Oct 24, 2017
In amending ERISA to eliminate equitable subrogation, insurers want to dramatically shift the balance of power in the relationship between the health insurer and the injured party. If the amendment goes through, its effect will be to significantly decrease the leverage the injured party holds in negotiating the insurer's reimbursement claim. The language insurers have or will put into their policies giving themselves the right to be reimbursed from the first dollar the injured party receives from the negligent third party will be enforced to the letter. ERISA has a very powerful preemption clause: generally speaking, it wipes out all state laws that conflict with the language of an ERISA plan or the insurance policies under which an ERISA plan is funded. Courts interpreting ERISA are also very clear in saying that the unambiguous language of ERISA plans and their insurance policies will be rigorously enforced. So there is limited room to argue that the "we get reimbursement from the first dollar" language of insurance policies shouldn't be honored. Consequently, the law of equitable subrogation will likely go by the boards, at least for ERISA plans. And don’t forget, ERISA plans provide medical coverage to over 130 million Americans.
The most draconian result would be that our injured party would be left actually owing money above and beyond what he recovers from the insurer for the negligent person causing the accident. He will be responsible for reimbursing the insurer $20,000 and for paying his attorney a third of $25,000! Less drastic, but more likely is that our injured party simply walks away from the claim for the $25,000. Why should he pursue that money when he won't see anything from the recovery? Another possibility is that under the changed language the insurer would exert more leverage to get money back for themselves than they do now but not so much as to completely discourage the injured party and his attorney from chasing the negligent third party. The ideal insurer situation: they obtain greater leverage at the expense of folks they insure. They are in a better position to drive a harder bargain against you and me. We will all be assured by insurance and business interests that they can be trusted to do the right thing.
Interestingly enough, Medicare and Medicaid also assert their rights to be reimbursed when there is a third party recovery. However, in my experience, unlike the situation that often occurs with insurers and companies sponsoring their own health plans, Medicare and Medicaid recognize that they have an obligation to pay their share of the injured party’s attorney fees and costs (there would often be no reimbursement at all if not for the efforts of the attorney) and they are generally pretty reasonable about negotiating a resolution of difficult claims to ensure there will be enough money to go around and that the injured individual is not left high and dry. And their relatively "hands off" approach to pursuing their interests does not discourage injured parties or their attorneys from deciding to pursue personal injury claims in the first place.
However, when more bottom line oriented parties, such as insurers and businesses sponsoring self funded medical plans, are involved, sharper economic incentives are in play. The more aggressive approach of these entities, and the additional leverage this proposed amendment to ERISA provides them, will almost surely upset the carefully balanced dynamic that is equitable subrogation.
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