Aug 17, 2017

Insurers Try to Pull a Fast One


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11/17/2008
Brian S. King
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A few days ago I blogged about the Supreme Court granting certiorari in Mid Atlantic Medical Services, LLC v. Sereboff, 407 F.3d 212 (4th Cir. 2005). The resolution of that case will clarify the rights of ERISA fiduciaries, the insurers and employers who administer most of the health coverage provided in this country, to pursue reimbursement of an ERISA plan’s money where participants in those plans later obtain recovery of all or a portion of their medical expenses in personal injury cases.

Congress is one step ahead of the Supreme Court. The Pension Protection Act of 2005 [warning: large PDF document] is a bill to amend ERISA that purports to address some of the funding problems for pension plans we’ve seen across the country in recent months. However, that's not all Congress has chosen to put in the bill.  Slipped into the middle of it is a provision that passed the House specifically stating that a fiduciary is entitled to bring an action for reimbursement or subrogation as part of the equitable relief authorized under 29 U.S.C. §1132(a)(3). You’ll find it at section 307 of the bill, p. 331 of the 449 page PDF document. This provision is the essence of special interest legislation.   Its practical effect will be that the 130 million citizens who are covered by ERISA governed health plans will have to pay back their health insurer any money they receive from personal injury settlements from the first dollar until that health insurer has been completely reimbursed.  

A quick hypothetical illustrates the effect.  Say you are injured in a car crash due to another driver's fault and you have medical bills of $20,000 which health insurance through your work pays.  The negligent driver has $25,000 in insurance.  A number of months later your case settles and you recover the $25,000.  What are your obligations to repay your insurer?  Things differ somewhat depending on the insurance law in your state.  But generally speaking, you would pay your personal injury attorney his or her fee out of the recovery, usually around a third of the $25,000, and the insurer would not be entitled to any reimbursement until you were "made whole," that is, until you received adequate compensation to pay not only your medical bills but your attorney fees, your lost wages, and, at the very least, any other out of pocket expenses you may have.  The idea that the health insurer is not entitled to reimbursement until you are made whole is referred to as the doctrine of equitable subrogation.   

If the bill passes with this provision, it will gut the doctrine of equitable subrogation in the context of ERISA plans.  Every health insurance policy and self funded plan I have reviewed in the last several years claims the right to be reimbursed for any funds they have paid to an insured from the first dollar out of a personal injury settlement.  Often the insurer also disclaims any responsibility to contribute anything toward the attorney fees incurred by the injured person in obtaining the recovery.  Consequently, this bill will have a significant impact on the willingness of plaintiffs to pursue claims that, for a variety of reasons, are not likely to end up recovering significantly more than the medical expenses incurred by the plaintiffs. Why would a plaintiff go after a tortfeasor if at the end of the process most or all of the money will end up being paid back to his health insurer? The injured party should be compensated and the wrongdoer should be held accountable.  Neither of these things will happen in this situation.

This provision is a big deal. It will turn ERISA's equitable remedies provision into a sword to be used primarily by business and insurance interests and provides little meaningful relief for people covered by ERISA plans.

Even more obnoxious is the fact that the bill makes no attempt to explicitly state that equitable relief under 29 U.S.C. §1132(a)(3) provides any right to plan participants to recover monetary damages for a fiduciary’s breach of his duties under the terms of an ERISA plan or the statute itself. Congress wants to turn the "equitable relief" provision of ERISA into a one way street. Fiduciaries can come after plan participants to be reimbursed for medical expenses that the ERISA plan has paid. But participants are limited by prior Supreme Court rulings to non-monetary relief.   Make no mistake: section 307 in the bill is a huge bone tossed to insurance and business interests.  

Contact your Senators and House members now.



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