By Guest Author Teresa Kenyon, Esq. – Director of Lien Resolution for Synergy Settlement Services
The dreaded ERISA lien. The vendors representing ERISA self-funded health plans’ interests certainly want you to believe that it must be reimbursed in full. They will cite the US Airways v McCutchen case, tell you that they are not subject to equitable doctrines, and, therefore, do not have to reduce for attorney fees, limit, or waive their full recovery even if your client was not made whole from a compromised settlement. How do you get an ERISA plan to be fair and equitable?
What is ERISA?
ERISA is an acronym for the Employee Retirement Income Security Act. That is right, its original intention in its 1974 creation was focused on pension plans not health benefits. According to the US Department of Labor, ERISA protects the interest of employee benefit plan participants and their beneficiaries. It requires plan sponsors to provide plan information to participants. It establishes standards of conduct for plan managers and other fiduciaries. And it establishes enforcement provisions to ensure that plan funds are protected and that qualifying participants receive their benefits.
Great! This all sounds good. The employee is protected. The Plan must follow rules. The Plan must provide detailed reporting to the federal government. It must provide disclosures to the participants and establish guidelines on how denied claims can be appealed. And it must ensure that the funds are protected and delivered in the best interest of the plan to pay future claims.
An ERISA plan as it relates to health benefits is an “Employee Welfare Benefit Plan.” The ERISA statute defines it as
“any Plan, fund or program which was… established or maintained by an employer or by an employee organization… for the purpose of providing for its participants or their beneficiaries through the purchase of insurance or otherwise, (A) medical, surgical or hospital care or benefits…”
Recovery of Settlement Funds
But what is the Plan’s expectations when they have paid for medical expenses, as they are required to do, and the beneficiary recovers money from an at fault party or their insurance carrier?
In theory, subrogation and reimbursement is a logical idea. The health plan lien holder’s mantra is that a Plan should not have to pay for medical treatment when someone else is the reason for the need of that medical treatment. It follows that all costs of a loss should be placed on the wrongdoer and that the Plan can be reimbursed by the actual injured party. And this can function flawlessly when there are enough funds to reimburse all parties who have suffered a loss. The thought that Polly the Plaintiff should not receive a double recovery when someone else actually carried the burden makes logical sense. But what about when there are not enough funds recovered? Settlements can be limited due to policy limits, liability issues, comparative fault, etc.
In equity, the amount any Plan recovers from a settlement fund should be parallel to what the injured plaintiff is recovering for their loss. If the Plan has paid $30,000 in medical expenses and the settlement is limited to $100,000 whether due to policy limits, liability issues, or otherwise, where is the equity in allowing the plan to recover their full $30,000? Why does a Plan have more rights to reimbursement than Penny, the actual injured plaintiff? The inequity that plaintiffs see on a regular basis as it relates to ERISA self-funded liens is disheartening.
Assume that Penny had lost wages of $20,000 while she was recovering from her loss. Assume that she has a hospital lien of $70,000 because her health plan did not pay for the out of network provider that the ambulance drove her to on the day of her loss. Assume that she lost her job and eventually obtained another employer which provided her health benefits leading to another health insurance claim for reimbursement of $50,000. By numbers alone, Penny the plaintiff is not fully compensated for her loss. Why should the original Plan receive their full $30,000? Why has the case law developed to allow a Plan to add one sentence to a 100-page Plan Document that gives it the right to collect in full even if it totals 1/3 of the limited settlement and even when there are other hands out at the table?
Based on those facts, this is not functioning as was originally intended when ERISA was created. As far back as 1997, a District Court judge identified that that a particular case before the court “becomes yet another illustration of the glaring need for Congress to amend ERISA to account for the changing realities of the modern health care system. Enacted to safeguard the interests of employees and their beneficiaries, ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.”
State laws are in place in many places to prevent this type of thievery of settlement funds. In most states, the law generally requires the lien be reduced by attorney fees and be reduced or eliminated completely when the injured plaintiff is not made whole or was partially at fault for the loss. But not all plans are subject to state law. This is where the funding type matters. The United States Supreme Court decided in FMC Corp. v. Holliday that state laws shall not limit a self-funded ERISA Plan from recovering from a settlement if the language of the Plan Plan’s language clearly says so.
So, what constitutes self-funded? An employer Plan is self-funded if the employer pays for the employees’ medical benefits through their own funds. The employer assumes the financial risk directly and is liable for the payment of all medical bills. Compare this to an employer who secures an insurance policy, and the insurance carrier assumes all the financial risk and pays all the medical bills. It is all about where the funds come from to pay the medical claims. The convoluted part is that most self-funded plans use insurance carriers to administer or pay their claims. The big-name insurance carriers are involved in both self-funded and fully insured health plans. The insurance card can look very similar because they both reflect Cigna or Blue Cross.
How do you determine the funding status? You must obtain the relevant documents from the plan administrator.
Supporting Document Request
There is a the laundry list of items that the plan participant is entitled to receive under the ERISA statute § 1024(b)(4). “The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, [sic] plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.
