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Foothill Church, v. Rouillard

United States District Court, E.D. California

July 11, 2016

MICHELLE ROUILLARD, in her official capacity as Director of the California Department of Managed Health Care, Defendant.


         This action arises from letters issued by the California Department of Managed Health Care ("DMHC") to seven private health insurers ("insurers" or "Plans") on August 22, 2014, which required them to remove any limitations on or exclusions of abortion services from the health care coverage they offer. Compl. Ex. 1, ECF No. 1-1. Plaintiffs Foothill Church, Calvary Chapel Chino Hills, and Shepherd of the Hills Church ("plaintiffs" or "Churches"), three churches who allegedly offer their employees DMHC-regulated health coverage through these insurers, filed this action against defendant Michelle Rouillard ("defendant" or "Director"), Director of the DMHC, alleging the letters violate their constitutional rights under the First and Fourteenth Amendments. This matter is before the court on defendant's motion to dismiss the complaint. ECF No. 21. Plaintiffs oppose the motion. ECF No. 26. The court held a hearing on May 6, 2016, at which Jeremiah Galus, Erik Stanley, and David Hacker appeared for plaintiffs, and Joshua Sondheimer and Hadara Stanton appeared for defendant. As explained below, the court GRANTS defendant's motion.


         A. State Regulatory Framework for Health Care Industry

         In California, the DMHC and the California Department of Insurance ("CDI") oversee regulation of the health care industry. The DMHC regulates "health care service plans" under the Knox-Keene Health Care Service Plan Act of 1975 ("Knox-Keene Act" or "Act"), Cal. Health & Safety Code § 1340 et seq., including by approving or disapproving language submitted in evidence of coverage filings. The Knox-Keene Act defines "health care service plans" as "[a]ny person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees." Cal. Health & Safety Code § 1345(f)(1). Health maintenance organizations ("HMOs") and other structured managed care organizations ("MCOs") are "health care service plans" under this definition. Rea v. Blue Shield of Cal., 226 Cal.App.4th 1209, 1215 (2014).

         The CDI, on the other hand, regulates traditional health insurance companies under the California Insurance Code. Cal. Ins. Code §§ 740-742.1; see Rea, 226 Cal.App.4th at 1215. The Knox-Keene Act does not generally govern entities regulated by the CDI, see Cal. Health & Safety Code §§ 1343(e)(1) & 1349, and sections 740 to 742.1 of the Insurance Code, in turn, do not apply to health care service plans, see Cal. Ins. Code §§ 740(g) & 742(b).

         In addition, because the federal Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., preempts most state health plan regulations, self-funded health plans subject to ERISA need not comply with most state health coverage requirements. See District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 (1992); FMC Corp. v. Holliday, 498 U.S. 52, 61 (1990).

         B. The Knox-Keene Act

         The Knox-Keene Act requires a person to secure a license from the Director of the DMHC before offering a health care service plan. Cal. Health & Safety Code § 1349. One requirement for licensure is that "[a] health care service plan contract [must] provide to subscribers and enrollees all of the basic health care services included in subdivision (b) of Section 1345." Cal. Health & Safety Code § 1367(i). Section 1345(b) lists the following as "basic health care services":

(1) Physician services, including consultation and referral.
(2) Hospital inpatient services and ambulatory care services.
(3) Diagnostic laboratory and diagnostic and therapeutic radiologic services.
(4) Home health services.
(5) Preventive health services.
(6) Emergency health care services, including ambulance and ambulance transport services and out-of-area coverage. "Basic health care services" includes ambulance and ambulance transport services provided through the "911" emergency response system.
(7) Hospice care pursuant to Section 1368.2.

Id. § 1345(b). Section 1367(i) continues that "[t]he director shall by rule define the scope of each basic health care service that health care service plans are required to provide as a minimum for licensure" under the Act. Id. § 1367(i). Based on this authority, the Director promulgated regulations defining the scope of "[t]he basic health care services required to be provided by a health care service plan to its enrollees . . . where medically necessary." Cal. Code Regs. tit. 28, § 1300.67. The regulations define "physician services" to include services "provided by physicians licensed to practice medicine or osteopathy, " id. § 1300.67(a), and define "preventive health services" to include "a variety of voluntary family planning services, " id. § 1300.67(f)(2).

