If you are pursuing a personal injury settlement, there are a few things you need to make sure you understand about ERISA. Particularly how an ERISA lien may impact the amount of money you may receive from your personal injury claim.
What is ERISA and why do you need to be aware of it in a personal injury case?
ERISA – the Employee Retirement Income Security Act of 1974 – is a federal law that sets standards for most retirement and health care plans in private industry. ERISA’s goal is to provide protection for the individuals enrolled in the plans. It does so by requiring plans to provide participants with plan information and features, setting minimum standards for participation, establishing fiduciary responsibilities for those who control plan assets, and requiring the establishment of a grievance process for participants, among other things. While the goal of the legislation was to protect employees of companies and the money they contributed to plans via payroll, the companies have used the law to aid in collecting repayment for medical care in personal injury cases.
In a personal injury case, a plaintiff is often reimbursed for their medical expenses. However, if an ERISA health plan originally paid for medical care, existing law allows your health insurer to collect money recovered from the at-fault party, this is called an ERISA lien.
In the past, plaintiffs’ attorneys have argued that the amount of money spent on attorney’s fees should be subtracted from the amount of reimbursement the health plan receives. This would prevent the health plan from being unjustly enriched by being fully reimbursed and benefiting from the attorney’s work at the same time. However, the United States Supreme Court has held that self-funded employee benefits plans are not subject to state law. Thus, if a plan is self-funded, only federal law applies. FMC Corp. v. Holliday (1990) 498 U.S. 52. A recent United States Supreme Court decision, US Airways v. McCutchen (2013) 133 S. Ct. 1537, held that for reimbursement actions under self-funded ERISA plans, the ERISA plan’s terms govern and that equitable principles such as unjust enrichment will not override the language of the applicable contract. When the language of the contract does not specifically preclude or is silent as to a term, such as the allocation of attorney’s fees, equitable defenses are still available.
How do ERISA liens work in personal injury cases?
The key to whether a plan falls under these rulings is its funding status. Some plans are insured, whereas others are self-funded. Insured plans are usually used by smaller employers with fewer workers. In insured plans, employees pay their premiums to a health insurance company which subsequently pays their claims. These companies are subject to state law for health care liens and reimbursements. Most government employee plans are also insured.
Self-funded plans, on the other hand, are used by larger employers who collect premiums directly from their workers and pay for claims from their own funds. While the companies usually outsource the work, the pool of money used to pay claims is employee money. Health care liens under these plans are governed by federal law and ERISA. Thus, the single most important thing to determine before you start your personal injury settlement negotiation is whether your health care plan is insured or self-funded. If it is insured, you will not need to worry about an ERISA lien however, there may be a subrogation lien under state law. If it is self-funded, you will likely need to plan on paying some of your settlement back to the health insurance company for your medical plans due to an ERISA lien.
What should you think about in negotiating your personal injury settlement?
Hiring a good attorney knowledgeable in both personal injury law and ERISA liens will help ensure that you make well-informed decisions regarding your settlement. An experienced personal injury attorney who understands ERISA liens can analyze your health insurance plan to determine the funding status and whether the language of the contract specifically precludes equitable defenses.
The first step in preparing your ERISA lien defense is obtaining your insurance plan documents, including the Master Plan Document (MPD) and the Summary Plan Document (SPD). The MPD language controls when there are conflicting clauses, so it is vital to understand what each says. The MPD will also lay out the funding mechanism and recovery terms.
Your personal injury attorney will also help you review your medical bills to ensure that there were no overcharges or mistakes. They will also help you to reduce unreasonable charges and obtain credit for any money you have already paid for co-pays, deductibles, and co-insurance. This review and documentation will aid in reducing the amount of an ERISA lien.
Your attorney will use the knowledge of the potential ERISA lien in negotiating your personal injury settlement. Knowing that you may have to reimburse your self-funded health insurance plan for medical expenses covered is important when going into negotiations so that you’re not left with a smaller settlement than expected when a lien is paid back.
Finally, your personal injury attorney will be able to identify if there are any equitable defenses still available based on the contract language that will help reduce the amount of the lien. If the MPD is silent regarding issues of comparative fault, the made whole doctrine, and common fund defenses, you may be able to argue for a reduction in the expenses owed. Consulting with an experienced ERISA personal injury attorney will help you navigate the complicated waters of ERISA liens and facilitate getting you the best outcome possible.