providers because they take on the financial risk of covering their members, so a law defining and regulating HMOs by reference to risk-bearing is insurance regulation, not merely health-care regulation.
- Applying the three-factor test used under the McCarran-Ferguson Act (a law from 1945 letting states keep authority over insurance), the Court found the Illinois review requirement shapes the core relationship between insurer and insured and applies only to entities in the insurance business, satisfying the insurance-regulation test.
- Because the law survived as insurance regulation, the Court then asked whether it nonetheless conflicted with ERISA's exclusive system of lawsuits for benefits. It concluded the Illinois review process does not create any new legal claim or new type of relief beyond what ERISA already allows, distinguishing this from cases where the Court had earlier struck down state rules that added new causes of action or remedies.
- The Court concluded that the Illinois review process functions more like a mandated second medical opinion than like binding arbitration, because the reviewer is a doctor answering a narrow medical-necessity question, not a substitute judge resolving a full legal dispute, so it does not encroach on ERISA's court-based enforcement scheme.
Doctrinal impact
Cases affected by this decision
Distinguishes Pilot Life Ins. Co. v. Dedeaux (481 U.S. 41)
The Court found Illinois's review process unlike the barred 'alternative remedy' claims struck down in Pilot Life.
Reaffirms UNUM Life Ins. Co. of America v. Ward (526 U.S. 358)
The Court relied on this case's approach to conclude state claims-procedure rules can survive ERISA preemption.