896 F.

2d 808

CHESTER COUNTY INTERMEDIATE UNIT, Lincoln

Intermediate Unit,
Mr. and Mrs. John M. Gillespie, and Mr. and Mrs.
Kevin Nonemaker, Appellants,
v.
PENNSYLVANIA BLUE SHIELD and Capital Blue Cross.
No. 89-5577.

United States Court of Appeals,

Third Circuit.
Argued Nov. 28, 1989.
Decided Feb. 28, 1990.

Allen C. Warshaw (argued), Duane, Morris & Heckscher, Harrisburg, Pa.,

for appellants.
Thomas E. Wood (argued) and Donna S. Weldon, Keefer, Wood, Allen &
Rahal, Harrisburg, Pa., for appellee, Pennsylvania Blue Shield.
Mary Jane Forbes (argued), McNees, Wallace & Nurick, Harrisburg, Pa.,
for appellee, Capital Blue Cross.
Ernest N. Helling, Acting Chief Counsel and Debra R. Cruel, Asst.
Counsel, Harrisburg, Pa., for amicus curiae, Pennsylvania Dept. of Educ.
Before SLOVITER and BECKER, Circuit Judges, and LIFLAND, District
Judge* .OPINION OF THE COURT
SLOVITER, Circuit Judge.

I.
Introduction
1

The principal issue before us is whether the Education of the Handicapped Act
(EHA or Act), 84 Stat. 175, as amended, 20 U.S.C. Secs. 1400 et seq.,

precludes companies offering medical and hospital insurance from excluding

from coverage services provided free of charge under that Act. The parents of
two handicapped children who received physical therapy as related services in
conjunction with the mandated education required under the Act were covered
by health insurance policies issued by defendants Capital Blue Cross and
Pennsylvania Blue Shield (Blue Cross/Blue Shield). The intermediate
educational units (IUs) which provided the physical therapy submitted bills to
Blue Cross/Blue Shield for reimbursement, but Blue Cross/Blue Shield refused
payment, relying on various contractual provisions. The parents and the IUs
filed suit for a declaratory judgment. Defendants' motion to dismiss brought to
issue the effect of the EHA on the obligation of Blue Cross/Blue Shield to
reimburse subscribers or providers for certain services rendered pursuant to the
Act. The district court dismissed the action, holding that the plaintiffs' claim
was inconsistent with the reimbursement provisions of the applicable policy.
The plaintiffs appeal.
II.
Facts and Procedural History
2

On review of an order dismissing the complaint, we must take as true all

material facts as pleaded. Rogin v. Bensalem Township, 616 F.2d 680, 685 (3d
Cir.1980), cert. denied, 450 U.S. 1029, 101 S.Ct. 1737, 68 L.Ed.2d 223 (1981).

Appellants Chester County Intermediate Unit (Chester IU) and Lincoln

Intermediate Unit (Lincoln IU) are two of the twenty-nine area intermediate
educational units formed as part of the Pennsylvania public school system.
Appellants Mr. and Mrs. John Gillespie are the parents of a handicapped child,
Todd, who was provided physical therapy by licensed physical therapists
employed by or affiliated with Chester IU from October 5, 1987 through
February 29, 1988. Appellants Mr. and Mrs. Kevin Nonemaker are the parents
of a handicapped child, Kevin, who was provided physical therapy by licensed
physical therapists employed by or affiliated with Lincoln IU from February 3,
1987 through November 4, 1987.

Both the Gillespies and the Nonemakers have policies with Pennsylvania Blue
Shield and Capital Blue Cross covering their families' health care needs. The
billing offices for the Chester and Lincoln IUs submitted the Nonemakers' and
Gillespies' claims for payment to Blue Cross/Blue Shield. They apparently rely
on the Major Medical benefits which supplement Blue Cross and Blue Shield
basic coverage and provide coverage for, inter alia, "[p]hysical therapy
prescribed by the attending provider as to type and duration when performed by

a duly qualified physical therapist." Complaint at Exhibit A, App. at 63, and

Exhibit B, App. at 121. The Gillespies and the Nonemakers attached the
descriptive brochures they received covering such benefits to the complaint.
The Major Medical provisions described in the two brochures are identical and,
for convenience, we will refer to the document describing such benefits as the
"policy."
5

When Blue Cross/Blue Shield disclaimed coverage, plaintiffs sought an

administrative resolution of their claims. Both the Pennsylvania Insurance
Department and the Pennsylvania Department of Education notified plaintiffs
that they were not the appropriate fora to resolve the dispute. Plaintiffs then
filed this suit as a class action in the district court. The complaint alleged that
the Lincoln and Chester IUs were representatives of all IUs in Pennsylvania
which provided special education and related services under the EHA and that
the Nonemakers and Gillespies were representatives of all parents of
handicapped children receiving special education and related services from
licensed providers employed by or affiliated with Pennsylvania's IUs and who
are covered by a Blue Cross/Blue Shield policy such as the one which covers
the Nonemakers and Gillespies.

