It is a surprise to the vast majority of personal injury claimants that
when they make a recovery they are usually required to reimburse their health insurance
carrier. Normally clients do not read their health insurance policies, nor the summary plan
description of the insurance policy, if they are provided with one by their employer. Thus
it comes as a surprise to learn that buried somewhere in these documents are several
paragraphs providing that if an insured party makes a recovery in a personal injury case,
he or she is required to reimburse the insurance company.
Most personal injury plaintiffs are outraged to find out about these provisions. He
or she may feel that she paid a substantial premium for years for the coverage and that he
or she, to the contrary, is entitled to be compensated for medical bills incurred as a result
of injuries sustained in a car wreck, medical malpractice matter, or the like. They feel that
they should not be required to reimburse the health insurance company to whom they paid
What is subrogation?
The insurance company bases it’s premiums on actual science and
subrogation recoveries constitute a windfall for the greedy insurance companies!
Another surprise is that if a person has had their medical bills paid for by Medicare
or Medicaid, he or she is probably going to be required to reimburse these entities as well.
Federal case law is well settled on the principle that an ERISA health plan is entitled
to reimbursement of benefits paid from personal injury settlement proceeds that are clearly identified as such. A recent decision by a U.S. District Court in Georgia in favor of the insurance plans right to reimbursement through subrogation indicates how modern federal courts dispose of those arguments. The case is Brown and Williamson Tobacco Corporation v. Collier, 2010 WL 1487772 (M.D. Ga, April 13,2010 ) In that case the district court rejected the Georgia “Make Whole” Doctrine.
Georgia has a liberal anti-subrogation statute which is designed to protect personal
injury victims from over- reaching by a health insurance company. The Georgia Statute
OCGA § 33-24-56.1 provides that “insurance companies may not subrogate to obtain
money from a personal injury settlement or verdict unless the injured party has been “made whole” for all economic and non economic damages.” This is a high burden for the
insurance company to overcome.
Most insurance policies contain language to the effect that the insurance company
is entitled to make a claim against or sue a personal injury plaintiff to recover
reimbursement from the personal injury plaintiff for funds he or she received in settlement
of a personal injury case. The argument of the insurance company is that since the
plaintiff is reimbursed for medical expenses incurred, even though insurance paid for
these medical expenses, then it is fair for the plaintiff to reimburse the insurance
company. In Georgia the Collateral Source Doctrine provides that when a plaintiff goes
to trial, the jury is not entitled to know about his or her health insurance which paid medical bills. Part of the public policy reason for courts and legislatures allowing subrogation is to prevent a double recovery.
An ERISA insurance carrier can sue the client for subrogation. An ERISA carrier can
also cancel your health insurance or refuse to pay claims you submit for medical care for
failing to agree to pay subrogation or to sign a subrogation form letter.
To the extent that you as a personal injury plaintiff have not been “made whole,”
you can argue that the insurance plan’s subrogation and or reimbursement rights are
limited to those available in equity and are limited by the equitable doctrines of the “Make
Whole Rule” and the “common fund doctrine”. Great-West Life and Annuity v. Knudson,
534 U.S. 201, 112 S. Ct. 708, 151 L. Ed. 2nd (2002)
If a plan is an ERISA plan, however, state law will not govern the enforceability of the subrogation agreement and will not protect the insured from the insurance company. Furthermore, state law requiring that the insured be fully compensated before the medical carrier can enforce any of the subrogation rights will not apply. Blue Cross and Blue Shield Mutual of Ohio v. Hrenko (1995), 72 Ohio St. 3rd 120, 647 N.E. 2nd 1358 Federal law will govern the enforceability of the subrogation agreement. There is case authority for the proposition that the ERISA administrator can recover subrogation, even though the insured has not been fully compensated. Electro-Mechanical Corp v. Ogan (C.A. 6, 1993) 9 F. 3rd 445. Under most plans the administrator also has the ability to withhold coverage until the insured signs a reimbursement agreement. Le High Valley Hospital v. Rallis #9403082, 95-3511, 1996 U.S. Dist. LEXIS 4974, (E.D.Pa. Apr. 11, 1996) Some cases have even held that the insurance company doesn’t even have to pay a pro rata share of the attorneys fees which were incurred to recover the funds.
