In nearly every personal injury case, injury attorneys must deal with the resolution of health care related liens incurred by the client before the client can receive full disbursement of the settlement or verdict. While there are many different types of liens that can be created depending on the case, the lien that is the most difficult to handle for personal injury attorneys and clients alike is the ERISA health insurance lien.
This guide will walk through several steps we take in handling ERISA liens in personal injury cases. These liens have become much more difficult to resolve since last years US Supreme Court ruling in McCutchen. ERISA plans and third-party administrators hired by plans to collect on ERISA liens are using the McCutchen ruling to suggest to lawyers that ERISA plans now cannot lose and must always be reimbursed for every dollar of the ERISA lien.
However, the McCutchen ruling was nothing more than a half victory for ERISA plans and in certain jurisdictions such as the 11th Circuit in which our firm practices, it does not add much to the already difficult time plaintiffs face in negotiating ERISA liens.
New Era In ERISA Negotiations — McCutchen’s Half Victory
In any negotiation with an ERISA plan or administrator, it is important to first understand the implications of the McCutchen ruling. The Supreme Court in McCutchen ended the split in circuits on whether equitable defenses apply in ERISA subrogation claims by holding that they do not apply.
The reader’s digest version of the McCutchen ruling is that equitable defenses will not apply if the Plan language disavows them. Before McCutchen there as a circuit split on the use of equitable defenses. This was a victory for ERISA Plans in those jurisdictions that had held for some time that equitable defenses apply regardless of the Plan language.
McCutchen however was also a victory for plaintiffs in the sense that the Court went on to rule in that case that because the language was silent as to the treatment of attorney’s fees owed to the plaintiff lawyer out of the settlement, the default rule would be the equitable principle of the common-fund doctrine. Therefore, the Plan in that case had to reduce its lien cover some of the attorneys’ fees owed. A victory for plaintiffs in the use of equitable defenses as the default rule where there is gaps in Plan language.
So at the end of the day, McCutchen stands for the simple proposition that the Plan language will rule the determination of whether and to what extent an ERISA Plan must be reimbursed.
How Is The Plan Funded?
This is the most important question to answer in your effort to prepare to negotiate the lien. Is the Plan self-funded or insured? Why does this matter? Because the answer to the question will determine whether Federal law or State law applies to the interpretation of the Plan language and whether the Plan has a right of reimbursement.
If the plan is self-funded (the employer funds the Plan and thus the health care expense payments with its own money), Federal law preempts state law and you are stuck with McCutchen and other Federal cases on the questions of ERISA subrogation. If the plan is insured (an insurance company is paying the health care expense payments with its money), then Federal law does not preempt state law on the question of ERISA subrogation. In some states, the distinction between Federal law and state law on the regulation of insurance and thus subrogation is nothing more than a distinction without a difference. In others, it is a huge advantage to the plaintiff to be operating under state law.
Here is a quick example from my jurisdiction (Georgia) highlighting one ramification of self-funded v. insured ERISA plans. Georgia law on insurance carves out a unique statutory requirement on all health insurance related plans regarding subrogation rights. Before the consummation of a personal injury case, if a plaintiff requests by certified mail a detailed list of all medical benefits provided by a Plan for treatment related to the injuries sustained by the plaintiff, the Plan has 10 days to respond to the request by certified mail providing a detailed explanation of all benefits provided. If the Plan does not follow the statute to the letter, the Plan loses all rights to reimbursement.
Where To Look / What To Look For?
With the self-funded v. insured question looming large, the next question is where to look and what to look for to answer this all important question. There are several places. The first is the SPD (Summary Plan Description). You will need to request this from the third party administrator handling the claim and/or directly from the Plan Administrator.
However, I have found that looking up the Form 5500 online is the fastest way to get an idea of how the Plan is funded. The Form 5500 is a federal filing that must be filed annually by each employer maintaining an ERISA plan. The fastest way to find this form is to register with www.freeerisa.com and search by employer name. It is free.
Once you pull up the latest Form 5500 for the Plan, look at page 1, elements 9a (“plan funding arrangement”) and 9b (plan benefit arrangement”). Each of these elements lists the following options:
- Section 412(e)(3);
- General assets of the sponsor.
If boxes (3) and/or (4) are marked on both then the inquiry stops here because trusts and general assets of the sponsor exclude all policies of insurance and therefore are clearly fully self-funded Plans. If one or more of the other two boxes are checked then the inquiry continues by turning to the schedules attached to Form 5500.
What you are looking for is Schedules A or C. These schedules further detail the relationship between the payor of benefits and the Plan. Confusion often lies in looking at the Form 5500 because large companies will have several benefits plans reported on the form and often times there will be multiple Schedule As and Cs attached to the Form 5500 (i.e. one for a dental plan; one for a vision plan; one for a life insurance plan etc.). This leads to multiple funding arrangements being selected that describes the multiple plans.
So first you want to find the schedules that identify the health plan. Look first for a Schedule A form for the health plan. If you do not have a Schedule A for the health plan skip to the Schedule C discussed below. If you have a Schedule A, here is what to look for on the schedule: First, you should have a named insurance company under Part 1(a). Next look at Part III(8). There are multiple boxes that can be checked. Box (8)(a) “Health” should be marked (again, tells you this is the health plan). If any other box in section (8) is marked other than (i) “Stop-Loss,” you are in luck and the plan is insured and state law applies. If the Stop Loss box is checked, see below regarding stop-loss issues.
If the benefit provider you are looking for is not on a Schedule A, it likely is on a Schedule C. On Schedule C, you will see reference to “claims processing,” “contract administrator,” and “plan administrator.” An insurer providing insurance would not be listed on a Schedule C and therefore is indicative of a fully self-funded Plan.
Stop Loss Insurance Situations
Many benefit plans these days use stop-loss insurance to pay claims. Stop loss insurance is an arrangement between the employer and an insurance company whereby the Plan is self-funded up to a certain predetermined maximum loss (either per employee or in the aggregate) and once that level is breached, the insurance company pays the rest of the benefit. Again, this will be revealed on the Schedule A.
One would think that stop-loss insurance situations would create an argument for state law application since a portion of the Plan is covered by an insurance policy—- in fact very often, the insurance portion of the Plan covers the vast majority of benefit payouts (employer contribution is more like a deductible payment). Instead, circuit courts that have heard the issue of how to treat stop loss Plans have ruled that such Plans are still self-funded plans preempting state law. This despite the fact that the employer is vastly limiting its liability by purchasing stop-loss policy coverage.
The stop-loss situation is the next area of ERISA law that the Supreme Court should take up and resolve once and for all.
Documents To Request
While the Form 5500 and related schedules will more often than not reveal whether the Plan is self-funded or insured, it remains important to request documents from the Plan to be sure you have the funding relationship correct. In addition and even more important now in light of the McCutchen ruling, ERISA negotiations come down to what the Plan language itself says or does not say so getting the Plan itself is absolutely necessary.
Every time we receive a response from a Plan administrator or third party administrator, we send a letter requesting at least the following Plan documentation:
- The Summary Plan Description;
- The Actual Plan or Contract;
- The Latest Summary Annual Report;
- The Latest Terminal Report;
- The Bargaining Agreement;
- The Trust Agreement;
- Any evidence your client was supplied with a copy of the Summary Plan Description.
If you are dealing with a third party administrator (Optum; Rawlings etc.) that is representing the Plan and/or the Plan Administrator, they should be able to get all of this documentation. Usually, we will start with a simple request to this entity for these documents. Often times, however, the third party admin is only able to get the Summary Plan Description. In those situations, we end up sending a statutory request pursuant to Section 1024(b)(4), Title 29, US Code. Under this code section, should the Plan Administrator fail to provide the documentation within 30 days, a fine of $100 a day until production can be obtained by the plan participant.
The Aftermath Of ERISA Liens After McCutchen
The McCutchen ruling confirms that the Plan language will rule all decisions regarding reimbursement of an ERISA lien when it is a self-funded Plan. Everything from the ability to use equitable defenses to who pays the plaintiff’s attorney’s fees are now controlled by the language in the Plan. Only if there is a gap in the Plan language on an equitable principal or lack of mention of how attorney’s fees will be handled is an argument created in favor of the plaintiff against the ERISA lien.
Here are some tips on what to look for in the Plan language to help with legal arguments for the plaintiff on a lack of reimbursement right or reduction for such things as attorney’s fees:
1. Can You Argue the Made-Whole Doctrine:
Look to see if there is specific Plan language that abrogates the made-whole doctrine. Most Plans now contain this language and certainly under the McCutchen ruling it is not crystal clear that such language will prevail over any circuits use of the made-whole doctrine as the default rule. If you are lucky and the Plan does not eliminate the use of the made-whole doctrine, this is likely your first and best defense against reimbursement of the ERISA lien.