Blue Cross/Blue Shield filed a motion to dismiss under Fed.R.Civ.P. 12(b)(6).

They argued that the provisions of the EHA requiring states to provide special
education and related services to parents without charge and at public expense
precluded shifting the costs of such services to those parents who carry health
insurance. They also argued, inter alia, that the physical therapy services are not
covered under any interpretation of the Blue Cross/Blue Shield Major Medical
policy for several reasons. First, they contended that the policy covers only
"medically necessary hospitalization and medical benefits," see App. at 60, and
that notwithstanding the affidavits from the children's doctors stating that the
physical therapy was medically necessary, see App. at 168-71, the physical
therapy provided to the children would never have been prescribed by doctors
but for the EHA. Second, Blue Cross/Blue Shield relied on the provision of the
policy excluding coverage for services which the subscriber "is not legally
obligated to pay" or which the subscriber is entitled to receive from a
governmental unit or agency "without cost." Third, they relied on the
reimbursement provisions of the policy, which they argued do not require them
to make direct payment to a provider but only provide for reimbursement to the
subscriber after submission of itemized bills and payment of the required
deductible and coinsurance.

The district court dismissed the action. It stated, in agreement with plaintiffs'
position, "that insurers are not relieved of contractual obligations they would

otherwise have had had the [EHA] not been enacted." App. at 7 (emphasis in
original). The court then examined the policy attached by plaintiffs to the
complaint and held that as a matter of law Blue Cross/Blue Shield were not
obligated under that policy to make payments to the IUs for the physical
therapy treatments. Regarding the three contractual provisions relied on by
Blue Cross/Blue Shield in denying reimbursement to the IUs, the court noted
there was a disputed issue of fact as to whether the physical therapy provided to
Todd Gillespie and Kevin Nonemaker would have been medically necessary if
the EHA had not been enacted. The court assumed, for purposes of the motion,
that the services would have been medically necessary.
8

The court held, however, that there was no disputed issue of material fact with
respect to the procedure for reimbursement for Major Medical coverage. The
court construed the policy as requiring payment directly to the subscriber, and
held that there is no applicable provision for assignment. The court accepted
defendants' contention that "because there is no actual charge upon which an
appropriate Blue Shield reimbursement calculation could be based" and "no
deductibles are paid," the reimbursement provisions of the policy bar payment.
It stated that the plaintiffs' "suggested scheme for payments to be made directly
to the IU's, totally disregards the [reimbursement] terms of the policy."
Consequently, the court concluded that plaintiffs had not stated a cause of
action upon which relief can be granted under the terms of their policy with
Blue Cross/Blue Shield. Under this approach, the court never reached the
issues of the construction and validity of the exclusionary provisions of the
Blue Cross/Blue Shield policy.1

The scope of our review from the district court's grant of a motion to dismiss is
plenary. Daly v. United States Dept. of the Army, 860 F.2d 592, 593 (3d
Cir.1988).

III.
Discussion
A.
10

The EHA is a comprehensive program enacted by Congress to assist the states

"in complying with their constitutional obligations to provide public education
for handicapped children." Smith v. Robinson, 468 U.S. 992, 1009, 104 S.Ct.
3457, 3467, 82 L.Ed.2d 746 (1984). Under the Act, federal funding to support
education for handicapped children is available to states if they have in effect a
"policy that assures all handicapped children the right to a free appropriate

public education." 20 U.S.C. Sec. 1412(1) (1988). The Act defines "free
appropriate public education" as
11
special
education and related services that--(A) have been provided at public
expense, under public supervision and direction, and without charge, (B) meet the
standards of the State educational agency, (C) include an appropriate preschool,
elementary, or secondary school education in the State involved, and (D) are
provided in conformity with the individualized education program required under
section 1414(a)(5) ...
20 U.S.C. Sec. 1401(a)(18) (1988). 2
12

Although defendants agree with the district court's action in dismissing the
complaint, they argue that the district court erred in construing the statutory
language "free appropriate public education" to mean "free to the parents."
Defendants argue that the IUs have a statutory duty to provide an appropriate
public education for handicapped children at public expense, and they
complain that the district court should have adopted their position that the EHA
does not authorize shifting of costs to private insurers.

