By: Synergy’s Director of Lien Resolution

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. As every plaintiff’s attorney knows, the rights of self-funded ERISA qualified plans are daunting. The strength of their recovery right arises from their ability to preempt state law and enforce the terms of the plan document. ERISA’s preemption clause states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan….” (29 U.S.C. § 1144(a)).

The Northern District of Mississippi in the Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13) performs an in-depth analysis of the application of ERISA preemption to situations where a probate court has been empowered to oversee the settlement of a minor’s personal injury claim.  In this case, the minor’s parents were appointed guardians and eventually were able to settle the personal injury action for policy limits. They then petitioned the chancery court to approve the settlement adjudicating the alleged subrogation/reimbursement claim of the self-funded ERISA plan that had paid the minor’s medical bills. 

The self-funded ERISA plan moved the matter to federal court where it examined both procedural issues and the application of ERISA preemption over the chancery court’s adjudication of the minor’s issues. 

To determine whether a claim is preempted by ERISA, the Fifth Circuit has directed application of a two-prong test, which asks: “(1) whether the claim addresses areas of exclusive federal concern and not of traditional state authority, such as the right to receive benefits under the terms of an ERISA plan, and (2) whether the claim directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13) (quoting Hobson v. Robinson, 75 F. App’x 949, 953, (5th Cir.2003)).

In the case of minors:

“Mississippi Code Section 93–13–59 grants authority to guardians “empowered by the Court” to compromise claims of minors. The Mississippi Constitution further gives full jurisdiction of minor’s business to the chancery courts of the State. See MISS.CODE art. 6, § 159(d).”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

In support of their position that despite 29 U.S.C. 1144(a), the chancery court retained the authority to oversee settlements involving minors. They cited previous Northern District of Mississippi cases.  In those cases “the court has affirmatively held that ERISA does not preempt Mississippi law requiring chancery court approval of minor’s settlements. (See, Clardy v. ATS, Inc. Employee Welfare Benefit Plan, 921 F.Supp. 394 (N.D.Miss.1996); Bauhaus USA, Inc. v. Copeland, 2001 WL 1524373 (N.D.Miss. Mar. 9, 2001); Estate of Ashmore v. Healthcare Recoveries, Inc., 1998 WL 211778 (N.D.Miss. Mar. 25, 1998).

“In Clardy the Court examined ERISA’s broad preemption clause, as well as United States Supreme Court precedence, and held that ‘Mississippi law requiring a Chancellor’s approval before a parent may contract away a minor’s legal rights is not preempted by ERISA in this case.’  Id. at 397–99, 401. The Court found that the area of domestic relations was an area traditionally governed by state law, and preemption of state laws concerning domestic relations was uncommon, even under ERISA. Id. at 398.”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

The Northern District of Mississippi continued to rely on the rationale of their previous decision in Clardy quoting that:

“’[t]he administration of a minor’s estate is entirely a matter of state law, and is law of general application which affects a broad range of matters entirely unrelated to ERISA plans….’ [Clardy] at 399. Therefore, the statute is but a ‘state law of general application which has only an incidental effect upon an ERISA plan.” 

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

Even in the face of specific plan language providing for a contractual right of subrogation, the court continued to stand by its previous rulings that chancery court approval of a minor’s settlement was not subject to ERISA preemption.

“[I]n Estate of Ashmore v. Healthcare Recoveries, Inc., 1998 WL 211778 (N.D. Mar. 25, 1998). , the court further opined that ‘[e]ven if the parties’ ERISA plan contained an express subrogation clause, Mississippi law requiring prior chancery court approval of assignment of a minor’s rights to insurance proceeds would not be preempted by ERISA.’ Id. (citing Methodist Hosp. of Memphis v. Marsh, 518 So.2d 1227, 1228 (Miss.1988)(written agreement executed by minor’s mother not enforceable without prior chancery court approval); Clardy, 921 F.Supp. at 399 (domestic relations are traditionally matters of state law)”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

It is clear from this string of rulings that the courts, empowered to oversee settlement of minors’ claims, retain their authority even when faced with attempts by self-funded ERISA plans to overcome them with preemption. It is not uncommon for the plaintiff’s attorney, who is often responsible for protecting the rights of minors and those under incapacity, to seek authority from a chancery or probate court to settle personal injury action. The wise plaintiff’s counsel should petition this court to adjudicate the recovery rights of the self-funded ERISA plan. This case, as well as its predecessors, provide compelling arguments supporting that court’s overarching authority and ability to determine if, and how much an ERISA plan should be repaid.

– See more at: file:///Volumes/Design/Source%20Files/Synergy%20Settlement%20Services/Website%20Development/Site%20Backup%20Feb%202015/www.synergysettlements.com/blog/14238/index.html#sthash.dHShUEXB.dpuf

On March 17, 2014 the trial court in the infamous U.S. Airways v McCutchen entered an order allowing Mr. McCutchen to amend his answer to include affirmative defenses and a counter-claim.  The court allowed this unusually late amendment to pleadings as result of U.S. Airways’s failure to produce the Master Plan Document (MPD) until just before oral arguments at the U.S. Supreme Court. 

