By Dave Place, J.D., Director of Lien Resolution
In the wake of the disastrous holding in U.S. Airways v. McCutchen, 569 U. S. (2013) plaintiffs and their attorneys are crying out for an end to the Draconian tyranny of self-funded ERISA plans’ subrogation practices. As you may recall, Mr. McCutchen was severely injured, incurring nearly $67,000.00 in medical damages, in a motor vehicle accident that killed or seriously injured three (3) other people. Mr. McCutchen was able to recover $10,000.00 from the tortfeasor’s Bodily Injury coverage and another $100,000.00 from his own Under Insured Motorist coverage. Despite this six figure recovery, Mr. McCutchen was $867.00 worse off from having brought a claim due to paying attorney fees, litigation costs, and repaying the U.S. Airways self-funded ERISA plan. In light of this reality, the question being raised by so many is “will the Patient Protection and Affordable Care Act (“PPACA”) bring any relief?”
It may be that the “PPACA”, also often referred to as “Obamacare”, will end the ability of self-funded plans to call equity “beside the point”. This was the phrase used by the U.S. Supreme Court in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356 and reiterated in U.S. Airways v. McCutchen when discussing the impact of “equity” on the express terms of a self-funded ERISA plan’s contract for health benefits. That possibility has the insurance industry very concerned given the importance of self-funded insurance “products” to their bottom line. According to report by Loyola University Professor John D. Blum 55% of all workers, 73 million, are in self-funded ERISA plans. Moreover, he has found that 89% of employers with 5000 or more employees use self-funded ERISA plans. The insurance industry fears that the “PPACA” may live up to its name and actually “protect” patients from the inequitable actions of the ERISA recovery vendor.
The fear of the insurance industry could have a basis in reality. The Self-Insurance Institute of America (“SIIA”) has estimated that a migration from self-funded plans to the new federal and state exchanges under “PPACA” might be as high as 48%. Professor Blum notes that this will make the self-funded pool much smaller and thus make those plans more costly. Cost savings, and reduced premiums have been key marketing points for the insurance industry as they purvey their self-funded products. In fact, in a letter to Congressman Henry Waxman the self-funded insurance lobby stated that “[r]ecoveries from subrogation and reimbursement reduce health plan costs and allow employer health plans to provide more benefits at a lower cost to their employees.” This letter was sent at a time when the House of Representatives was considering the America’s Affordable Health Choices Act of 2009 and specifically an amendment that expressly applied the “made whole” doctrine. The “made whole” doctrine is an equitable axiom that the injured party must be “fully compensated” for his/her damages before any collateral source can assert a claim for subrogation/reimbursement. The insurance lobby would rather that this common sense principle of fairness remain “beside the point.”
The possibility that their might be a way out for the plaintiff who formerly had group health insurance provided as a participant in his/her employer’s self-funded ERISA plan has the recovery vendors nervous as well. As every experienced plaintiff’s attorney knows there is an entire industry that has emerged over the past quarter of a century to enforce the subrogation/reimbursement rights of self-funded ERISA plans. These recovery vendors; such as Rawlings, HRI, Ingenix, and ACS participate in conferences, seminars and continuing education with their “in-house” colleagues to stay current on the developing trends in this specialized area of practice. At its annual conference in November 2012 the National Association of Subrogation Professionals (“NASP”) had a presentation entitled “Will Obamacare and National Insurance Exchange Spell the End of ERISA Remedies?”. This topic was of such a salient concern that it was Daran Kiefer, the “NASP” President, who delivered the presentation.
With just months left until “PPACA” begins opening exchanges it is still unclear what impact these exchanges will have on ERISA subrogation/reimbursement rights. In the early stages of healthcare reform negotiations this issue was raised by two Democrats – Rep. John Barrow of Georgia and Rep. Bruce Braley of Iowa who introduced the Barrow/Braley Subrogation Amendment to HR 3200 America’s Affordable Health Choices Act of 2009. As I explained above this amendment was immediately met with strong resistance from the insurance lobby. The proposed amendment allowed for the application of both “made whole” and “common fund” to all Qualified Health Benefit Plans (“QHBP”):
“With respect to any qualified health benefits plan requiring an enrollee to reimburse the QHBP offering entity (health plan) for any amount recovered from any source relating to a personal injury or similar type of claim, subrogation or reimbursement is permitted only if the enrollee has been fully compensated for all damages arising out of such claim. Any plan provision to the contrary is not enforceable. Insofar as subrogation or reimbursement of benefits is permitted, the subrogation or reimbursement amount shall not exceed the amount allocated to the categories of damages for those benefits in the settlement or judgment, less a pro rata share of any fees and expenses incurred in securing the settlement or judgment.”
Despite the efforts of some, including the support of the American Association for Justice, the “PPACA” has no provision that deals with these rights. In the end neither this language, nor any language dealing with subrogation/reimbursement rights, was included in the final bill that became “Obamacare”.
In discussing this issue with some of the leading minds on ERISA subrogation/reimbursement the consensus seems clear, nobody knows what impact the “PPACA” will have in this area. Professor Baron of South Dakota University School of Law is often on the forefront of developing ERISA issues and maintains a close circle of ERISA experts. Professor Baron informs us that he too has heard similar conclusions from his cadre of ERISA gurus. Despite this lack of guidance a few things are clear; the insurance industry is nervous, and just about anything would be an improvement over the 100% repayment standard of U.S. Airways v. McCutchen and its “beside the point” view of equity.
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