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JACKSON v. ASSOCIATED HOSP. SERV. OF PHILADELPHIA

May 11, 1976

HELEN McCAFFREY JACKSON and ANDREW J. JACKSON, individually and in their own right and ANDREW McCAFFREY JACKSON, a minor by his parents and guardians, HELEN McCAFFREY JACKSON and ANDREW J. JACKSON, et al.
v.
ASSOCIATED HOSPITAL SERVICE OF PHILADELPHIA a/k/a BLUE CROSS OF GREATER PHILADELPHIA, et al.



The opinion of the court was delivered by: HUYETT

 Plaintiffs in this action are various subscribers, and in some cases their dependents, to the hospital and medical plans of defendants Blue Cross of Greater Philadelphia (Blue Cross) and Medical Service Association of Pennsylvania (Blue Shield). *fn1" Invoking 42 U.S.C. §§ 1981, 1983, and 1985 and the Pennsylvania Constitution, plaintiffs challenge the constitutionality of some of the Blue Cross and Blue Shield maternity benefit plans and seek declaratory and injunctive relief *fn2" and damages against defendant health plans as well as against state defendants Herbert S. Dennenberg, former Pennsylvania Insurance Commissioner, and J. Finton Speller, former Secretary of Health of the Commonwealth of Pennsylvania. *fn3" Although this action has proceeded slowly due, in no small part, to a lack of clarity in some of plaintiffs' pleadings and memoranda of law, the advent of Jackson v. Metropolitan Edison Co., 419 U.S. 345, 42 L. Ed. 2d 477, 95 S. Ct. 449 (1974), something over a year ago signaled clearly that the primary jurisdictional base for plaintiffs' case, 42 U.S.C. § 1983, was shaky. We therefore set up a discovery period to be devoted to gathering evidence, documentary and otherwise, to aid us in determining the presence of state action under § 1983. Upon completion of discovery we held a hearing on the issue and the parties then submitted post-hearing memoranda of law which were to treat the issue of jurisdiction both under § 1983 and under § 1985(3). *fn4" Having considered at length the evidence presented and arguments of the parties, we find we must dismiss plaintiffs' complaint for lack of jurisdiction.

 As we read plaintiffs' constitutional claim, its main thrust is that all defendants, in conspiracy with one another, have impermissibly infringed upon plaintiffs' religious exercise and their right to bear children by placing certain restrictions on Blue Cross and Blue Shield maternity benefit plans. Although unclear whether or not all maternity plans offered by Blue Cross and Blue Shield impose these restrictions, it is apparent from the documentary evidence submitted that a good many do impose them. The two restrictions most complained of are an eight-month waiting period from the effective date of the insurance contract for eligibility for maternity benefits *fn5" and an increased premium to obtain maternity benefits. *fn6" Plaintiff Helen Jackson, for example, was denied Blue Cross maternity benefits on the basis of the eight-month restriction. In raising their constitutional challenge, plaintiffs focus particularly on the comparison between Blue Cross and Blue Shield coverage of the medical expenses associated with abortion, specifically elective abortion, and those associated with normal childbirth. Defendant health plans admittedly treat abortion as a surgical rather than an obstetrical procedure and therefore do not impose on abortion coverage the restrictions imposed on maternity coverage. This distinction, plaintiffs contend, supported by the state, amounts to an unconstitutional "state policy favoring death over life." Plaintiffs' principal claim, then, appears to be a due process attack on arbitrary governmental infringement upon first amendment rights to free religious exercise and the right to privacy. In addition to this claim, however, plaintiffs raise, without concentrating upon them, two contentions apparently grounded in the equal protection clause of the Fourteenth Amendment. Plaintiffs allege that defendant health plans discriminate both against women in general and against single women, the former by penalizing them for a condition peculiar to their sex and the latter either by denying them access to maternity benefits or by requiring them to pay a substantial extra premium to obtain benefits. In opposing plaintiffs' claims defendants raise various defenses going both to standing of the various plaintiffs and to the merits of their claims. We will not reach these issues, however, since we hold that, as a federal court, we lack the jurisdictional power to entertain plaintiffs' suit in the first instance. *fn7"

 Section 1983 of Title 42 reads:

 
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.

 Plaintiffs' successful invocation of § 1983, and its jurisdictional counterpart 28 U.S.C. § 1343(3), depends on our finding that the involvement of the Commonwealth of Pennsylvania, through its Insurance Department, in the business conduct of defendants Blue Cross and Blue Shield rises to the level of state action. If the Commonwealth's involvement does not produce state action, then the insurance practices complained of are purely private activities and reachable, if at all, not through § 1983 but through § 1985(3).

