Many attorneys struggle with getting reductions on ERISA liens. The primary reason is lack of leverage and less than complete information. This blog post gives some tips on how to be better prepared to fight ERISA recovery contractors. The following are key points from this month’s blog post regarding ERISA liens:
- ERISA is a federal statute that protects self-funded employer-based health insurance plans from application of state law when they have a lien
- It is critically important to review an ERISA plan before negotiating a lien
- Use 1024(b)(4) request to put pressure on the ERISA plan
- Determine funding status – self funded versus insured
- Review Master Plan Document for subrogation language, don’t rely on the Summary Plan Document
- Get every piece of information you are owed from the ERISA plan prior to resolving the lien
- Follow our step by step plan discussed in the blog post
- Outsourcing lien resolution to those that specialize in fighting ERISA recovery contractors may give your client a greater reduction
ERISA is a very complex federal statute that has been interpreted very negatively for personal injury victims by the United States Supreme Court. The goal of this blog post is to explain ERISA and its impact when settling case in a very simple way.
What is ERISA?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established employer-based pension and health plans to provide protection for individuals in these plans. It was created to protect the employee and their funds that were contributed to covered plans via payroll deductions. It has been bastardized by ERISA recovery contractors and plans to aggressively recover dollars spent by covered health insurance plans when there is a liability case. While ERSIA wasn’t created for this purpose, it is being used in this way.
Today, if you speak to a recovery vendor you hear the following:
“ERISA gets 100% of our lien paid back even if you as the attorney and the client gets nothing.”
“You have to be pay ERISA liens back at 100% because of the McCutchen case.”
“All ERISA plans have the same rights of recovery.”
It is true there is case law on the side of self-funded ERISA plans. The strong recovery rights come from the US Supreme Court’s decision in US Airways, Inc v McCutchen. This is the link to the final brief in McCutchen.
The Court was asked to answer two basic questions in the brief:
- Whether the participant’s reimbursement obligation is subject to a pro rata reduction under general unjust enrichment principles because he did not receive a full recovery from the third party. Commonly known as Made Whole.
- Whether the equitable common-fund doctrine should govern the allocation of responsibility for the attorney’s fees the participant incurred in securing the recovery from which the fiduciary seeks reimbursement.
The decision came down in favor of US Airways, the ERISA plan. Mr. McCutchen was not given any relief since the plan language could abrogate Made Whole & Common Fund according to the Court. It seemed he would have to pay the “lien” in full. That isn’t what happened though. Mr. McCutchen’s case was remanded back to the trial court for a determination on the lien. U.S. Airways v. McCutchen, Case 2:08-cv-01593-DSC (emphasis added) (W.D. PA. March 16, 2016). On remand, the court delved into the actual plan language which incredibly had never been reviewed by the attorneys when the matter was before the US Supreme Court. There was discussion in the opinion on remand about the Summary Plan Description and Master Plan Document. The SPD had recovery provisions which supported US Airway’s claim of a equitable lien under ERISA but the MPD did not. SPDs generally don’t control, it is the MPD that does. The dispute was whether Mr. McCutchen’s recovery from his first party carrier was subjected to US Airway’s claim. Because the MPD didn’t support it, US Airway’s claim was only applicable as to his third-party recovery of $10,000.00 and not his larger first party recovery. An incredible end result. The good guys won in the end but the McCutchen opinion in the US Supreme Court made bad law for plaintiffs across the country.
What does the decision mean for your clients?
Since funding status and plan language are king based on McCutchen, you must review the full plan documents. Fully insured plan status versus self-funded status as well as the Master Plan Document are vitally important.
Funding status determines whether a plan gets to use ERISA’s federal preemption and McCutchen versus being subjected to state law subrogation statutes. Many ERISA plans are insured plans versus self-funded which means ERISA’s federal law preemption doesn’t apply. ERISA covered group health insurance plans are funded in two ways:
Insured Plans– An employer with a small pool of workers will likely use an insured plan. The primary way your health insurance works at work has not changed for the last fifty years, insured plans. You pay for insurance through your employer for a plan with a large health insurance company like Blue Cross, Aetna or United Healthcare. The insurance company collects your premiums from your employer and pays your claims. In short, the premiums are revenue and the claims are expenses of the health insurance company. This is an insurance company plan that is subject to state law when it comes to subrogation even though it is ERISA.
Self-Funded Plans – Large employers can collect premiums and pay claims from their own pool of funds. These plans often look the same because the employer outsources most of the work related to the program. They will utilize a third-party administrator, claims management and stop loss Insurance to help them administer the plan. In short, the company collects the premiums to create an asset pool that is used to pay claims. The pool is employee money and subrogation rights are governed by federal law under ERISA.
Review of plan documents is incredibly important and cannot be overlooked. The Master Plan Document (MPD) will ultimately layout the recovery rights for the ERISA plan. Strong language in the MPD can minimize or eliminate many common reduction strategies. Vague language can allow for reductions for common fund or limit recovery rights on 1st party coverage. The Summary Plan Document (SPD) is not very useful, see McCutchen, you need and are entitled to the MPD.
The McCutchen decision makes it much harder to achieve a reduction for ERISA Self-Funded Plans with strong recovery rights in the Master Plan Document. Therefore, you need to know what you are dealing with and the MPD must be critically analyzed for any chinks in the armor.
Jason D. Lazarus is the managing partner and founder of the Special Needs Law Firm; a Florida law firm that provides legal services related to public benefit preservation, liens and Medicare Secondary Payer compliance. He is also a founding Principal and Chief Executive Officer of Synergy Settlement Services, which offers healthcare lien resolution, Medicare secondary payer compliance services, pooled trust services, settlement asset management services and structured settlements.