13

We see no reason to reach this amorphous issue in the context of this appeal.
The district court's statement was not necessary to its decision. Even Blue
Cross/Blue Shield concede that under some circumstances, they would be
obliged to pay for physical therapy services furnished pursuant to a
handicapped child's individualized education program.3 We therefore leave
consideration of the theoretical question of the meaning of a "free" appropriate
education to the case where it is necessary to the disposition.

14

Similarly, we are reluctant to decide this appeal as did the district court on the
basis of the reimbursement scheme. The plaintiffs argue that the district court
had no basis from the complaint to assume that there was no actual charge
made on which a reimbursement calculation could be based, had no evidence
with respect to the status of payment of deductibles and coinsurance, and could
not properly rely on payment procedures or Assignment Account Guidelines
which were not properly in evidence. It may be that the district court correctly
analyzed these issues, but we are sensitive to plaintiffs' contention that there are
relevant facts which were not of record and which should have been the subject
of discovery. Accordingly, we leave undecided the issue of the reimbursement
scheme.4 It is more productive for us to examine whether the language of the
policy relied on by plaintiffs purports to cover the physical therapy services at
issue, and we turn in particular to the exclusions on which defendants rely.

B.
15

Blue Cross/Blue Shield relied in the district court on the provisions in the
Major Medical policy specifying that coverage is excluded for:

Services or supplies for which the subscriber is not legally obligated to pay:
16
17
Services
or supplies paid or which the subscriber is entitled to have paid or to obtain
without cost under the laws or regulations of any federal, state, provincial, or local
government or any political subdivision thereof;
18

Complaint at Exhibit A, App. at 67-68, and Exhibit B, App. at 125-126.

Plaintiffs suggest that neither the district court nor this court may properly rely
on the brochure describing the Blue Cross and Blue Shield health plans which
plaintiffs attached to the complaint. They contend that these matters are outside
the bounds of the complaint and can be considered only after the motion to
dismiss is converted into a Rule 56 summary judgment motion, allowing the
parties a reasonable opportunity to present all pertinent materials. See
Fed.R.Civ.P. 12(b); see also JM Mechanical Corp. v. United States, 716 F.2d
190, 196-97 (3d Cir.1983).

19

Although plaintiffs now argue that the descriptive material attached to the
complaint is not the actual policy or contract, 5 the plaintiffs, having themselves
attached this material to their complaint and described the exhibits in the
complaint as "true and correct cop[ies] of the [subscribers'] polic[ies] which
[are] incorporated herein as though fully set forth," App. at 14, 15, are bound
by them. The exhibits were properly considered by the district court in granting
the motion to dismiss. See Quiller v. Barclays American/Credit, Inc., 727 F.2d
1067 (11th Cir.1984), cert. denied, 476 U.S. 1124, 106 S.Ct. 1993, 90 L.Ed.2d
673 (1986); Amfac Mortgage Corp. v. Arizona Mall, 583 F.2d 426 (9th
Cir.1978); Fed.R.Civ.P. 10(c) ("a copy of any written instrument which is an
exhibit to a pleading is a part thereof for all purposes."); cf. Rose v. Bartle, 871
F.2d 331, 339-40 n. 3 (3d Cir.1989) (distinguishing between documentary
exhibits, such as contracts, which are written instruments for purposes of Rule
10(c), and affidavits, which are not).6

20

Moreover, plaintiffs have not suggested to this court that these descriptive
brochures are not accurate as to the scope of health care coverage provided in
the respects relevant here. In fact, as to the exclusion on which we focus, the
complaint specifically provides:

Both the Gillespies' and the Nonemakers' insurance agreements exclude from
21

payment by Blue Cross services or supplies for which the subscriber is not legally
obligated to pay as well as services or supplies for which the subscriber is entitled to
have paid or obtain without cost under the laws or regulations of any federal, state,
provincial or local government or any political subdivision.
22

App. at 12. Indeed, these exclusions form the basis of one of the, if not the
principal, legal arguments asserted on appeal. Accordingly, we are free to
examine as a matter of law the effect of the exclusions pled by plaintiffs.

