Conway v. Friday Health Plans of Colorado, Inc.
1:24-cv-03484
| D. Colo. | Jun 27, 2025Background
- Friday Health Plans of Colorado, Inc., an insurer participating in the ACA Risk Adjustment Program, became insolvent and was ordered into liquidation by a Colorado state court.
- Colorado amended its insolvency statute to create a new class 1 priority, allowing the state Commissioner to distribute risk adjustment funds directly to other insurers, ahead of the federal government’s claims and traditional policyholder claims.
- The Commissioner sought approval from the state court to disburse $6.7 million from Friday Health’s estate to Denver Health, a Colorado insurer, under the new statute.
- HHS, the federal agency administering the ACA Risk Adjustment Program, objected, arguing federal law preempts Colorado’s new priority, and removed the case to federal court.
- Motions before the federal court were (1) the Commissioner's motion to remand the case to state court, and (2) HHS’s motion to set aside the state court’s disbursement order.
- The dispute centers on whether Colorado’s new law is preempted by the ACA and the Federal Priority Statute, marking an issue of first impression.
Issues
| Issue | Plaintiff’s Argument | Defendant’s Argument | Held |
|---|---|---|---|
| Was removal to federal court proper and timely? | Not directed at HHS; untimely removal | State order impacts/funds due HHS; timely | Removal was proper and timely; order is directed at HHS and affects federal operations. |
| Does Colorado’s law escape federal preemption under McCarran-Ferguson? | Regulates insurance to protect CO policyholders; Fabe bars preemption for such laws | Only laws for insolvent insurer’s own policyholders escape preemption (Fabe); this new class benefits non-policyholders | Colorado’s new class 1 priority does not regulate insurance as narrowly construed; connection to policyholders is too remote. |
| Is Colorado’s law preempted by the Federal Priority Statute? | Payment to Denver Health indirectly protects policyholders, akin to administrative costs | Payment goes to non-policyholders; statute is not for the business of insurance (per Fabe) | Preempted: provision benefits non-policyholders, not sufficiently related to business of insurance. |
| Is Colorado’s law preempted by the ACA? | ACA is silent on insolvency; state law does not impede ACA operation | Law alters federal payment methodology under ACA, conflicting with federal objectives | Preempted: new Colorado priority alters federal risk adjustment distribution and frustrates ACA’s objectives. |
Key Cases Cited
- United States Dep’t of Treasury v. Fabe, 508 U.S. 491 (preemption of state insurer insolvency priorities under McCarran-Ferguson)
- Wyeth v. Levine, 555 U.S. 555 (purpose of Congress is ultimate touchstone of preemption)
- Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88 (states must have federal approval to assume federal program responsibilities without preemption)
- St. Louis Effort for AIDS v. Huff, 782 F.3d 1016 (preemptive scope of ACA’s non-preemption clause)
- Coons v. Lew, 762 F.3d 891 (state law preempted by ACA under obstacle/conflict preemption)
- UnitedHealthcare of N.Y., Inc. v. Lacewell, 967 F.3d 82 (state law preempted by ACA where it impedes Risk Adjustment Program)
- Medtronic, Inc. v. Lohr, 518 U.S. 470 (preemption jurisprudence requires clear Congressional intent)