         The Knox-Keene Act provides for a number of categorical and individualized exemptions, including the following examples. First, "[a] plan directly operated by a bona fide public or private institution of higher learning" and the California Small Group Reinsurance Fund are each exempt from regulation under the Act. Cal. Health & Safety Code § 1343(e). Second, the Act gives the Director the authority, "for good cause, by rule or order [to] exempt a plan contract or any class of plan contracts" from the requirement of providing all of the basic health care services included in section 1345(b). Id. § 1367(i). The Act also gives the Director broad authority to exempt any class of persons or plan contracts from the regulations of the Act or to waive any requirement of any rule or form if the Director finds exemption or waiver to be in the public interest and not detrimental to the protection of the subscribers, enrollees, or persons regulated under the Act. Id. §§ 1343(b), 1344(a). Third, the Act offers religious employers exemptions from providing coverage for "FDA-approved contraceptive methods that are contrary to [their] religious tenets, " id. § 1367.25(c), or coverage for "forms of treatment of infertility in a manner inconsistent with [their] religious and ethical principles, " id. § 1374.55(e).

         C. Reproductive Rights Under California Law

         In 1972, California voters amended the state constitution to include a right to privacy among the inalienable rights protected by Article I, section 1. See Chico Feminist Women's Health Ctr. v. Butte Glenn Med. Soc., 557 F.Supp. 1190, 1201 (E.D. Cal. 1983) (citing White v. Davis, 13 Cal.3d 757, 773-74 (1975)). The California Supreme Court has interpreted Article I, section 1 as providing that "all women in this state-rich and poor alike-possess a fundamental constitutional right to choose whether or not to bear a child." Comm. To Defend Reprod. Rights v. Myers, 29 Cal.3d 252, 262 (1981).

         In addition to these constitutional protections, the Reproductive Privacy Act of 2002 declares, "[I]t is the public policy of the State of California that . . . [e]very woman has the fundamental right to choose to bear a child or to choose and to obtain an abortion . . . ." Cal. Health & Safety Code § 123462(b). It prohibits the state from "deny[ing] or interfer[ing] with a woman's right to choose or obtain an abortion prior to viability of the fetus, or when the abortion is necessary to protect the life or health of the woman." Id. § 123466.

         D. The Federal Patient Protection and Affordable Care Act

         The federal Patient Protection and Affordable Care Act of 2010 ("ACA"), 124 Stat. 119, "generally requires employers with 50 or more full-time employees to offer ‘a group health plan or group health insurance coverage' that provides ‘minimum essential coverage.'" Burwell v. Hobby Lobby Stores, Inc., __ U.S. __, 134 S.Ct. 2751, 2762 (2014) (quoting 26 U.S.C. §§ 4980H(a), 4980H(c)(2), 5000A(f)(2)). If any covered employer stops providing health insurance altogether and at least one full-time employee enrolls in a health plan and qualifies for a subsidy on one of the government-run ACA exchanges, the employee must pay $2, 000 per year for each of its full-time employees. Id. (citing 26 U.S.C. §§ 4980(H)(a), (c)(1)).


         On October 16, 2015, plaintiffs filed a complaint, which makes the following allegations. Compl., ECF No. 1. On August 22, 2014, the Director of the DMHC sent letters to seven private health insurers stating that the DMHC had reviewed their contracts and the relevant legal authorities and "concluded that it erroneously approved or did not object to" language in some previous evidence of coverage ("EOC") filings that may discriminate against women by limiting or excluding coverage for termination of pregnancies. Compl. ¶¶ 2, 27; Compl. Ex. 1 at 1. Private insurers had previously submitted EOC filings to the DMHC notifying defendant of benefit plan options that excluded coverage for voluntary and elective abortions, and defendant and the DMHC had not objected. Compl. ¶¶ 45-47.

         The letters continued:

The purpose of this letter is to remind plans that the [Knox-Keene Act] requires the provision of basic health care services and the California Constitution prohibits health plans from discriminating against women who choose to terminate a pregnancy. Thus, all health plans must treat maternity services and legal abortion neutrally.

Compl. Ex. 1 at 1.