“[T]he Court [was] troubled by US Airways’ untimely production of the Plan documents and its disingenuous contention that Defendants failed to request the Plan document”

This is an example of how making a proper 29 U.S.C 1024(b)(4) request could have made a monumental difference. In this  seminal case, the plaintiff’s failed to properly and timely make their document request under 29 U.S.C. 1024(b)(4).  This failure allowed the ERISA plan to, at least temporarily, avoid producing the unfavorable Master Plan Document (MPD).  Just as in Cigna v. Amara, 131 S. Ct. 1866 (U.S. 2011), the benefits enumerated in the Summary Plan Description (SPD) were strikingly different from the plan participants benefits as defined in the MPD. 

In the McCutchen case the only recovery for the injured plaintiff was $10,000 from the tortfeasors Bodily Injury (BI) coverage and $100,000 from Mr. McCutchen’s own Under Insured Motorist (UIM) coverage.  After appeals to the 3^rd Circuit and the U.S. Supreme Court, Mr. McCutchen was required to repay the U.S. Airways ERISA plan over $66,866. This resulted in (after attorney fees and costs) Mr. McCutchen being $867.00 out of pocket.  What is significant is that the MPD in this instance does not allow for U.S. Airways to make a recovery from the UIM coverage, meaning that they should have only been able to look to the $10,000 in BI as a repayment source. 

Had Mr. McCutchen’s attorneys made a proper 29 U.S.C. 1024(b)(4) request this would have been discovered immediately and it is likely that U.S. Airways would have agreed with their own plan language avoiding the Supreme Court’s unfavorable decision.  ERISA plans are only able to enforce “the terms of the plan” (29 U.S. Code § 1132) and thus it is incumbent upon the plaintiff’s attorney to obtain the “terms of the plan.” 

This action by the trial court hopefully will result in Mr. McCutchen being able to retain at least some portion of the settlement proceeds.  However, the bad law of U.S. Airways v. McCutchen, 569 U.S. (2013) remains as a result of the failure to demand what every ERISA plan participant is allowed to review and every ERISA plan is required to produce. 

Unfortunately, as part of the budget signed by President Obama on the 26^th of December (Merry Xmas), a legislative fix for Ahlborn was made law.  Now, Medicaid liens are like Medicare liens in the sense that they are super liens.  Medicaid will be able to assert its lien against the entirety of the settlement instead of the portion attributable to past medical expenses.  The new provisions go into effect on 10/1/14.  The pertinent sections are found below.

– – – – – – – – – – – – – –

[From the Act as passed] 

SEC. 202. STRENGTHENING MEDICAID THIRD-PARTY LIABILITY.

…

(b) RECOVERY OF MEDICAID EXPENDITURES FROM  BENEFICIARY LIABILITY SETTLEMENTS.–

(1) STATE PLAN REQUIREMENTS.–Section 2 1902(a)(25) of the Social Security Act (42 U.S.C. 3 1396a(a)(25)) is amended–

(A) in subparagraph (B), by striking ”to the extent of such legal liability”; and

(B) in subparagraph (H), by striking ”payment by any other party for such health care items or services” and inserting ”any payments by such third party”.

(2) ASSIGNMENT OF RIGHTS OF PAYMENT.–Section 1912(a)(1)(A) of such Act (42 U.S.C.  1396k(a)(1)(A)) is amended by striking ”payment for  medical care from any third party” and inserting  ”any payment from a third party that has a legal liability to pay for care and services available under the plan”.

(3) LIENS.–Section 1917(a)(1)(A) of such Act (42 U.S.C. 1396p(a)(1)(A)) is amended to read as follows:

 ”(A) pursuant to–

”(i) the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or

”(ii) rights acquired by or assigned to the State in accordance with section 1902(a)(25)(H) or section 1912(a)(1)(A), or”.

 (c) EFFECTIVE DATE.–The amendments made by this section shall take effect on October 1, 2014.

In a message to its membership, the American Association for Justice had the following to say:

“The Bipartisan Budget Act (BBA) which was just approved by Congress and signed into law contains language damaging to plaintiffs covered by Medicaid … The provision in the new law overturns a unanimous 2006 United States Supreme Court decision in United States vs. Ahlborn. In Ahlborn, the Court ruled that only the portion of the settlement that represented payment for medical expenses could be claimed by the state Medicaid agency. The BBA allows a state to claim ALL of a settlement or judgment. The BBA also counters a 2013 Supreme Court decision (Wos vs. E.M.A.) that rejected (6-3) North Carolina’s lien on Medicaid claimants’ tort recoveries. We expect the result of the new law to be that plaintiffs who are Medicaid recipients will recover less and in many cases will be unable to pursue claims at all because any recovery would have to be reimbursed to Medicaid. … This provision was added because it was deemed to raise revenue by Congressional Budget Office economists, despite the fact that the provision will have the opposite effect.”

The end result of this legislation will be a chilling effect of suits brought on behalf of Medicaid recipients.  It also is fundamentally unfair given the realities of what is many times a limited recovery on behalf of the injury victim which is now ignored with this change.  Medicaid liens now become very similar to Medicare liens in terms of disregarding equity concerns.