Navigating the intricacies of subrogation and reimbursement for ERISA-governed health plans demands a comprehensive understanding of statutory frameworks, plan documentation, and pertinent case law. Attorneys representing clients facing such liens must employ meticulous strategies to effectively negotiate reductions. Reducing these claims can be complex but is often achievable with the right strategies.. Here are some approaches commonly used to assess the strength of an ERISA plan in their right to demand reimbursement.
The Employee Retirement Income Security Act of 1974 (ERISA) governs employer-sponsored health plans, including self-funded plans where employers assume direct financial responsibility for employee healthcare claims. A critical aspect of these plans involves subrogation and reimbursement rights, which allow plans to recoup medical expenses paid on behalf of participants who later recover funds from third parties responsible for their injuries. The fact that a plan is self-funded under ERISA does not automatically grant it full recovery from an injured party’s settlement funds.
In all cases, a full assessment is required before fully engaging in any negotiations with an ERISA self-funded plan. Once appropriate steps have been taken, you can enter the battlefield.
ERISA Preemption and Self-Funded Plans
ERISA includes a preemption clause that supersedes state laws relating to employee benefit plans. However, the “savings clause” exempts state laws regulating insurance from this preemption, and the “deemer clause” specifies that self-funded plans are not considered insurance companies, thereby shielding them from state insurance regulations. This framework grants self-funded ERISA plans broad authority to enforce subrogation and reimbursement provisions, often overriding state laws designed to limit such recoveries.
With that said, self-funded means something more. But they have to earn it!
Steps for the Battlefield
1. Early Identification and Assessment of Potential Liens
- Initial Client Consultation: During the initial client meeting, inquire about any health insurance coverage that may have paid for medical expenses related to the injury. Understanding the source of these payments is crucial for anticipating potential liens.
- Documentation Request: Promptly request relevant plan documents, including the Master Plan Document (MPD) and the Summary Plan Description (SPD), from the plan administrator. Under 29 U.S.C. § 1024(b)(4), plan administrators are obligated to provide these documents upon written request. Failure to comply can result in penalties, which may be leveraged in negotiations. So the earlier you request, the better!
2. Conduct a Thorough Review of Plan Documentation
- Obtain Essential Documents: Request the Master Plan Document (MPD) and the Summary Plan Description (SPD) as obtained from the plan administrator to assess the lien’s compliance with the plan’s terms.
- Scrutinize Subrogation and Reimbursement Clauses: Identify explicit provisions that grant the plan rights to reimbursement. The specificity and clarity of these provisions can significantly impact the plan’s ability to enforce a lien. Absence of such language weakens the plan’s enforcement capabilities.
- Assess Applicability of Equitable Doctrines: Determine whether the plan explicitly disclaims equitable doctrines such as the “Made Whole” and “Common Fund” doctrines. In US Airways, Inc. v. McCutchen, the Supreme Court held that while plan terms generally govern, equitable principles may apply in the absence of clear plan language to the contrary. If the language does not appropriately address, the plan would lack entitlement to reimbursement if the claimant hasn’t been fully compensated for their damages or had to pay attorney fees.
- Challenge Ambiguities: Identify vagueness or silence in the plan’s reimbursement provisions, particularly regarding equitable doctrines, argue that they apply.
3. Evaluate the Validity of the Lien and Applicable Law
- ERISA Applicability: Confirm if the Plan is truly governed by ERISA. Church or government plans may not qualify under ERISA and might have weaker lien rights.
- Funding Type Identification:Ascertain whether the Plan is Self-Funded or Insured. Self-funded plans, in which the employer assumes financial risk, are governed by federal law under ERISA, which preempts state laws and grants them broad but distinct reimbursement rights. In contrast, fully insured plans are subject to state insurance regulations that have the tendency to restrict their reimbursement rights.
4. Leverage Hardship in Negotiations
- Use Equitable Arguments: Highlight financial hardship, particularly if the injured party’s recovery was limited or if future medical care costs are substantial.
- Limited Recovery: Use a settlement’s insufficiency to cover all damages (e.g., policy limits or comparative fault) as leverage to reduce the lien.
5. Invoke the Common Fund Doctrine
- Demand Contribution for Attorney Fees Reduction: Argue that the plan must contribute to attorney fees and litigation costs incurred in securing the settlement, thereby reducing the net lien amount. The Plan would not be collecting a reimbursement if it were not for the efforts of the attorney.
- The Court in McCutchen reinforces this idea: “The rationale for the common-fund rule reinforces that conclusion. Third-party recoveries do not often come free: To get one, an insured must incur lawyer’s fees and expenses. Without cost sharing, the insurer free rides on its beneficiary’s efforts—taking the fruits while contributing nothing to the labor.”
6. Analyze the Nature of the Recovery
- Differentiate Compensation Types: Emphasize that portions of the settlement (e.g., pain and suffering, lost wages) are not subject to reimbursement. A thorough review of the plan language may reveal an assist for this argument.