         To ensure compliance with California law, the letters required the recipient private health insurers to review all current health plan documents to ensure compliance, to amend current health plan documents to remove discriminatory coverage exclusions and limitations, and to file any revised relevant health plan documents with the DMHC, all within ninety days of the date of the letter. Id. at 2. Plaintiffs refer to these requirements generally as "the Mandate." See Compl. ¶ 2. The letters provided examples of discriminatory limitations or exclusions, such as excluding coverage for "voluntary" or "elective" abortions, and stated the insurer "may, consistent with the law, omit any mention of coverage for abortion services in health plan documents, as abortion is a basic health care service." Compl. Ex. 1 at 2. For support, the letters cited the authorities described above, specifically, Article 1, section 1 of the California Constitution, California Health and Safety Code section 1340 et seq., California Health and Safety Code section 123460 et seq., and implementing regulations. Id. Each letter noted, "Consistent with 42 U.S.C. § 18054(a)(6), this letter shall not apply to a Multi-State Plan." Id. at 1 n.2. Section 18054(a)(6) provides specifically that "[i]n entering into contracts under this subsection, the Director shall ensure that with respect to multi-State qualified health plans offered in an Exchange, there is at least one such plan that does not provide coverage of [abortion services]." The DMHC also published copies of the letters on its website. Compl. ¶ 27; Compl. Ex. 2, ECF No. 1-2.

         Plaintiffs are three non-profit Christian churches located in Southern California. Compl. ¶¶ 13-15. Each plaintiff has more than fifty full-time employees and must, therefore, provide health coverage for its employees under the ACA. Id. ¶¶ 59-61. Foothill Church offers health insurance plans to its employees through Kaiser Permanente and Blue Shield, with the plan year beginning and ending annually on or about July 1. Id. ¶ 13. Calvary Chapel Chino Hills offers health insurance plans to its employees through Kaiser Permanente, Aetna, and Anthem Blue Cross, with the plan year beginning and ending annually on or about November 30. Id. ¶ 14. Shepherd of the Hills Church offers health insurance plans to its employees through Anthem Blue Cross and Kaiser Permanente, with the plan year beginning and ending annually on or about December 1. Id. ¶ 15. Plaintiffs' insurers each received a letter from the DMHC as described above. See Compl. Ex. 1.

         Plaintiffs all hold what they describe as "historic and orthodox" Christian teachings on the sanctity of human life. Compl. ¶ 17. They "believe and teach that abortion ends a human life and is a grave sin, " and they "believe that participation in, facilitation of, or payment for abortion is inconsistent with the dignity conferred by God on creatures made in His image." Id. ¶¶ 20-21. "Consistent with their Christian beliefs and principles, Plaintiffs also promote the physical, emotional, and spiritual well-being of their employees through the provision of generous health insurance as a benefit of employment." Id. ¶ 22. In furtherance of these beliefs and principles, plaintiffs consulted with their insurance brokers and/or insurers to provide employee group health plans that do not pay for abortions. Id. ¶¶ 23-24. However, plaintiffs' insurance brokers and/or insurers have informed them that the DMHC's letters require their group health insurance plans to cover abortions, including voluntary and elective ones. Id. ¶ 25.

         This action followed. The complaint alleges the DMHC's letters violate plaintiffs' rights under the Free Exercise, Establishment, Free Speech, and Equal Protection clauses of the U.S. Constitution. See Id. ¶¶ 104, 114, 119, 126. In support of the Free Exercise and Establishment clause claims, the complaint alleges defendant issued the letters after learning that two Catholic universities unrelated to plaintiffs eliminated elective abortion coverage from their health care plans. Id. ¶ 48. It further alleges defendant had knowledge her letters would coerce religious employers and churches, like plaintiffs, to violate their sincerely held religious beliefs, id. ¶ 7, and in fact designed the content of the letters "to make it impossible for Plaintiffs to comply with their religious beliefs, " id. ¶ 62. With respect to the Free Speech claim, the complaint alleges the letters infringe plaintiffs' rights by requiring plaintiffs to purchase group health plans that provide coverage for abortions, and, as a result, to fund abortions through their employee health plans. Id. ¶¶ 116-17. Finally, in support of the Equal Protection claim, the complaint alleges the letters treat plaintiffs differently than similarly situated persons and businesses "in that there are categorical and individualized exemptions to the Knox-Keene Act and the [letters'] requirements." Id. ¶ 123. In addition to the exemptions discussed above, the complaint alleges the letters do not apply to health benefit plans offered by the California Public Employees' Retirement System (CalPERS) to active and retired state and local government employees. Id. ¶ 52 ("CalPERS continued to offer health benefit plans excluding coverage for elective abortions after Defendant issued the Mandate.").[1]

         On January 12, 2016, defendant moved to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). ECF No. 21 ("Mot."). Plaintiffs opposed the motion, ECF No. 26 ("Opp'n"), and defendant replied, ECF No. 30 ("Reply"). At hearing, plaintiffs clarified they are challenging only the letters and the DMHC's enforcement of the Knox-Keene Act; they are not bringing a facial constitutional challenge against the underlying state laws.

         III. LE ...

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