To qualify as an ERISA plan, the plan must be (A) A plan, fund, or program, (B)
Established or maintained by an employer or employee organization, or both, (C) For the
purpose of providing, medical, surgical, hospital care, sickness, accident, disability, or other encumbered benefits stated in ERISA, and (D) To participants or beneficiaries.
In order to get the preferential tax treatment afforded by ERISA, employers must
meet a number of requirements: 1. Administrators of the plan are required to provide each
participant and each beneficiary of the plan with a summary description of the plan drafted
in language understandable by the average plan participant Section 1022 (a) 1, Title 29, U.S. Code 2. The employer must also make available to the plan participants and plan
beneficiaries a copy of the plans annual report as filed with the Secretary of Labor. Section
1023 (a) 1, A Title 29 3. The actual plan, the summary description of the plan, and the
annual report must be filed with the Secretary of Labor in order to come within the gambit
of ERISA regulation.
What is not an ERISA plan: It is important to remember that ERISA does not apply
to plans that are not maintained by the employer, 26 U.S. Code Section 1002 (1) Medical
coverage that an individual purchases for himself outside of the employment context is not
subject to ERISA. Sole proprietors and their spouses are exempt. A plan whose sole
beneficiaries are the company’s owners can not qualify as a plan under ERISA. In order
to establish an ERISA employee benefit plan, the plan must provide benefits for at least one employee, not including an employee who is also the owner of the business in question.
Also, ERISA does not apply to church, government, or foreign plans Section 1002, Title
20 U.S. Code, et seq. or self pay insurance contracts i.e. where the employer purchases
group health insurance but does not administer or control any of the benefits. If you work for a church, the state, county, township, or some other political sub division you do not have an ERISA plan.
If the plan is an ERISA plan it’s terms pre-empt state law meaning the antisubrogation
“make whole” will not protect the injured party The United States Supreme
Court has held that the terms of an ERISA plan pre-empt any state laws which relate to
a self insured or a self funded ERISA plan including the “make whole” doctrine. As a
practical matter most health plans today are ERISA plans. In dealing with the preemption
issue the attorney should always ask: who’s paying the bill? If the employer
is and it retains control, then there’s a federal pre-emption; if not, state law will apply.
If the plan is not any more than a group policy, marketed by the insurance company,
and funded exclusively by the employee, ERISA does not pre-empt state law. See FMC
Corp. v. Holliday (1990), 498 U.S. 52, 111 S.C. 403, 112 L.Ed.2nd 356. It is thought that
approximately sixty percent of employee benefit plans are self funded.
It is interesting to know that if a plan does pre-empt state law, the ERISA claim
may also reach those monies that the client used to pay the attorney! In short, the
greedy ERISA carrier may not only be able to grab the clients portion of the
recovery but also the attorneys fees! However some courts have forced ERISA plans
to pay their proportionate share of attorneys fees under the common fund doctrine
Scholtens v. Schneider (Ill. 1996), 671 N.E. 2nd 657.
You can obtain copies of the most current plan documents by calling the
Department of Labor, Public Disclosure and Affairs Office at 1-202-219-8771.
There are lawyers and law firms who do nothing but handle ERISA, Medicare,
Medicaid, FEHBA, and Tricare subrogation matters. The law in this area is constantly changing and evolving. It is challenging for personal injury lawyers to stay current regarding the latest developments in ERISA law.
We believe that a plaintiff, at his peril, refuses to reimburse an insurance company
which claims ERISA subrogation rights. A decision to not reimburse the ERISA
insurance company may be based on law which changes to the client’s determent
the next week after the decision is made.
