ERISA Subrogation

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.

ERISA Subrogation-Several Factors

If your client is protected by the Virginia Anti-Subrogation Law found at Va. Code § 38.2-3405, then 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.

2.  Is the Health Plan 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.

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.

Getting to the Bottom of ERISA Subrogation-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:

• The plan document in effect on the date of the injury and any document amending, supplementing or otherwise modifying the plan document;
• The summary plan description and any employee benefit booklet in effect on the date of the injury as well as all documents issued subsequently during any year in which benefits were paid;
• Bargaining Agreement, Trust Agreement and contract under which the health plan is established;
• Form 5500 including all attached financial schedules;
• The Administrative Services Agreement with any TPA.

ERISA Subrogation-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.

Penalties for Non-Compliance

Pursuant to 29 U.S.C. § 11321(c)(1) and 29 C.F.R. 2575.502.c-3, penalties of $110.00 a day may be assessed for non-production of these documents.

ERISA Subrogation-What are you Looking for?

There are a number of things you want to look for:

Reimbursement

• 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.

Documents

• 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.

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.

ERISA Subrogation-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.

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. 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.

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.

ERISA Subrogation-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.

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“.

ERISA Subrogation-Is there a Duty to Investigate?

Sometimes an issue arises as to whether or not the attorney has an obligation to investigate the merits of a subrogation claim in order to measure what exposure the attorney may have or the client may have. LEO 1865 says that if the client wants no investigation, then no investigation should be done. In spite of that LEO, I think the better practice is to:

• Investigate;
• Determine the merits of the subrogation claim;
• Measure what your exposure is if you fully disburse. In particular could you be sued for fraudulent conveyance under Va. Code § 55.1-400 et seq.?
• Make a full disclosure to the client including that full disbursement could put them in breach of their insurance contract;
• Then make a decision about full disbursement or retaining funds to cover the subrogation amount, less any offsets.

Limitation Periods

Every claim has a statute of limitations. A claim for recovery under an ERISA policy is essentially a breach of contract claim. The breach typically occurs when demand for payment is made and refused. The statute of limitations being based upon a contract would be 5 years in Virginia. As such waiting for the statute of limitations to expire before disbursing money to a client is probably not a sound policy. If the carrier comes out of the woodwork 3 years after you’ve reached a settlement and there’s never been a demand for payment made, then the statute hasn’t even begun to run.

TRICARE Liens

TRICARE applies to either retired or active-duty military. It is their private health insurance. Their right of recovery is limited to third party claims per 42 U.S.C. § 2651. This right of recovery is simply that. It is not a lien. They may make the argument pursuant to 10 U.S.C. § 1095 that Med Pay is in effect a third party payer and therefore they can go against the Med Pay recovery. My response to that is that Virginia Med Pay is a contract between the injured party and the insurer that allows for a windfall to the injured party and the government has no right to step into that contract and further that Virginia Med Pay is neither primary nor secondary coverage but again is just a windfall to the injured party to the extent that their medical bills have been paid by TRICARE or health insurance.

The plaintiff’s attorneys’ fees cannot be calculated based upon the TRICARE lien amount. 42 U.S.C. § 2651 et seq. That is, the lien amount must be deducted from the total settlement or judgment and then the attorneys’ fees are calculated on that lesser amount.

Dealing with TRICARE is difficult. One means of contact is: Humana Military, P.O. Box 740062, Louisville, KY 40201, Fax: (800) 439-7482, HMHSRoutineCorrespondence@humana.com

From this source, the communication will be sent to the particular uniformed service that governs.

Disability Plans

Sometimes disability plans will seek subrogation. These may be short-term or long-term disability plans. You need to look at the portion of the plan dealing with “other income benefits”. If they have a right of subrogation, that should be limited to the wage reimbursement that came out of your third party claim. That is, they should not be allowed to offset the entire third party settlement against future disability benefits.

If they try to claim that type of broad subrogation right, then your first argument is that it’s barred by the policy. Your second argument is that there is a lack of consideration. That is, the overall third party settlement includes many components other than loss of income.

Call or contact us for a free consult about ERISA subrogation. Also for more information on Personal Injury Claims, see the other pages on this site. Also see the pages on Wikipedia for information about ERISA.