What Is An ERISA Plan And Why Do I Care?

One of the benefits of hiring a personal injury attorney to help you with your case is the expertise they possess in understanding how to maximize your recovery by using all of your available coverages.  In nearly every case I have handled I have been able to easily negotiate favorable reductions from health care providers and/or insurance companies.  There is one very notable exception to this – when my client has a health insurance policy which falls under the Employee Retirement Income Security Act of 1974 (ERISA).  This Act has many facets which protect workers and the plans themselves.  However, for purposes of this article I am addressing only the issues that relate to personal injury recovery.

Most health insurance contracts have what is called a subrogation clause.  Under this clause, you give the insurance company the right to directly pursue the individual or company who has caused your injury to the extent of the medical billings they paid on your behalf.  This contractual language may be tempered, however, by various state statutes and equitable doctrines from state law cases designed to protect the injured party.  The following are a few examples of these.

Common Fund Doctrine

Under the Common Fund Doctrine, the insurer is required to participate in the attorney fees being paid by the injured party to collect money on their behalf.  Without this, insurance companies would inherit a windfall by basically using the personal injury attorney as a free collection agent to get them reimbursed for their expenses.  State laws and even some federal statutes (Medicare), have built-in formulas to calculate the amount of attorney fees the insurance company should pay. 

Made Whole Doctrine

Under the Made Whole Doctrine, an insurer cannot collect any portion of the expenses incurred unless and until the personal injury claimant has been “made whole.”  This most often arises when the available liability insurance is less than the amount of the medical bills or is woefully inadequate to cover the losses incurred by the personal injury claimant. 

State Statutes

Some states have specific statutory schemes (e.g., California), which have codified how and under what circumstances an insurer can recover payments from a personal injury claim. 

Federal Preemption

The primary problem lies in the fact that ERISA is a federal statutory scheme which preempts state statutes and case law.  To avoid having to have bills reduced under state statutes, the language of the plan documents (the documents which set forth how the plan is managed and maintained), will most often specifically state the plan is not subject to these equitable doctrines and/or state statutes.  There are some exceptions to this.  For example, if the Plan is operated by an insurance company versus being self-funded, the Act specifically notes that the protections of ERISA do not apply.  29 U.S.C. 1144(b)(2)(A).  This portion of the Act, referred to by many as the "saving clause," allows for an exception to the rule of federal preemption. This clause states that "nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance."  This is only effective in states which have codified language relevant to insurance subrogation within their state.

So Therefore, What?

In light of the foregoing, what usually occurs is the Plan seeks reimbursement and, because it is operating from a position of authority, will not entertain requests for reductions or agree to contribute to the attorney fees generated to obtain recovery.  That being the case, what can be done?

Make sure you hire an attorney who understands ERISA plans.

Many attorneys have taken a case all the way to completion, only to find out that the personal injury client is going to be left with nothing because of the ERISA lien in the case.  At this point in time it is usually too late to do anything.  The lien is statutory and protected by federal law.  It must be paid.  Finding this out at the end is no help at all.

Understand from the inception that these liens are very difficult to negotiate.

I like to sell myself as a vigorous advocate on behalf of my clients.  However, I have to be honest about the realities of every case.  If there is an ERISA plan involved the client has to know that it will have an impact on the case.  If all attempts at legal remedies are explored and deemed not to be viable, the lien will have to be paid.

Read the Plan.

You may have a copy put away in a file cabinet somewhere that you never read.  Even if you did, chances are you probably did not or cannot understand it.  By reading the plan language it can be determined whether the plan has a claim, whether it can be reduced, and what funds the plan is entitled to lien.  These are critical questions that a well-qualified personal injury attorney can help you answer.

Go through the claimed charges.

In nearly every case, once the ERISA plan finds out there is an attorney requesting a lien it will throw in everything but the kitchen sink.  In nearly every case I have handled the ERISA plan included charges which were totally unrelated to the injury sustained by my client.  The lien may only include amounts pain which are related to the accident at issue.  One tactic that is used to reduce liens is to ask that disputed injuries be removed from the charges.  Often there are clear injuries from an accident along with an injury or injuries for which causation is hotly disputed.  I have obtained reductions in prior cases by providing  the report or opinions of the opposing expert.  Ultimately, the Plan has the burden of establishing the charges are part of the claim.  If the settlement was reduced because of ambiguity in causation of the injuries the Plan may agree to reduce the lien for those charges. 

Consider the amount of insurance.

Under the worst-case scenario, the negligent party maintains a minimal policy which is less than the amount of the Plan’s lien.  Under this scenario, no one (not even the attorney) will get any money from the claim.  If this is known from the outset of the case the attorney can negotiate with the plan and indicate the personal injury client will not pursue the case absent an agreement up front as to compensation.  Most Plan administrators are smart enough to realize something is better than nothing and will agree to split the settlement in an equitable fashion.

Alternatively, although it is almost always better to use health insurance to pay for medical expenses in a personal injury case, it may make more sense to forego this and use medical payments or an attorney lien agreement to secure payment for the medical expenses.  Again, an experienced personal injury attorney will know enough on how to advise you on this and act, rather than react.

In the end, this is an incredibly complex area of law full of pitfalls for the unwary.  Do not try to navigate this alone.  Jones Wilson is prepared to help you handle this an any other insurance issue to allow you to obtain the maximum personal injury settlement possible.

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