Perhaps the single most important piece of advice which I can provide you is that you should NOT enter into a settlement and release the tortfeasor without first addressing the ERSIA lien assertion. In virtually all cases, the release of a tortfeasor without resolution of the ERISA lien places the ERISA beneficiary in a “breach” of the terms of the plan provisions. This “breach” gives the ERISA plan remedies which involve the ability to file suit against the beneficiary and attorney. The ERISA plan’s remedies also extend to an ability to seek attorney fees if suit is filed. Additionally, the ERISA plan is typically authorized to deny payment on future medical claims in the event the underlying tort claim is settled with resolution of the lien.
One’s ability to seek a lien reduction is much greater if the matter is addressed prior to settlement and release of the tortfeasor. Furthermore, one’s ability to seek a lien reduction is even greater if the matter is addressed at the earliest possible time, prior to the client and attorney’s investment of time and money in pursuit of a claim against the tortfeasor. In some situations, the pursuit of a tort claim may be completely futile because the entire tort recovery may be required to be paid over to the ERISA plan and neither the client nor the attorney will receive any compensation. Unless there is an agreement for a lien up front, the matter should not be pursued.
What is Meant by ERISA Reimbursement?
If you have found this web site, chances are good that you already know the answer to this question. We are talking about what has traditionally been known as “subrogation.” When an insurer pays a claim to an insured, the insurer generally has the right to “step in the shoes” of the insured for the purpose of recapturing that money by pursuing a claim against the tortfeasor (if there is one) who has caused the loss. An ERISA plan’s “right of reimbursement” is essentially a subrogation claim. There are subtle legal distinctions between “subrogation” and “reimbursement,” but these devices are essentially the same in regard to the impact on the insured.
In an ERISA setting, the ERISA plan is seeking to recover the money which it made for medical bills. And, the ERISA plan is seeking to be paid first. The plan provisions (which are unilaterally drafted by the plan officials and insurers) give it the right to be paid “first” before any money is paid to the insured or to the insured’s attorney. This is called “first dollar priority.” Regardless of the injuries inflicted on the insured, the plan wants its money first. There have been numerous cases where a “normal person” sustains catastrophic injuries resulting in permanent disability, quadriplegia, paraplegia, and/or permanent confinement in long term care facility and the plan has successfully sought repayment of the medical bills despite the fact there is no money remaining for injured beneficiary. Plans have shown no hesitation in suing permanently disabled beneficiaries in an effort to seize the entire tort recovery intended for the beneficiary.
Why Do I Oppose ERISA Plans?
I have become an advocate for ERISA participants and beneficiaries as they face ERISA Reimbursement Claims. Why? Because, through my research, I have come to believe that all such claims represent what I consider to be an “illegitimate” assertion of authority under the law. The reasons why I believe these claims are illegitimate are explored in great detail in my published articles which are accessible on this web site. A summary of those reasons is set forth here:
- Historically Prohibited: Subrogation on property damage claims has its origins in “common law” and such subrogation rights were fostered. But Subrogation on personal injury claims was prohibited at common law and for good reason.
- ERISA Preemption: ERISA plans claim state law protections (encompassing the common law prohibition on subrogation for personal injury claims) is “preempted” under ERISA and that may generally be true. But, still there is no federal law which permits subrogation or reimbursement on medical bills.
- Lack of Authority under ERISA or other Federal Law: The body of statutes enacted into law as ERISA is extensive. Yet, there is no statutory authority which allows an ERISA plan to seek subrogation or reimbursement for payments made on medical bills.
- Background at time ERISA adopted: Occasionally attorneys for ERISA P lans argue that Congress intended for ERISA plans to have the right of reimbursement when it enacted ERISA in 1974. But, the fact remains that at the time ERISA was enacted, no health insurer had ever been permitted to sue its own insured to recover payments made on medical bills. State law and common law prohibited such subrogation. The first reported decision involved an effort by a health insurer to seek subrogation was in 1982 in a case in which the Supreme Judicial Court of Massachusetts denied the health insurer’s suit against its own insured.
- Utilization of Reimbursement Proceeds: All reported authorities, both primary and secondary, tell us that reimbursement proceeds (i.e. subrogated recoveries) do not flow to the benefit of the insureds. This money is utilized a number of ways, none of which directly benefits the pool of the insureds for whom the risk of loss had previously been actuarially determined. First and foremost, a very large portion of these recoveries is paid to the attorneys and collecting agents employed to recover this money. Some 25 to 50% of the recovery is taken off the top to pay those who have been assigned the task of pursuing and suing the ERISA beneficiaries who have been injured. In many situations the majority of the reimbursement proceeds is paid over to commercial insurers which are able to use the money as sources of profit to be utilized however management sees fit. Some of this money may be allocated to executive compensation. That money which does not get paid over to commercial insurers is typically utilized to lessen the employers share of contributions which is made for a completely different plan year and grouping of beneficiaries in a subsequent year. Many times the reimbursement proceeds are realized 5 or 6 or more years after the event and the employer then enjoys a windfall lessening its pre-determined contribution for the year of receipt.
- Breach of ERISA’s Anti-Inurement Protection: ERISA, 29 U.S.C. § 1103(c) mandates that “the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administration.”
- Breach of Fiduciary Duty: I have come to believe that plan administrators are breaching their fiduciary duty in providing for “first dollar priority” right of reimbursement in plan documents and in pursuing these claims. Under ERISA, the plan administrator has a statutory duty to serve as a fiduciary. 29 U.S.C. §1104(1) (emphasis added) provides that the plan administrator is required to discharge its duties solely in the interest of the participants and beneficiaries for the exclusive purpose of providing benefits to participants and beneficiaries . . . with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in the like capacity and familiar with such matters would use. Arguably, the utilization of reimbursement proceeds by ERISA plans violates the plan’s fundamental duty to provide benefits to the beneficiaries and participants. Additionally the collection of reimbursement claims is arguably a breach of ERISA’s Anti-Inurement protection — 29 U.S.C. § 1103(c) mandates that “the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administration.”