• The Plan Document (written instrument pursuant to 29 U.S.C. § 1102) in effect on date of injury as well as any document amending, supplementing, or otherwise modifying the Plan Document; Summary Plan Description and employee benefits booklet in effect at the time of injury as well as all documents issued subsequently during any year in which benefits were paid;
• SPD Wrap Documents;
• Bargaining Agreement, Trust Agreement, Contract etc. under which Health Plan is established;
• Trust Agreement or other document establishing funding for the Plan;
• Annual Return/Report (IRS/DOL Form 5500), including all attached Financial Schedules;
• Administrative Services Agreement with any Third-Party Administrator for the Plan;
• An affidavit from the Plan Administrator attesting to self-funded status of the Plan;
• Complete statement of benefits paid to or on behalf of claimant/beneficiary;
• Specific plan component(s) paying benefits (e.g., health, dental, vision, AD&D, disability, etc.);
• “Stop-loss” or excess/re-insurance coverage (insurer, policy numbers and attachment points).”
An administrator is required to provide the requested documents. The ERISA statute has created a civil penalty which has been increased to $110/day. Subrogation vendors, insurance carriers, and defense firms regularly state that they do not have all the documents, that they are not the proper party for requesting the documents, that the documents are not necessary to ascertain the funding status of the plan, etc. Essentially, they assert that they are not subject to the penalty for their failure to comply which includes the failure to comply completely.
In this list are documents that will lead you to discover the funding status of the Plan. You will likely not obtain all of them and not all are needed to assess the funding status of the Plan. In order to review what you really need, it is recommended that you ensure that you have the relevant ones to assess the Plan’s rights.
The first to review is the Form 5500. This Form is an IRS document but should be completed by ERISA plans and can give some great guidance if you know what you are looking for as you review the document. The first place to look is section 8 and 9.
Section 8b lists the plans whose funding type will be checked in section 9. Many review this part of the Form and assume that because Insurance is marked in 9a(1) that the health plan is fully insured. But that is an incorrect reading. In fact, looking at this alone cannot give you all the answers, it only leads you down a road. This Form reflects that this employer has both insured plans and self-funded benefit plans. 4A is the health plan, 4B is the Life Insurance, 4D is Dental etc. Section 9 only tells you that some of those are insured and some of those self-funded (paid for by the general assets of the plan sponsor). Perhaps the health is self-funded, but the life insurance and dental are insured. The next step is to look at the Schedules to determine which is which. Schedule A lists the insured coverages and Schedule C lists the self-funded. Unfortunately, even with an 82-page instruction guide, these Forms are often completed incorrectly or incompletely which makes them often unreliable for determining funding status.
The Plan Documents
The most important document to review is the Plan Document. Not only will there be some indication of funding type within this document, but it is also the terms of this document that govern the right of recovery of a self-funded plan. The US Supreme Court held in US Airways, Inc. v. McCutchen that a self-funded plan could claim a right to a disproportionate share of the recovery if the contract were clearly written to eliminate equitable principles. McCutchen argued that a recovery by the US Airways plan, in his case, would be an inequitable windfall to the plan and a complete blow to the injured plaintiff, himself. The Plan attempted to claim full reimbursement of their $66,866 payment towards medical expenses from his $110,000 policy limit recovery even though his net, after attorney fees and costs, was only $66,000. McCutchen argued that the Plan should take no more than the portion that would be classified as a “double recovery” thereby allowing him to receive compensation for the rest of his damages. .
Ultimately, US Airways had to reduce their reimbursement claim by attorney fees as their policy was silent on that equitable doctrine. Further, when the case was remanded to the lower court, it was discovered that the Court was looking at the wrong document completely. In Cigna Corporation v. Amara, the US Supreme Court indicated that “summary documents, important as they are, provide communication with the beneficiaries about the Plan, but that their statements do not themselves constitute the terms of the Plan.” The Master Plan Document controls and you should not settle for just the Summary Plan Description.
The McCutchen Court held that the Plan should be enforced as written and that both sides should be held to their mutual promises. This is inequity at its finest. McCutchen had no part in agreeing whether certain terms would be part of the contract nor did he have the ability to strike terms from the contract. It is a classic contract of adhesion. One where the Plan is in the power position and able to modify their contracts year over year and ensure that they remain in power. Because of that, any ambiguities are to be resolved in the favor of the injured plaintiff and not the drafter.
This is one place where ERISA self-funded plans and the vendors that handle them miss the mark and yet it was a big focus in the McCutchen decision. They ride the train of power as if simply being an ERISA self-funded plan gives them a strong legal right of recovery in all situations. They conveniently miss the places where their contract language has deficiencies. Instead, they want Polly the plaintiff to overlook those ambiguities or just interpret it based on what the Plan meant to write. It does not work that way! We recently had a case where the Summary Plan Description (SPD) referenced a Master Plan Document (MPD) but the subrogation vendor could only produce two SPDs with different dates. The representative’s response to our identifying this as a major issue was to still reference a document that does not exist and asked that we refer to the “MPD (also titled SPD but is in fact the MPD).”
At least one court had it right.
“Any burden of uncertainty created by careless or inaccurate drafting of the summary must be placed on those who do the drafting, and who are most able to bear that burden, and not on the individual employee, who is powerless to affect the drafting of the summary or the policy and ill equipped to bear the financial hardship that might result from a misleading or confusing document. Accuracy is not a lot to ask. And it is especially not a lot to ask in return for the protection afforded by ERISA’s preemption of state law causes of action– causes of action which threaten considerably greater liability than that allowed by ERISA.”
When it comes to ERISA Plans and ensuring that your injured plaintiff retains compensation for her injuries, it is important to make sure that the ERISA Plan has a right to be at the table and has a right to request reimbursement from the settlement funds. This article narrowly focuses on just a few of the many things that must be investigated as it relates to an ERISA Plans demand. Synergy’s Experts are ready to step in and fully review your next ERISA lien.
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.