C.
23

It is undisputed that the children of the Gillespies and Nonemakers are entitled
"to obtain without cost" under the EHA the physical therapy services provided
and that the parents are "not legally obligated to pay" for these services. The
exclusionary provisions, therefore, explicitly preclude Blue Cross/Blue Shield
coverage of the physical therapy and they would appear to be dispositive of
plaintiffs' claim. Plaintiffs, however, contend that the exclusionary provisions
are in contravention of the provisions of, and public policy underlying, the
EHA, as well as of regulations promulgated under the Act.

24

Plaintiffs rely on the following language in the EHA:

Any State meeting the eligibility requirements.... shall ...

25
26

(9) provide satisfactory assurance that Federal funds made available under this
subchapter--(A) will not be commingled with State funds, and (B) will be so
used as to supplement and increase the level of Federal, State and local funds
(including funds that are not under the direct control of State or local
educational agencies) expended for special education and related services
provided to handicapped children under this subchapter and in no case to
supplant such Federal, State or local funds....

27

20 U.S.C. Sec. 1413(a)(9) (1988). Plaintiffs contend that because this language
requires that federal funds supplement, and not supplant, other available
resources, the EHA cannot be relied on to relieve private insurers of otherwise
valid contractual obligations.

28

We find it questionable whether this language has any application to private

insurance funds, because it appears to be directed to supplementation of
"Federal, State and local funds." There is no direct reference to private funds.
However, even if we were to assume, arguendo, that the language "including

funds that are not under the direct control of State or local educational
agencies" refers to private insurance dollars, rather than public funds, at most
this would bar supplanting, i.e., substitution, of federal funds for private funds
previously expended for such services. This is a far cry from reading the
language to require insurers to cover the costs of services which the policy
excludes.
29

Plaintiffs point to a paragraph in the Senate Report which states:

30
Under
the Committee Bill, a State's application shall provide that special education
and related services shall be provided at no cost to the parents of a handicapped
child. This provision is designed to insure that students served by private facilities
are treated equally with those in public schools and is not to be construed to prohibit
charges by the educational agency to insurers, public programs, and others for
hospital care, health services, rehabilitation, and other non-educational services.
States are encouraged to utilize all sources of support for comprehensive services for
handicapped students.
31

S.Rep. No. 168, 94th Cong., 1st Sess. 32, reprinted in 1975 U.S.Code Cong. &
Admin.News 1425, 1456 (emphasis added).

32

We find no support in this paragraph for plaintiffs' position that the Act
prohibits insurers from excluding coverage for services that must be provided
free under the Act. A statement that an agency is not prohibited from charging
insurers for special education and related services simply cannot be transmuted
into congressional intent to abrogate agreed-upon exclusions or to require
insurers to cover costs for services which the parties agreed to exempt from
coverage.

33

Plaintiffs purport to find support in the regulation implementing the Act

promulgated by the Office of Special Education and Rehabilitative Services of
the Department of Education which provides that:

34 Each State may use whatever State, local, Federal, and private sources of support
(a)
are available in the State to meet the requirements of this part....
35 Nothing in this part relieves an insurer or similar third party from an otherwise
(b)
valid obligation to provide or to pay for services provided to a handicapped child.
36

34 C.F.R. Sec. 300.301 (1988) (emphasis added).

37

This has been followed by the Secretary of Education's policy interpretation of

37

This has been followed by the Secretary of Education's policy interpretation of

the EHA that "[t]he responsibility to make available a free appropriate public
education does not mean that a public educational agency must use only its own
funds for that purpose. An agency may use whatever State, local, Federal, and
private sources of support are available to pay for required services." 45
Fed.Reg. 86,390 (1980) (emphasis added).

