The Employee Retirement Income Security Act of 1974 is known as ERISA. It is a federal law. It sets minimum standards for most voluntarily established health plans. The law is designed to protect the individuals (participants) in these plans. The plan itself may be through an employer, an employee organization, a union or a combination.
Personal Injury Erisa Liens-Several Factors
If your client is protected by the Virginia Anti-Subrogation Law found at Va. Code § 38.2-3405, then the Erisa plan may have no right of subrogation. There are several factors to consider.
1. Reimbursement or Subrogation
There is a difference between subrogation and reimbursement. A reimbursement requirement does not violate the Anti-Subrogation statute.
Reimbursement-What Is It?
- Is there express language in the plan that says the plan has the right to reimbursement? If all it says is that they have a right to subrogate, then they’re limited to pursuing a separate subrogation claim and they cannot get reimbursement from the participant;
- If the plan only allows third party recovery, then there can be no recovery against a first party such as a medical payments carrier;
- Recognize that the terms of the Summary Plan Documents (SPD) are not incorporated into the plan. Therefore if the reimbursement language is only in the SPD and not in the underlying plan, then it doesn’t count unless the SPD is incorporated into the main plan document. See Cigna v. Amara, 563 U.S. 421 (2011). However the SPD can still control in certain cases in the absence of other plan documents;
- Does the plan language only provide for reimbursement from a responsible party or a liable party? If that is the language that is used, then there may not be any basis for reimbursement where there was a settlement since nobody was deemed to be responsible or liable.
2. Personal Injury Erisa Liens-Is It an ERISA Plan?
Many so-called “ERISA plans” masquerade as such. Sometimes they are not. Sometimes all you have to do is call their bluff and they’ll admit that they’re not an ERISA plan.
The insurer has the burden of proving the facts necessary to establish the existence of an ERISA plan. Kanne v. Connecticut General, 867 F.2d 489, 492 (9th Cir. 1988); Zavora v. Paul Revere Life Insurance, 145 F.3d 1118, 1120 (9th Cir. 1998)
3. Is it Self-Funded?
That is to say, is there a fund of money to pay claims which may come from employer contributions and/or employee contributions through payroll withholding? This fund, which may be the employer’s general assets, is then used to pay for the employees’ health claims. It may be called a “self-funded plan”. Also the plan might hire a third party administrator (TPA) such as Anthem, Aetna, United Healthcare or some other company. The employee may think that they have health insurance through that company. They don’t. They are insured through the self-funded plan.
With a self-funded plan, the claims are paid ultimately from the self-funded pool. The employer is the one who carries the risk. Therefore if the money in the fund runs out, the employer pays. To prevent that from happening, the employer may obtain a stop-loss/excess policy which provides coverage if the claims exceed a certain amount. These excess plans are not governed by state law relating to subrogation. Exactly what rights this plan has as far as subrogation are governed by the terms of the contract i.e., the plan documents.
Do Union-Based Plans Qualify?
Most of the union-based or union-sponsored plans do qualify under ERISA. They tend to be self-funded as opposed to being true insurance.
4. Is it a Self-Insured Plan?
An alternative type of ERISA plan is what may be called a self-insured plan, a fully insured plan, an insured plan or an unfunded plan. With these types of plans, the employee pays for insurance through payroll deductions. The employer pays a premium for insurance coverage with a large insurance company such as any of the ones mentioned above. Under these plans, the risk is borne by the health insurance company, not by the employer. This may be an ERISA plan but it is not self-funded. Therefore it is typically subject to state law as far as subrogation and reimbursement. There are still three (3) things that you need to look at to determine if this non-self-funded plan can subrogate. First of all, does the state law relate to an employee benefit plan? If it does, then it’s probably preempted by the federal law. Second, does the state law regulate insurance? If it does, then it is not preempted by the federal law. Third, does the state law deem a self-funded plan to be an insurance company? If it does, then it is probably preempted by the federal law. If there is preemption, then the Virginia anti-subrogation law is preempted.
5. If they are ERISA and Self-Funded, can they Compromise?
Many plans take the position that they have no discretion as far as compromising any claims or reducing the amounts that they say are owed. They claim that they are duty-bound to collect every dime available. That typically is not true. As a fiduciary, they do have discretion. However that discretion is probably going to have to be exercised by the employer. The TPA typically gets paid based upon the amount that they collect. The more they collect, the more they make. As such they’re probably not going to compromise.
6. Personal Injury Erisa Liens- Getting Plan Documents
It’s critical that you get the plan documents. In order to get the plan documents, you should have the participant (typically the employee) sign the request to the plan itself. The request should not be made to the recovery contractor or to the TPA. Under the ERISA statute, 29 U.S.C. 1024(b)(4), there are a host of documents that you need to get. A form request follows:
Dear Plan Administrator:
Pursuant to my right as a participant and beneficiary of the above referenced plan, I respectfully request copies of the following materials:
- Copies of the Summary Plan Description (SPD), Master Plan Document (MPD) any and all other Plan Documents relating to this plan participant’s health insurance from the year preceding the date of loss until present.
- The Form 5500 for the plan from the year preceding the date of loss until present, with all schedules attached.