- Comparative Fault: Highlight the claimant’s percentage of fault. For instance, if a claimant is deemed 30% at fault, resulting in a 30% reduction in their actual settlement, it is reasonable to request a corresponding 30% reduction in the ERISA lien.
7. Seek Professional Assistance
- Work with a Lien ResolutionExpert: Partner with lien resolution companies or professionals who specialize in negotiating ERISA liens. They may have established relationships with plan administrators, claims administrator, insurance companies etc and deep experience with navigating these claims.
8. Build Rapport with the Plan Administrator
- Open Communication: Maintain a cooperative tone and provide documentation (e.g., settlement breakdown, hardship affidavits) to support your case for a reduction.
- Ask for Discretion: Many plan administrators have discretionary authority to compromise claims, especially in hardship cases or when full reimbursement would seem inequitable. The plan language may clearly indicate that it is the plan administrator and not the claims administrator that has ultimate decision-making power.
9. Time the Negotiations Carefully
- Although it may be enticing to secure the lien reduction prior to settling the case, you will not get the deepest reduction from a lien holder prior to the case settling.
- Finalize settlement negotiations with the third party before addressing the lien, as lienholders may initially demand a higher amount if they believe more money is available.
Utilizing Case Law – Key Supreme Court Decision
US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013): Why the Plan Documents Matter
In US Airways, Inc. v. McCutchen, the Supreme Court underscored the paramount importance of the explicit language within ERISA plan documents. ERISA self-funded plans benefit when their language comprehensively addresses reimbursement, whereas injured parties benefit when plan language is vague or incomplete. The Court held that plan terms must govern, but where they are silent or ambiguous, principles like the “common fund” rule can fill the gaps.
The case involved James McCutchen, a US Airways employee who sustained severe injuries in a car accident. The company’s health plan covered $66,866 of his medical expenses. Subsequently, McCutchen secured a $110,000 settlement from third parties, from which $44,000 was allocated to attorney’s fees. US Airways sought full reimbursement of the medical expenses it had paid, as stipulated in the plan’s terms. McCutchen contended that such full reimbursement, without accounting for attorney’s fees and other costs, would result in unjust enrichment to the plan.
The Supreme Court held that the clear terms of an ERISA plan must be enforced as written, even if they lead to outcomes that might seem inequitable. However, the Court also noted that when a plan’s terms are silent or ambiguous regarding the allocation of costs such as attorney’s fees, equitable doctrines like the “common fund” rule should be applied. This rule ensures that parties benefiting from a recovery contribute proportionally to the associated legal expenses. On remand, the Third Circuit applied this principle, reducing US Airways’ reimbursement to reflect its share of the attorney’s fees incurred during the recovery process.
Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 577 U.S. 136 (2016): Active Participation and Traceability of Dissipated Settlement Funds
The Montanile decision further delineated the boundaries of an ERISA plan’s reimbursement rights, particularly concerning the traceability of settlement funds. Plans can only enforce reimbursement claims on settlement funds that remain intact and identifiable. The Court ruled that if a participant dissipates settlement funds on non-traceable items, the plan cannot enforce reimbursement from the participant’s general assets. This case highlights the necessity for plans to act promptly in asserting their reimbursement rights before the settlement funds are spent.
Implications for Legal Practitioners
These landmark cases highlight critical considerations for attorneys handling ERISA-related subrogation and reimbursement issues:
- Strict Adherence to Plan Language: The McCutchen ruling reinforces that the explicit terms of the plan govern reimbursement rights. Attorneys must meticulously review plan documents to understand the scope of the plan’s claims and identify any ambiguities that could be leveraged in negotiations.
- Timeliness in Asserting Claims: As established in Montanile, delays in pursuing reimbursement can result in the dissipation of funds, thereby limiting the plan’s ability to recover. Legal counsel should advise clients on the importance of prompt action to preserve their rights.
- Application of Equitable Doctrines: When plan terms are ambiguous or silent on certain issues, equitable principles such as the “common fund” doctrine may be invoked to ensure a fair allocation of costs. This approach can be instrumental in negotiating reductions in the plan’s reimbursement claims.
Conclusion
Navigating the complexities of ERISA self-funded plan subrogation and reimbursement requires a strategic and informed approach. By meticulously reviewing plan documents, understanding the nuances of ERISA applicability, and employing equitable arguments, you can effectively approach the battlefield to negotiate lien reductions. Engaging with plan administrators transparently and considering professional assistance further enhances your position. Understanding and interpreting case law, such as US Airways, Inc. v. McCutchen and Montanile v. Board of Trustees, is crucial, as these decisions significantly influence reimbursement rights and strategies. Through diligent application of these methods, you can ensure your due diligence on obtaining the most appropriate outcome that honors both the interests of the plan and the rights of your injured client.
Written by: Teresa Kenyon, Esq. | Vice President of Lien Resolution Services