38

Although we should defer to the statutory interpretation of the Department of

Education, which administers the EHA, see Irving Indep. School Dist. v. Tatro,
468 U.S. 883, 891-92, 104 S.Ct. 3371, 3376-77, 82 L.Ed.2d 664 (1984), neither
the regulation nor the policy interpretation does more than interpret the EHA as
permitting states to use available funds from insurers. "Available" funds must
be read as being limited to funds which the insurers are obligated to provide
under the applicable contract. Nothing in the regulation or policy statement
requires insurers to commit funds which are not available because they are
explicitly excluded from the contract.7

39

Finally, plaintiffs rely on what they refer to as "policy interpretations." In

response to an inquiry from counsel for plaintiffs in this case regarding the
validity of the Blue Cross and Blue Shield exclusionary provisions at issue, the
Director of the Office of Special Education Programs stated that "the
regulations implementing Part B [of the Act] make clear that the EHA was not
intended to relieve insurers of obligations that they would otherwise have had
EHA not been enacted." U.S. Dept. of Education, Office of Special Educational
Programs, Policy Letter (Sept. 29, 1988) Ed. for Handicapped L. Rep. 213:214
(1989). There was a similar response to another inquiry a decade earlier, stating
"[t]he insurer could not refuse to pay for the services simply because the State
is responsible for providing a free appropriate public education to all
handicapped children." U.S. Dept. of Education, State Policy and Admin.
Review Branch, Policy Letter (Sept. 29, 1977) Ed. for Handicapped L.Rep.
211:06 (1979). See also id. at 211:103. ("The purpose of [34 C.F.R. Sec.
300.301] is to allow States to make use of all available resources to provide free
appropriate public education for handicapped children, including available
insurance proceeds."). These letters cannot support the weight plaintiffs place
on them. Like the statute, regulation and policy statement, nothing in these
letters states that an insurer cannot contractually exclude coverage for services
that are provided free under the Act.

40

If the administrative interpretation were as broad as plaintiffs claim, we would

have to decide whether it departed so markedly from the statutory text,
legislative history and policy underlying the statutory scheme that deference
would not be due. The Supreme Court's statement that administrative rulings,
interpretations and opinions " 'constitute a body of experience and informed

judgment to which courts and litigants may properly resort for guidance' " was
tempered by its cautionary note that " '[t]he weight of such a judgment in a
particular case will depend upon the thoroughness evident in its consideration,
the validity of its reasoning, its consistency with earlier and later
pronouncements, and all those factors which give it power to persuade, if
lacking power to control.' " General Electric Co. v. Gilbert, 429 U.S. 125, 14142, 97 S.Ct. 401, 410-11, 50 L.Ed.2d 343 (1976) (quoting Skidmore v. Swift &
Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944)). Because the
letters cited by plaintiffs are consistent with, and go no further than, the
regulation found at 34 C.F.R. Sec. 300.301, which we have already held does
not support the position advocated by plaintiffs, we need not decide the extent
to which they must be accorded deference.8
41

We recognize that there is some tension between an administrative policy that

insurers should not be able to use the availability of free services under the
EHA to avoid obligations to pay for those services and the provision in the Blue
Cross/Blue Shield policy that services which are provided by the government
without cost are excluded from coverage. However, we cannot conclude,
without clear statutory support, that Congress intended the EHA to abrogate
such a provision in a privately negotiated contract. We are confident that
Congress would not have done so without explicitly so providing.

42

Because we are unable to discern a congressional intent to intervene in the

contractual relationship between insurers and subscribers, we hold that on the
face of the plain terms of the exclusions in the Major Medical policy, Blue
Cross/Blue Shield are not liable for the costs of the physical therapy at issue in
this case.

IV.
Conclusion
43

For the foregoing reasons, we will affirm the district court's order dismissing
the action.

Hon. John C. Lifland, United States District Court for the District of New
Jersey, sitting by designation

Because the district court held that the plaintiffs did not satisfy the
reimbursement provisions of the policy and were not permitted to assign their
policy benefits to the IUs, it also did not reach the argument of Blue Cross/Blue

Shield that the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1015, prohibits

invalidation of the exclusionary provisions of the Major Medical policy. In light
of our holding that the exclusionary provisions are dispositive of this case, we
similarly need not reach this issue. Blue Cross/Blue Shield also argued that the
IUs lack standing to assert claims under the Nonemakers' and Gillespies'
policies. Because the Nonemakers and Gillespies are appellants, and their
standing is unquestioned, it is also unnecessary for us to reach the standing
issue
2

Under the Act, the term "special education" is defined as:

specially designed instruction, at no cost to parents or guardians, to meet the
unique needs of a handicapped child, including classroom instruction,
instruction in physical education, home instruction, and instruction in hospitals
and institutions.
20 U.S.C. Sec. 1401(a)(16) (1988). The term "related services" is defined as:
transportation, and such developmental, corrective, and other supportive
services (including speech pathology and audiology, psychological services,
physical and occupational therapy, recreation, and medical and counseling
services, except that such medical services shall be for diagnostic and
evaluation purposes only) as may be required to assist a handicapped child to
benefit from special education, and includes the early identification and
assessment of handicapping conditions in children.
Id. at Sec. 1401(a)(17) (1988).

