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“I shouldn't have to reimburse you for the money I received from my settlement,” said Patrick, a former employee for a telecommunications company. “The state won't allow me to claim medical benefits in my personal-injury case.”
“The plan language is clear that it has the right to be reimbursed first from any amounts recovered,” Barbara, a representative for Patrick's multiemployer plan, replied.
FACTS:A participant in a self-funded, multiemployer employee welfare benefit plan governed by the Employee Retirement Income Act was injured in an all-terrain vehicle accident. The plan paid a portion of the medical benefits on the participant's behalf.
The plan participant thereafter filed personal injury claims through a third party and received a settlement.
The plan sued the participant for reimbursement of the benefits, citing language included in the plan that stated the plan is the first to have rights to any recovery and for any injury or illness.
The plan also stated that it reserved rights to make determinations regarding recovery and subrogation and to “treat any benefits provided as an advance and to deduct such amounts from future benefits to which the covered person or an immediate covered family member may otherwise be entitled until the amount due the plan has been satisfied.”
The participant countersued, claiming that the plan illegally refused to pay medical expenses unrelated to the accident after the settlement.
The participant said that he should not be required to reimburse the fund because state law, the New Jersey Collateral Source Statute, prevented him from claiming medical expenses in his third-party personal-injury action.
The district court determined that ERISA trumped state law and that participants' agreements to a provision to reimburse the fund “even if the settlement did not include money for medical bills” created an equitable lien.
The plan participant appealed, claiming that the court erred in finding that the plan had an equitable lien against his recovery because “there was no nexus between the funds received by him, which excluded compensation for medical expenses, and the funds expended by the plan, which were solely for medical expenses.”
A board sued a plan participant for reimbursement of medical expenses after participant received third-party recovery.
ISSUE: Can language in a plan create an equitable lien on a participant's recovery?
DECISION: The plan's language specifically created an equitable lien by agreement over the participant's third-party recovery, the appeals court said, affirming the district court decision.
The appeals court cited U.S. Airways Inc. v. McCutchen, 133 S. Ct. 1537, 55 EBC 1845 (U.S. 2013), where a plan beneficiary argued that an ERISA plan should only be reimbursed for the portion of the settlement that covered medical expenses, and the beneficiary should have been allowed to keep the remaining amount because the ERISA plan only paid for medical expenses and should only seek reimbursement for medical expenses.
Rejecting this argument, the Supreme Court held that the language of the plan allowed the plan first claim to the entire recovery.
The appeals court in this case agreed that “the language of the plan plainly does not limit the plan's ability to recover its expenditures for medical expenses to an award for medical expenses only.”
Regarding the claim that state law prevented the participant from claiming medical expenses in his tort personal injury action, the court stated that regardless of the state statute, the language of the plan requiring reimbursement to the plan is “clear and controlling” (Bd. of Trs. of the Nat'l Elevator Indus. Health Benefit Plan v. McLaughlin,3d Cir., No. 14-1308, unpublished 10/1/14).
POINTERS: The doctrine of subrogation, according to Black's Law Dictionary, is “the principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.”
The principle of subrogation is applied to prevent an insured person from recovering twice for injuries.
Subrogation under the Employee Retirement Income Security Act occurs when a participant in an employer's health plan is first covered for a health expense by the health plan, and then reimbursed for that health expense by a third party.
The law in this area is changing and evolving and insurers and plan providers should be cautious in dealing with any issues of subrogation.
The majority of district courts interpreting the McCutchen ruling have favored plan fiduciaries over participants, consistently rejecting attempts to use principles of equity to defeat reimbursement claims by plans.
For additional information, see Compensation and Benefit Library's “Coordination of Benefit (COB) Procedures” chapter.
To contact the editor responsible for this story: Michael Baer at firstname.lastname@example.org
This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.
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