2. Does Plan Contain Specific Language Authorizing A Valid Right of Recovery
McCutchen did not touch the prior ruling by the Court in Sereboff v. Mid Atlantic Medical Service, Inc. wherein it held that an ERISA carrier can only enforce its subrogation rights if the Plan specifically identified a particular fund out of which reimbursement much occur separately from the beneficiaries general assets. If it does not then the carrier has absolutely no right to recovery.
The simplest way to illustrate this distinction is looking at two contrasting Plans analyzed by the 11th Circuit in Popowski v. Parrott :
- Plan 1: Language stated that a lien was created “on any amount recovered . . . whether or not designated as payment for medical expenses” and “the Covered Person . . . must repay to the Plan the benefits paid on his or her behalf out of the recovery made from the third party or insurer.”
- This Plan language was enforced by the court because it created a lien on the amount recovered and only from that amount (i.e. specific fund).
- Plan 2: Language claimed a right of reimbursement “in full and in first priority, for any medical expenses paid by the Plan relating to the injury or illness.” No mention was made in the language regarding from what funds this payment was to be made and therefore claimed a right to reimbursement not only from any third party or insurer but from the plaintiff’s general assets.
This Plan language was not enforced by the court because it did not create a line on the amount recovered only.
3. Like in McCutchen, Look For Attorney Fee Payment Language
This is the common-fund doctrine equitable principal. McCutchen is your guide to this analysis. Is there language in the Plan disavowing the duty to pay for any portion of the plaintiff’s attorney’s fees owed in recovering the money from the third party? Again, if the Plan language is silent as to whether attorney’s fees are to be taken into account in reimbursing the Plan, then you can argue using McCutchen that the default rule is that attorney’s fees are to come out of the amount owed. See McCutchen for how that is calculated.
Suggested Outline of Negotiation Positions To Take
- State Law Preemption: If you have favorable state law subrogation law that would eliminate or potentially eliminate the entire claim, start with the argument based on your investigation that the Plan is not self-funded and therefore State law applies.
- Lack of Specific Fund Language: If you have favorable Plan language that mirrors the Plan found unenforceable in Popowski then argue that there is no right of reimbursement under ERISA law.
- Make Whole Doctrine: If the Plan language lacks the disavowing of this doctrine argue the make whole doctrine means no recovery for the Plan in your case.
- Common Fund Doctrine: If the Plan language lacks language addressing attorney’s fees argue at the very least that the amount should be reduced for recovery of attorney’s fees. See McCutchen.
- Reduce Amount of Settlement That Applies to Medical Expenses: The Plan is only allowed to recover for medical benefits it provided and therefore should only be allowed to seek reimbursement from that amount of the settlement or verdict that paid for those expenses. If your case had a large pain and suffering and/or lost wage component and the recovery was small in comparison to those damages, argue that most if not all of the settlement proceeds were for things other than medical expenses. This is the whole point of Sereboff. The Plan only has a lien on the portion of the proceeds for medical expenses.
- Argue will not pursue claim at all if plan is going to seek full reimbursement. This argument is effective in those situations where the claim is worth much more than the available coverage and the ERISA lien will take all or almost all of the settlement or verdict proceeds from your client. What is the point in pursuing the claim if everything is going to go to the Plan. This argument brings up a good example of why it is important to start contacting the ERISA plan early in the case. If you wait until after the claim is settled then this point is lost.
- Argue the Facts. I call this one the Wal-Mart negotiation. You may recall seeing the headlines a few years back where a Wal-Mart employee was injured in a motor vehicle accident and as a result was left with permanent brain damage. Wal-Mart pursue in court its ERISA rights to collect the entire amount of the settlement the plaintiff received from the at-fault party’s insurance company. It would have left the plaintiff with nothing. After multiple negative news reports on the case, Wal-Mart dismissed its lawsuit and allowed the worker to keep all of the proceeds of his recovery. If your client is facing a similar situation against a large employer, employ the Wal-Mart negotiation.
Without question, it is impossible to go through every aspect of an ERISA lien negotiation in one article. We have attempted to lay out here numerous strategies that can be implemented to fight against the inevitable argument from Plans and third-party administrators they hire to collect on the liens that the McCutchen case is a complete game changer in their favor and therefore your client must reimburse the Plan in full. This is simply not the case in most jurisdictions.