The Employee Retirement Income Security Act of 1974
The Employee Retirement Income Security Act of 1974 (“ERISA”) was enacted to provide employees protections by setting minimum standards for most voluntarily established retirement and health plans in private industry.
ERISA is essential because it requires transparency and accountability, ensuring that participants can access information about their plans. Many ERISA plans rely on preemption principles to assert that they are under no obligation to reduce their lien claims and purport that they are entitled to the entire reimbursement claim, regardless of the case’s circumstances. While ERISA wasn’t created for this purpose, it is being used in this way.
The Two Types of ERISA Health Plans
To determine whether or not a plan gets to use ERISA’s federal preemption versus being subjected to state law subrogation statutes, you must first assess its funding status. There are two types of ERISA health plans: insured and self-funded.
A fully-insured plan is when an employee pays for insurance through their employer with a large health insurance company. These insurance company plans are subject to state law regarding subrogation, even though it is an ERISA plan.
A self-funded plan is where employers collect premiums and pay claims from their pool of funds. These plans will employ a third-party administrator, claims management, and stop-loss insurance to help them administer the Plan. These subrogation rights are governed by federal law under ERISA.
Under ERISA, the employer (Plan Sponsor) is a fiduciary for the Plan. As a fiduciary, the Sponsor owes a strict duty to the Plan to act in the best interest of all the beneficiaries when carrying out the administration and payment of benefits. Because of this, subrogation and reimbursement are impacted. The Plan Sponsor’s fiduciary duty is not to ignore the Plan language and provide a reduction if it so allows.
The Law Governing self-funded ERISA Plans
Subrogation companies attempt to assert that the U.S. Supreme Court case of US Airways v. McCutchen, (2013) 133 S. Ct. 1537, held that ERISA self-funded plans do not have to reduce for attorney fees and are not governed by the made-whole rule; however, this is not the case. In this case, the Supreme Court held that in a section 502(a)(3) reimbursement action under ERISA based on an equitable lien by agreement, the ERISA plan’s terms govern, and equitable defenses will not apply if the Plan language disavows them.
In short, McCutchen stands for the simple idea that the Plan language will hold the final decision of whether and to what extent an ERISA plan must be reimbursed.
Resolving an ERISA Lien
An ERISA self-funded plan is only as strong as its policy language. It is vital to obtain the appropriate plan documents when assessing the health plan’s recovery rights. Arming yourself with the documents that govern the Plan allows you the opportunity to ensure the accuracy of any information regarding the ERISA Lien given to you by the recovery vendor and/or Plan Administrator.
Request Plan Documents
Under 29 U.S.C. § 1024(b)(4), upon written request of any participant or beneficiary, the plan administrator must furnish a copy of the latest updated plan description, the latest annual report, any terminal report, the bargaining agreement, the trust agreement, contract or any other instrument under which the Plan is established or operated. Failure to comply with an ERISA document request within 30 days will result in a $110.00 per day penalty under 29 U.S.C. §1132 (c) (1) (B).
Audit Unrelated or Duplicate Billing
Just like Medicaid, Medicare, and other lien holders, private insurance company’s itemizations often contain unrelated or duplicate billing. Before beginning negotiations, it is essential to clean up the bill and have unrelated/improper charges removed.
Begin Negotiations for the Appropriate Reduction
Examine the Plan Language to determine if any of the common defenses against ERISA liens can be used in your negotiation. The most common defenses are the specific-fund doctrine, the made-whole doctrine, and the common-fund or common-benefit doctrine.
The Specific-Fund Doctrine Defense
When examining the language of an ERISA plan that is claiming to have a lien against a client, it is important to closely analyze the third-party recovery provision. If the plan language does not identify a specific fund to which it is entitled or does not limit the Plan’s recovery to the amount it has paid for injury-related care and is thus rightfully entitled to, then the lien is unenforceable. Sereboff v. Mid Atlantic Medical Servs., Inc., 547 U.S. 356 (2006)
The Made-Whole Doctrine Defense
Examine the Plan language for language that invalidates the made-whole doctrine. If the Plan does not eliminate the use of the made-whole doctrine, this is likely your best defense against reimbursement of the ERISA lien.
The Common-Fund or Common-Benefit Doctrine Defense
Under this doctrine, a lienholder must contribute to attorney fees. The idea behind this doctrine is not to allow the insurer to obtain full benefit from the plaintiff’s efforts without contributing equally to the litigation expenses would unjustly enrich the insurer at the plaintiff’s expense. However, most federal courts have ruled that an ERISA plan need not contribute to attorney fees where its plan language gives an unqualified right to reimbursement. Even if the Plan is ambiguous or silent on attorney fees, the question of whether the Plan must contribute to the fees is still unresolved. Thus, even if a self-funded plan is silent on the matter, the ERISA lien may not have to be reduced for attorney fees.
Other Defenses Against ERISA Liens
Other negotiation positions to take when negotiating ERISA liens are to examine whether or not you have a favorable state law that would potentially eliminate the entire claim. You can look to the Plan to determine whether there is a lack of specific fund language. You can request that the lien be reduced to only the portion of the proceeds that applies to medical expenses. Suppose your case was mainly pain and suffering or a lost wage component, and the recovery was small compared to those damages. In that case, you can argue that most, if not all, of the settlement proceeds were for things other than medical expenses.
In conclusion, self-funded ERISA plans with strong language have the law on their side. However, if you know potential ERISA defenses and know what to look for within the Plan Language, you have a better chance of getting more money into your client’s pocket.