- An itemization, including diagnosis/procedural codes and/or ICD codes, for all alleged medical benefits provided which relate to the above referenced date of loss.
- The latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.
- Administrative Services Contract (ASA) between the Plan and any Third Party/Claim Administrator and between the Third Party/Claims Administrator (if any) Subrogation/Reimbursement Recovery Vendors from the year preceding the date of loss until present.
- Copies of all contracts including, but not limited to: Insurance Contracts, and Administrative Services Insurance Contracts, Insurance Intermediary Services Contracts, and Administrative Services Contracts serving Plan participants plan from the year preceding the date of loss until present.
- Copies of the Summary of Material Modifications (SMM) statements from the year preceding the date of loss until present.
- Amendments to the Plan Documents (including, but not limited to the Summary Plan Description) from the year preceding the date of loss until present.
This request is being made by the plan participant pursuant to 29 U.S.C. § 1024(b)(4). Be advised that failure to provide these materials within thirty (30) days may result in a fine of $110.00 per day. 29 U.S.C. § 1132(c)(1)(b) & 29 CFR § 2575.502c-1.
Please forward these materials to: ______________________________________________________________________________________________________.
7. Other Documents
You may also want to request some other documents:
- An affidavit from the plan administrator attesting to the self-funded status of the plan and that insurance does not bear the risk;
- A complete statement of all benefits paid to or on behalf of the claimant;
- A statement of the specific plan components paying the benefits i.e., health, dental, vision, etc.;
- Any stop-loss or excess insurance coverage.
8. Reviewing the Documents-What To Look For
- Any ambiguity. If there is any ambiguity, it should be construed against the drafter. U.S. Airways v. McCutchen, 133 S.Ct. 15372013);
- Check the status of the plan by going to the Department of Labor portal dealing with these plans. You need the Employer Identification Number;
- The only relief that can be sought under ERISA is in equity. Therefore the employer’s claim must be in the form of a constructive trust or an equitable lien. This trust or lien can only be against funds or property that the employee actually received as part of a settlement. The plan cannot seek to impose any personal liability on the employee;
- Even though the plan cannot hold the insured personally liable, the plan however could deny future benefits based upon noncompliance.
9. Personal Injury Erisa Liens-Penalties for Non-Compliance
Pursuant to 29 U.S.C. § 11321(c)(1) and 29 C.F.R. 2575.502.c-3, penalties of $100.00 a day may be assessed for non-production of these documents.
10. Things that Make ERISA Inapplicable
ERISA is inapplicable where all of the following exist:
a. No contributions are made by the employer or employee organization;
b. Participation is completely voluntary for employees;
c. The sole function of the employer or employee organization, without endorsing the program, is to permit the insurer to publicize the program to employees or members, to collect premiums and to remit them to the insurer;
d. The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program other than reasonable compensation, excluding any profit, for administrative services rendered in connection with payroll deductions or dues checkoffs.
11. Personal Injury Erisa Liens-Follow the Money
- Where is the money in the fund coming from;
- Discover where the money is going to that the employee is paying to the plan. If it’s going to the employer, then subrogation may not be payable. Likewise if the money is going to the stop-loss insurer, it may not be due. It must go to the plan;
- The fund is not created solely by employee contributions.
12. Coverage
- Is there stop-loss coverage and what is the threshold before it applies? If this is very low, that would suggest that the insurance company is bearing the risk, not the plan;
- Recognize that the Form 5500 is typically useless because it will frequently state that the funding is from both insurance and general assets;
- ERISA does not apply to government agencies. Likewise it typically does not apply to churches unless the employer elects to have it apply. Take a look at 29 U.S.C. 1002(33) which defines a church plan. It is one established and maintained by a church or by a convention or association of churches. Where a local government is the employer, then Virginia anti-subrogation law may apply. Group Hospitalization v. Smith, 236 Va. 228 (1988);
- ERISA does not apply to sole proprietors, partners or individual policies even though they may be obtained as part of an ERISA plan;
- Some counties will try to assert that pursuant to Va. Code 8.01-66.2, they have a right to subrogate as to those statutory liens which they may pay. That seems to be contrary to the state Anti-Subrogation Law.
13. Legal Fees
As to any offset for legal fees, the plan must expressly address that. If it doesn’t, then legal fees may be offset against any subrogation rights.
14. Hybrid Coverage
There can arise circumstances where parts of a plan may be self-funded and then parts of the plan may not be self-funded. In those instances, if the claim arises out of the part that is self-funded, then subrogation probably applies. Thompson v. Talquin Building Products Co., 928 Fed.2d 649 (4th Cir. 1992)
There may also be plans wherein the self-funding applies to one state but not to another. If you’re in the state that is self-funded, then the subrogation right probably applies.
15. COBRA Coverage
If a health plan is an employer self-funded ERISA plan and the insured continues coverage after ending his employment and pays for that coverage, then the beneficiary is subject to the terms of the agreements previously set forth in the SPD and the Main Plan Document (MPD). The employer status is not relevant to the analysis. Take a look at the document put out by the U.S. Dept. of Labor entitled, “An Employee’s Guide to Health Benefits under COBRA“.
There are several other blogs on this site dealing with different types of liens:
