Subrogation? Right of Recovery? ERISA Self-Funded Health Plans have New Oppurtunity
The Supreme Court has rendered its opinion in the matter of US Airways, Inc. v. McCutchen, F.3d, 2011, WL 5557411 (3d Cir. Nov. 16, 2011), providing some clarity to self-funded ERISA health plans as it relates to the right of recovery.
As background, it has been an ongoing game of tug-of-war between health plans and participants when there is third party liability. In a nutshell, a health plan covers the medical expenses of a plan participant, the plan participant then seeks recovery from a liable third party. Does the health plan have the right to reimbursement of any of its cost? According to the Supreme Court, the plan document rules. If the ERISA health plan gives the plan the right of recovery, the plan in fact can be reimbursed what it has paid in health claim from any recovery received by the claimant.
In the McCutchen case, medical expenses were $66,866 which was paid by the health plan. He recovered $110,000, after 40% contingency attorney fee and expenses McCutchen’s net recovery was less than $60,000. The plan wanted to recover the entire $66,866, which would have left the participant in a hole.
The lesson from this case is plans should carefully articulate their position on the right of recovery. A plan that is too aggressive, i.e. requires full reimbursement without regard to impact on participant, may cause the participant to be unwilling to pursue the third party action. Certainly plans will want to preserve the right to recover, but they may well want to also incent the participant to pursue the third party.
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.
As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.