They state, for example, "[i]f a handicapped child were receiving physical
therapy services for which Blue Cross and Blue Shield paid prior to being
enrolled in a special education program, the insurers could not discontinue
payment and demand that the provider of those services bill the intermediate
unit." Brief of Appellees at p. 32 n. 7

We therefore need not consider Blue Cross/Blue Shield's contention that the
requirement that the parents pay the applicable deductibles and coinsurance
under the Major Medical policy is inconsistent with the Act's explicit provision
that the related services must be "free". See Interpretation of 34 C.F.R. Secs.
104 and 300 at 45 Fed.Reg. 86,390 (1980). Cf. Seals v. Loftis, 614 F.Supp. 302
(E.D.Tenn.1985) (IU cannot require parents to use insurance proceeds if result
is to decrease maximum lifetime benefits available under policy). Nor do we
need to reach Blue Cross/Blue Shield's further claim that payment by the IUs of
the deductibles and coinsurance, rather than by the parents, would not satisfy
the provisions of the policy

The heading of the relevant portion of the attachment is "General Description

of Your Blue Cross and Blue Shield Major Medical Benefits." App. at 60, 118.
It is unclear from the record whether there is a separate contract with each
subscriber, as distinguished from the subscriber's employer

In Goodwin v. Elkins & Co., 730 F.2d 99 (3d Cir.1984), cert. denied, 469 U.S.
831, 105 S.Ct. 118, 83 L.Ed.2d 61 (1984), we considered, without resolving,
the appropriateness of the district court's reliance on a partnership agreement,
signed by the plaintiff, which was attached to the defendant's motion to dismiss.
Judge Garth explicitly did not reach the question, see id. at 103 n. 6, 104 n. 9,
Chief Judge Seitz stated that such reliance was in fact inappropriate, but was
harmless error in that case, see id. at 111-12 (Seitz, J., concurring), and Judge
Becker would have held that it was proper for the district court to rely on the
partnership agreement, as it was "actually and necessarily relied upon in the
allegation of [the complaint], and its authenticity [was] conceded." Id. at 113-14
(Becker, J., concurring)
Unlike the partnership agreement at issue in Goodwin, which was attached by
the defendant to its motion to dismiss, the Blue Cross and Blue Shield
brochures were attached by the plaintiffs to their complaint and incorporated by
reference therein. The issue which the Goodwin court was unable to resolve is
therefore not present in the instant case.

Seals v. Loftis, 614 F.Supp. 302 (E.D.Tenn.1985), relied on by plaintiffs, held

only that parents could be required to seek reimbursement from their insurer if
they would incur no costs in doing so, but in no way suggested that insurers are
required to cover the costs of services explicitly exempted from coverage. See
also Gehman v. Prudential Property and Casualty Ins. Co., 702 F.Supp. 1192
(E.D.Pa.1989)

We note that the administrative interpretation of the regulation in 1978 was

similar to that which we give it in the text. Blue Cross and Blue Shield of Iowa
had requested an interpretation as to whether the regulation at 45 C.F.R. Sec.
121a.301(b) (recodified at 34 C.F.R. Sec. 300.301(b)) nullified provisions in
their health contracts excluding coverage for hospital costs which the
subscriber was entitled to obtain without cost by complying with any federal,
state, or municipal law. The Bureau of Education for the Handicapped
responded:
you asked whether Reg. 121a.301(b)[:] (1) nullifies a private insurance contract
exclusion prohibiting reimbursement for hospital services which an insuree
could obtain without cost by complying with a Federal, State or local law or (2)
clarifies that an insurer may still be required to fulfill valid obligations. The

second interpretation is correct. ... Reg. 121a.301(b) was included to make it

clear that the public educational agencies did not necessarily have to pay the
costs, but could use any available Federal, State, local or private funds,
including private insurance benefits.
U.S. Dept. of Education, State Policy and Admin. Review Branch, Policy Letter
(Oct. 3, 1978) Ed. for Handicapped L.Rep. 211:76 (1979) (emphasis added).