We believe the best policy is to engage the entity claiming subrogation rights, be it
ERISA empowered insurance companies, Medicaid, or Medicare, FEHBA Federal
Employee Health Benefit Act or some other entity, from the inception of the case. Plaintiffs
have not been able to successfully defeat ERISA subrogated claims by settling for pain and suffering only, simply because the plan language usually does not limit reimbursement
rights to only what the insured has recovered for his or her medical bills!
To re-cap, there are two types of ERISA health plans, insured and self funded.
An insured plan is a health plan where the employer has purchased a group insurance
policy for it’s employees from a health insurance carrier. A self funded ERISA plan
is one in which the employer completely funds the plan and pays for employee
health care with it’s own assets. These two types of plans and their liens are treated
differently under ERISA, due to rules as to when federal law pre-empts state insurance
law and when it works in conjunction with state law.
The general rule is that ERISA pre-empts state law in the governance of employee
health plans however, one exception is the ERISA savings clause which saves state laws
regulating insurance from the realm of federal pre-emption . This clause greatly narrows
the scope of ERISA pre-emption where health insurance carriers are involved. .
On the other hand, the “deemer clause”, which immediately follows the savings
clause, provides that a self funded employee benefit plan is not to be deemed an insurance company. Thus, self funded ERISA plans are not subject to state law but health insurance carriers and insured ERISA plans are. Self funded ERISA plans are exempt from state regulation because self funding plans are not connected to an insurance company. They benefit from ERISA pre-emption. State laws that directly regulate insurance may not govern self funded employee benefit plans because the plans may not be deemed to be insurance companies, other insurers, or engaged in the business of insurance for purposes of such state laws.
On the other hand, insured ERISA plans are subject to state law regulation.
When an insured plan asserts a lien against a personal injury settlement it is the
insurer -not the plan, that is attempting to re-coup its expenses.
Thus some liens are governed by state law with its anti-subrogation protections
while other liens are covered by federal law through the pre-emption doctrine. A lien preempts state law if the health plan is promulgated under ERISA and the plan fully self
funds all medical expenses incurred by its plan participants. Self funded plans have a
right to be reimbursed out of the proceeds of the third party action even though the
state may have a “Make Whole” Doctrine contained in its statutory scheme. FMC V.
Holliday, 498 U.S. 52 (1990).
The “Make Whole” Doctrine invokes the notion that the injured person should
first be fully compensated for his or her injuries before subrogation or reimbursement
for medical expenses will be permitted. The 11th Circuit has held while the “make whole”
doctrine is the default rule for ERISA reimbursement claims, a benefits plan need only state in the plan document that the “ make whole” doctrine does not apply to overcome that default. Therefore OCGA § 33- 24-56.1 which contains the Georgia “Make Whole” Doctrine has no applicability to a plan governed by ERISA and the Federal Pre-emption Doctrine trumps the “Make Whole” Doctrine in Georgia. The plaintiff must therefore reimburse the plan.
Because there is so much uncertainty in the law regarding subrogation for insurance
companies, the companies are usually willing to negotiate these claims regarding
subrogation liens downward.
We have found that it is prudent to cooperate regarding subrogation with the
insurance companies or other entities such as Medicaid, Medicare, FEHBA, or Tricare
claiming subrogation rights throughout the pendency of the case. It is then easier to
negotiate the subrogation claim after the case is settled. Usually because of the uncertainty and the arguments that can be made to defeat subrogation rights the companies will reduce the amount of subrogation that it claims against the medical bills it has paid on your behalf which were later rolled into a personal injury recovery or at least give you credit for the attorney’s fees you have incurred.
The best course of action for a plaintiff is to explore with his or her attorney at the
beginning of the attorney client relationship the issue of subrogation. The attorney and the
client can collaborate on a plan to negotiate subrogation matters with the insurance
company starting at the inception of the representation of the client in the personal injury