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Because a settlement was reached in the case, the U.S. Supreme Court will not decide whether the Federal Employees Health Benefits Act preempts a state court lawsuit against a government contractor that administers benefits provided in accordance with the statute.

The plaintiff was a federal employee whose health care benefits were administered by the government contractor.

The contractor stopped paying medical expenses for the employee’s son, allegedly on the ground that the Department of Labor had declared that the employee did not have family coverage.

The employee filed a bad faith suit in state court. The defendant succeeded in having the case removed to federal court and a U.S. District Court dismissed the claim, ruling it was preempted by the Act.

But the 7th Circuit reversed, holding that the plaintiff’s state insurance claim was not necessarily preempted.

"To the extent that [the defendant] was doing nothing but following the [Department of Labor's] orders, the case belongs in federal court and must be dismissed – not because of ‘complete preemption’ but because suits related to a federal agency’s health-benefits-coverage decisions must name as the defendant the Office of Personnel Management or the employing agency rather than the insurance carrier. But if the Department of Labor did not direct [the defendant] to change [the plaintiff's] coverage, and just paid too little into the fund, then this case must be remanded to state court," the 7th Circuit said.

The Supreme Court granted certiorari, but the case was dismissed before oral arguments were heard after the parties reached a settlement.

U.S. Supreme Court. Pollitt  v. Health Care Service Corp ., No. 09-38.  Dismissed Feb. 24, 2010.

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