 In making a finding on state action, most especially in this case in which the state involvement, whatever its level, takes the form of state regulation of private, non-profit insurers, our Bible must be Jackson v. Metropolitan Edison Co., 419 U.S. 345, 42 L. Ed. 2d 477, 95 S. Ct. 449 (1974). In Jackson plaintiff filed suit under § 1983 seeking injunctive relief and damages against defendant, a privately owned and operated utility, for terminating her electrical service without notice or a hearing. She further alleged that the degree of state involvement in defendant's operation converted defendant's activities into state action. The Court, in a 6-3 decision, held that

 
the State of Pennsylvania is not sufficiently connected with respondent's action in terminating petitioner's service so as to make respondent's conduct in so doing attributable to the State for purposes of the Fourteenth Amendment.

 419 U.S. at 358-59. Justice Rehnquist, writing for the majority, structures his analysis by first setting out a broad standard for determining when the conduct of a regulated enterprise amounts to state action and then considering, as possibly relevant to this standard, three areas of contiguity between the enterprise and the State. In making our finding here, we, in turn, will structure our analysis on that of the Jackson Court.

 The Court begins its analysis by defining the focal consideration in assessing the presence vel non of state action under § 1983 when the alleged state actor is a regulated business:

 
The mere fact that a business is subject to state regulation does not by itself convert its action into that of the State for purposes of the Fourteenth Amendment. . . . Nor does the fact that the regulation is extensive and detailed, as in the case of most public utilities, do so. . .. [The] inquiry must be whether there is a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself.

 Id. at 350-51 (citations omitted). Defendants Blue Cross and Blue Shield, as non-profit providers of health insurance, are unquestionably subject to state regulation. Since February 1973 they have both been covered by a separate statutory scheme applicable to non-profit insurers, 40 P.S. § 6101 et seq. and § 6301 et seq. This determination, however, as the Jackson Court points out, far from being dispositive, is only the jumping off point for analysis.

 In deciding, in the context of Jackson, whether or not there existed "a sufficiently close nexus between the State and the challenged action of the regulated activity so that the action of the latter may be fairly treated as that of the State itself," the Court considers, as the first of three areas of possibly relevant inquiry, the status of Metropolitan Edison as a state-created monopoly. Although the Court disputes Metropolitan's monopoly status, it goes on to conclude:

 
But assuming that [the public utility had a monopoly status], this fact is not determinative in considering whether Metropolitan's termination of service to petitioner was "state action" for purposes of the Fourteenth Amendment. . . . In [ Public Utilities Commission v. Pollak, 343 U.S. 451, 96 L. Ed. 1068, 72 S. Ct. 813 (1952), and Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 32 L. Ed. 2d 627, 92 S. Ct. 1965 (1972)], there was insufficient relationship between the challenged actions of the entities involved and their monopoly status. There is no indication of any greater connection here.

 Id. at 351-52. The crucial point here for the purposes of our analysis is that Blue Cross and Blue Shield, although tax-exempt, *fn8" do not even arguably enjoy a protected monopoly. They compete with the commercial insurance market. In fact according to the deposition of Thomas Chepel, a rate analyst for the Pennsylvania Insurance Department:

 
When you are talking about comparing a Blue Cross and Blue Shield non-group subscriber contract with an individual accident and health insurance policy written by a commercial accident and health insurance carrier, you would find a cost difference that is significant; that being that Blue Cross and Blue Shield would provide better benefits at a more reasonable cost. When you are talking about the large group cases, the cost of Blue Cross and Blue Shield providing comparable benefits with a large commercial accident and health insurer, it can become very close. It can be very competitive.

 Dep. at 54. Thus the extent to which a link between monopoly status and conduct challenged might have aided the Jackson plaintiff cannot bolster plaintiffs' argument here. The lack of monopoly status on the part of Blue Cross and Blue Shield cuts further against plaintiff's position when one notes that both Justice Douglas and Justice Marshall base their dissents, in important part, on the fact of Metropolitan's state-protected monopoly.

 The Court next considers the significance of a regulated business's activity being, arguably, in the public interest:

 
If we were dealing with the exercise by Metropolitan of some power delegated to it by the State which is traditionally associated with sovereignty, such as eminent domain, our case would be quite a different one. . . . The Pennsylvania courts have rejected the contention that the furnishing of utility services are either state functions or municipal duties.
 
Perhaps in recognition of the fact that the supplying of utility service is not traditionally the exclusive prerogative of the State, petitioner invites the expansion of the doctrine [that state action is present in the exercise by a private entity of powers traditionally exclusively reserved to the State] into a broad principle that all businesses "affected with the public interest" are state actors in all their actions.
 
We decline the invitation . . . .

 Id. at 352-53 (citations omitted). Applying this reasoning to the case at hand, we find, as we did when considering the Court's position on Metropolitan's monopoly status, that plaintiffs here have an even weaker case than did plaintiff in Jackson. Certainly, if the supplying of utility service to private homes, service that assures heat and light in these homes, is not "traditionally associated with sovereignty," then the supplying of health insurance is not so associated.

 The final area of inquiry under the Jackson Court's analysis is the one which, on the particular facts of this case, presents the closest question. In commenting on the import, in an examination into the presence of state action, of the state's authorizing and approving a termination procedure by ...


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