Recent United States Supreme Court decision could
cost medical benefit plans millions in lost revenues
Most employee medical insurance benefit plans, which are regulated
by the Employee Retirement Income Security Act of 1974 (ERISA)
contain subrogation clauses which require a plan participant to
reimburse the plan for medical expenses if the injured employee
later sues and recovers money from a third party for those injuries.
In this case the employee was seriously injured by a drunk driver.
The employee’s medical plan paid more than $120,000 for his
medical expenses. The employee subsequently sued the drunk driver
and received a $500,000 settlement. Pursuant to the plan’s
subrogation clause, the medical plan sought reimbursement from
the proceeds of the settlement.
The injured employee’s attorney refused the request and
informed the plan administrator that the funds would be transferred
from a client trust fund to the account of the injured employee,
unless the plan administrator objected. The plan administrator
did not respond. Shortly thereafter, the injured employee received
the remaining settlement funds.
Six months later the plan administrator filed suit to enforce
the subrogation terms of the plan document. The employee argued
that since he had already spent almost all of the settlement, no
money was left to return to the plan. The case was tried at a District
Court and later appealed to the Eleventh Circuit Court. In both
instances the courts held that even if the injured employee had
completely used up the money in the fund, the plan was still entitled
to reimbursement from the employee’s general assets.
The case was then heard by the U.S. Supreme Court. In an 8-1 decision,
the high court ruled that when an injured participant in an ERISA
covered health insurance plan spends the funds which are recovered
from a third party settlement the plan administrator may not bring
suit for reimbursement from the plan participant’s other
assets. In reversing the court of appeals, the justices said that
if the health plan in question had immediately sued when the injured
employee first came into possession of the settlement fund, that
might have been a valid remedy. However, since the plan waited
until after the injured employee had spent most of the settlement,
the court held that the plan’s ability to seek reimbursement
was limited or possibly extinguished.
Under this interpretation, a health plan can only seek reimbursement
from monies that the plan participant still possesses. This decision
could cost medical benefit plans billions in lost revenues. These
losses could then cause an increase in employee health insurance
premiums. In light of this decision, some Insurance carriers are
considering not offering coverage for medical expenses which are
the result of accidents caused by third parties.
Employers who have ERISA covered medical insurance plans should
immediately begin the process of reviewing the subrogation provisions
of the plan to determine if changes need to be made.
A company’s best defense against the potential expense and
aggravation related to federal or State law violations is to proactively
review and revise as needed their Human Resources policies, handbooks,
hiring procedures, compensation, benefits, training programs, communications
tools and other functions. The professionals of PHHR are ready
to assist your organization maintain compliance with the latest
state and federal mandates.
Paul Hilton Human Resources Consulting works with our clients to insure that all required documentation is correct and sufficient to successfully defend against a claim to any unemployment compensation commission.
|For assistance with any Human Resources related questions or other
issues, please Contact Us.
Our newsletter is updated regularly, providing
information of interest
to many of our readers. We invite you to check back frequently.
Paul Hilton is a certified Human Resources Consultant, located in
If you would like to subscribe to our Newsletter
e-mailing list, please submit our Contact