Guest Article

(From the April 14, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

ERISA Plan's Prior Authorization and Plan Limits Requirements Preempt State Medicaid Demands for Payment If Procedures Not Followed

Employer health plans that require prior authorization or impose plan limits on certain types of care need not repay State Medicaid plans when those state plans pay for Medicaid recipients' treatments that the employer plan would not have paid unless the plan participant had received prior authorization under the employer plan. But this rule applies only if the plan participant first files the claim with the employer health plan and receives the employer plan's denial of payment, according to U.S. Department of Labor Advisory Opinion 2008-03A, March 31, 2008. Likewise, the employer plan need not repay the state plan the full costs of the services, if the employer plan would have paid only a limited amount for the services or would have required the plan participant to explore an alternative treatment.

These issues arise when a Medicaid-covered individual, who is also covered by an employer plan that requires prior authorization for treatments from a health care provider, does not inform the provider that he or she is covered by the employer's private health coverage, which requires prior authorization for the treatment. In many cases, the health care provider then bills the state Medicaid program and the Medicaid program frequently then reimburses the provider. In such cases when the state Medicaid program learns of the dual coverage by both Medicaid and an employer plan, the state seeks reimbursement from the employer plan. Employer plans generally refuse to reimburse the state Medicaid program because the insured or provider, in violation of the employer plan provisions, did not seek prior authorization for the services.

In issuing this Advisory Opinion 2008-03A, the DOL cites an earlier Advisory Opinion 2005-05A holding that, under ERISA section 609(b)(3), a state cannot require employer plan fiduciaries to reimburse the state for services to a plan participant when the plan participant failed to comply with the employer plan's procedures. (Obviously, to do so would ignore the provisions of the plan document, and hence would violate the plan fiduciaries' ERISA duty by paying for services obtained in violation of the plan's provisions.) Likewise, an ERISA plan cannot be compelled to reimburse the state's full cost of the item or service, if the plan's provisions permitted reimbursement for only a lower amount or would have required seeking alternative treatments.

One troubling issue that may arise from this ruling could be the requirement for the employer plan to respond promptly to the issue of coverage. Advisory Opinion 2008-03A did not address the ERISA regulations under DOL Reg. § 2560.503-1(c), (e) and (f)(2), which contain detailed timelines for authorizing or denying health claims, including some types of requested health treatments that require employer plan responses within as little as 24 hours.

Advisory Opinion 2008-03A is posted at: www.dol.gov/ebsa/regs/AOs/main.html.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.