Applying Collateral Source Statutes to ERISA after Wurtz
By: David L. Place, J.D. Vice President, Director of Lien Resolution Services
The U.S. Court of Appeals for the 2nd Circuit rendered a major decision on July 31, 2014 holding that New York’s anti-subrogation statute is “saved” from ERISA preemption. (Wurtz v. The Rawlings Company, — F.3d—, 2014 WL 3746801). This ruling holds that neither the express preemption found in 29 U.S.C. § 1144(b)(2)(a) nor the complete preemption of 29 U.S.C. § 1132(a)(1)(B) protects the ERISA plan from New York’s anti-subrogation statute (N.Y. Gen. Oblig. Law § 5‐335).
ERISA plans are able to preempt all state laws, except if the law relates to banking, insurance or securities.
“[T]he provisions of this … chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan…”
29 U.S. Code § 1144 (a)
“[N]othing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.”
29 U.S. Code § 1144 (b)(2)(a)
The New York anti-subrogation statute in question, § 5-355, specifically stated that:
“[I]t shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services … to the extent those losses … have been … reimbursed by an insurer.” Id.
“No person entering into such a settlement shall be subject to a subrogation claim or claim for reimbursement by an insurer and an insurer shall have no lien or right of subrogation or reimbursement” Id.
The 2nd Circuit in New York found that this statute was “saved” under 29 U.S. Code § 1144 (b)(2)(a) as a law that “regulates insurance.” The standard used by the Court in Wurtz was established in the 2003 case Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329. That case established a two prong test.
A law “regulates insurance” under this savings clause if it (1) is “specifically directed toward entities engaged in insurance,” and (2) “substantially affect[s] the risk pooling arrangement between the insurer and the insured.” Id. at 342
In analyzing the first prong of the test the Wurtz court followed the broad rule established in the seminal ERISA case, FMC Corp. v. Holliday, 498 U.S. 52 (1990). In that case the Supreme Court found that the expansive statutory language at issue “[a]ny program, group contract or other arrangement” was more than sufficient to constitute being “specifically directed” at insurance. In fact, the Supreme Court found that even though broad language “does not merely have an impact on the insurance industry, it is aimed at it.” Id. at 61. This is a very helpful point for trial attorneys who will be seeking to apply broadly written collateral source statutes against subrogation claims being asserted by ERISA plans.
The Wurtz court reasoned that the second prong was satisfied by determining that the question of does the statute “substantially affect risk pooling” to be an analysis of the impact when the law applies, rather than a question of to how large a group does the statute apply.
“[T]he test is not whether the law substantially affects the whole insurance market—the test is whether the law substantially affects how risk is shared when it applies. For example, even though only a subset of insureds suffer from mental illness, the Supreme Court has held that a law requiring minimum mental health care benefits regulates insurance and is thus saved from preemption. Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 743 (1985).”
Id. at 11
This is the same analysis that First Circuit of Florida undertook when it reached its opinion in 2010. (Coleman v. Blue Cross and Blue Shield of Alabama, No. 1D10-1366, December 8, 2010). The ERISA plan in Wurtz was a fully insured plan, which means once N.Y. Gen. Oblig. Law § 5‐335 was “saved” it applied to the plan. The ability to use the Wurtz rational against self-funded ERISA plan’s, especially in states like Florida, may prove a difficult challenge.
Self-funded ERISA plan’s enjoy unparalleled recovery rights in large part due to the “deemer” clause of 29 U.S. Code § 1144 (b(2)(b). Self-funded ERISA plans are not “deemed” to be insurance and thus even “saved” insurance statutes do not bind them.
“[No self-funded] employee benefit plan … shall be deemed to be an insurance company … or to be engaged in the business of insurance … for purposes of any law of any State purporting to regulate insurance companies, insurance contracts…” Id.
Thus, most anti-subrogation laws like N.Y. Gen. Oblig. Law § 5‐335 have no ability to regulate self-funded ERISA plans. Even Florida’s 768.76 has been “saved” but found inapplicable to self-funded ERISA plans. (See, Coleman v. Blue Cross and Blue Shield of Alabama, No. 1D10-1366, December 8, 2010). Despite the fact that Florida’s collateral source statute applies to a wide range of parties it does not capture self-funded ERISA plans.
The Coleman court explained the three step process for how these self-funded plans escape 768.76 rather succinctly when they wrote:
“State laws directed toward the plans are pre-empted because they relate to an employee benefit plan but are not “saved” because they do not regulate insurance. State laws that directly regulate insurance are “saved” but do not reach 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” Id.
Despite this reasoning the Coleman court reminds the plaintiff’s bar that insofar as an ERISA plan is covered by insurance, the Plan is bound by state regulations that would apply to their insurance carrier. (See also, FMC Corp. v. Holliday, 798 U.S. 52 (1990). This language, the fact of the remand in Coleman, and the reasoning of Wurtz mandate that the wise plaintiff’s attorney verify the funding status of the ERISA plan in question. Obtaining the Master Plan Document via a proper 29 U.S.C. 1024(b)(4) request is more important than ever.
In practice the plaintiff’s attorney should attempt to have the self-funded ERISA plan realize the application of Wurtz, Coleman, and FMC to them for the portions of their payments that came from an insured plan or were reimbursed by stop-loss coverage. It is always a solid practice for Florida attorneys to send the ERISA plan a 768.76(6) notice. If the plan does not comply with 768.76(7), inform them that the portion of their claim that represents payments from an insured plan or from a self-funded plan reimbursed by stop-loss coverage has been waived under the above rationale. This should also mean that 768.76(8) will cut off the accrual of that portion of their lien at the settlement date. Additionally, if a resolution is not agreed to, an equitable distribution hearing can be requested. However, it is unlikely that self-funded ERISA plans or their recovery vendors will capitulate on this point. Despite their unwillingness to openly agree with this reasoning, it should give them sufficient pause so they will consider a reasonable compromise.
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