Also submitted with plaintiffs' papers are a letter from Kennedy's attorney to Empire dated October 26, 1990, and the letter of response from Empire dated December 27, 1990. Empire refused to take any action to adjust the reimbursement.
The three named policies are governed by two different federal statutes. TraditionPlus and Wraparound are governed by ERISA. The Federal Employees Program, the one to which plaintiff Kennedy subscribes, is governed by the Federal Employees Health Benefits Act, 5 U.S.C. §§ 8901-8913 (1988), known as FEHBA.
Empire argues that, under both statutes, the class members are required to exhaust their administrative remedies before filing suit against an insurer. Exhaustion of administrative remedies under the ERISA plans would consist of an appeal to the insurance carrier after the carrier's initial denial of a claim. Amato v. Bernard, 618 F.2d 559, 567 (9th Cir. 1980). Under the FEHBA plan, there is an additional step available to a claimant after the appeal to the carrier - i.e., an appeal to the Office of Personnel Management (OPM). 5 C.F.R. 890.105.
There is no contention that any member of the plaintiff class covered under an ERISA plan has appealed to the insurance carrier. There is no contention that Kennedy or any member of the class covered under the FEHBA plan has appealed to the OPM. However, plaintiffs argue that Empire's rejection of Kennedy's complaint "effectively exhausted administrative remedies for the entire plaintiff class."
Various judicial decisions have dealt with the question of exhaustion of administrative remedies presented here.
It is well established that, under insurance contracts governed by ERISA, policy holders must exhaust their administrative remedies before filing suit against an insurance carrier. Alfarone v. Bernie Wolff Constr. Corp., 788 F.2d 76, 79 (2d Cir.), cert. denied, 479 U.S. 915, 93 L. Ed. 2d 289, 107 S. Ct. 316 (1986).
With respect to the exhaustion requirements for plans governed by FEHBA, however, there has been a split of authority. The main point of contention arises from the use of the word "may" in the relevant C.F.R. provision:
Each health benefits plan adjudicates claims filed under the plan. An enrollee must initially submit all claims to the health benefits plan in which he or she is enrolled. If the plan denies a claim, the enrollee may ask the plan to reconsider the denial. If the plan affirms its denial or fails to respond as required by paragraph (b) of this section, the enrollee may ask OPM to review the claim.
5 C.F.R. 890.105 (emphasis added).
In Skoller v. Blue Cross-Blue Shield, 584 F. Supp. 288 (S.D.N.Y. 1984), the court interpreted the word "may" to mean that claimants may pursue OPM review, but are not required to do so before filing suit against an insurance carrier. The court stated that "neither Congress nor OPM has manifested any intent to make OPM review either an exclusive remedy or a mandatory prerequisite to judicial resolution of disputes over contract interpretation." Id. at 291; see also Eidler v. Blue Cross Blue Shield United, 671 F. Supp. 1213, 1215 (E.D. Wis. 1987) ("It would seem strange that Congress would intend foreclosure of judicial review with such permissive language").
Other courts, however, have held that section 890.105 does require exhaustion. Bateman v. Blue Cross-Blue Shield, 579 F. Supp. 265, 268 (M.D. Ala. 1984) (The claimant "may seek OPM review, or not seek review and accept the carrier's decision; the choice is the claimant's."); see also Director, Edward J. Meyer Memorial Hosp. v. Stetz, 433 F. Supp. 323, 325 (W.D.N.Y. 1977) ("Since no record exists of exhaustion of this administrative remedy, the court has no jurisdiction over the claim.").
In 1986 OPM explained its official position on section 890.105.
In the employee benefits area, OPM has traditionally argued for dismissal of court cases when the individual has failed to exhaust administrative remedies. The purpose of OPM's disputed claims review procedures is to assist enrollees in avoiding the costs and time delays associated with legal proceedings. Consequently, we do not favor a regulation calling for review by the courts before all administrative remedies have been exhausted.
51 Fed. Reg. 18,562 (1986).
Neither the Second Circuit nor the Southern District has revisited section 890.105 since OPM announced this interpretation. The 11th Circuit, however, has recently interpreted section 890.105 in light of the official OPM interpretation. The 11th Circuit held that section 890.105 requires OPM review before a claim can be brought directly against an insurance carrier. Kobleur v. Group Hospitalization & Medical Servs., 954 F.2d 705 (11th Cir. 1992). The court relied on Martin v. O.S.H.R.C., 113 L. Ed. 2d 117, 111 S. Ct. 1171, 1176 (1991), which held that a court must give effect to an agency's interpretation of its own regulation so long as the interpretation is reasonable.
OPM's interpretation of section 890.105 is entirely reasonable. As the Kobleur court stated:
Congress gave OPM the authority to administer the federal benefits program, to proscribe regulations necessary to meet this end, and to bind carriers to OPM's interpretations of their plans. The delegation of such authority, combined with the absence of any language in the FEHBA precluding the possibility of an exhaustion requirement, convinces us of Congress' faith in OPM's ability to protect federal employees through its administration of the program.
954 F.2d at 711.
This court agrees with the 11th Circuit and holds that section 890.105 contains an exhaustion requirement.
Both ERISA and FEHBA therefore require claimants to exhaust administrative remedies before filing a lawsuit against an insurance carrier. No plaintiff, however, has done so. Kennedy is the only member of the plaintiff class who has even pursued carrier review, and she has not attempted OPM review.
Plaintiffs seek to avoid the exhaustion requirement by invoking the futility doctrine. They claim that Empire's rebuff of Kennedy's complaint about Zip Code Pricing proves that administrative review would be useless.
The futility doctrine allows courts to release plaintiffs from exhaustion requirements when plaintiffs make a "clear and positive showing" that pursuing administrative remedies would be futile. Fizer v. Safeway Stores, 586 F.2d 182, 183 (10th Cir. 1978). Since none of the TraditionPlus or Wraparound customers has attempted carrier review and none of the Federal Employees Program customers has attempted OPM review, it is impossible for this court to say that plaintiffs have made a "clear and positive showing" that these attempts would have been futile.
This court therefore lacks jurisdiction to hear plaintiffs' claims because they have not exhausted their administrative remedies. The action is dismissed.
Dated: New York, New York
August 7, 1992
THOMAS P. GRIESA
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