Benefit Offsets

[Randy Watson]

Successfully pursuing a reimbursement/subrogation agreement is dead in many circuits. Could we include an offset provision in a health plan that would reduce future benefits by the benefit paid out when the participant collectes from a third party and refuses to honor the reimbursement agreement? It seems like we could argue that this is equitable relief since we are reducing benefits rather than seeking monetary relief. Any thoughts?

[Guest mjb]

I dont think this works in a contributory plan where ee is paying part of the cost for health coverage since the payments are made with the expectation of receiving future healthcare benefits. Also dont know why it should work if employer wants to offset health care payments made on behalf of covered dependent against payments due for treatment of another covered person such as the employee since the employee is not same party who received the overpayment.

[GBurns]

I wonder if it is permissable to pre-empt this situation through use of a COB clause or through pre-certification or pre-approval of treatment.

If the participant is injured in an accident (this seems like the cause of most if not all claims that could be involved in subrogation) treatment has to be pre-authorized. Could this be used as a way of starting the major part of mediacl treatment with the third party as payer, rather than having the participant obtaining treatment under the employer health plan well knowing that coverage is available elsewhere. It should be no problem with an automobile claim or other PI related injuries in many states, especially those who like Florida have mandatory mediacl coverage built into auto insurance etc. A slip and fall should be no different.

If an insurance policy can dictate that you must be pre-approved for specialists and must be pre-approved for major surgery and hospital, I do not see why it should not be possible to "force" pre-approval for accident treatment (other than the initial treatment which could be emergency). Even then there should be a way to use COB to switch the primary payer.

[Don Levit]

Randy:

Because I am interested in the ERISA preemption issue, I have accumulated several cases dealing with state versus federal regulation of contract subrogation terms.

This issue is far from settled in whether the plan contract terms would or would not take precedence over state law.

The cases I have appear to suggest that the plan terms would, however, take precedence over state laws.

Is there a particular court case, which arouses your concern?

Don Levit

[Randy Watson]

The law was well settled in the Ninth Circuit (and elsewhere) that you could not seek legal relief pursuant to the terms of a reimbursement provision because ERISA only permits equitable relief. Then the Providence case came down in 2004. The court reversed the finding of a district court that held that a state breach of contract claim (based on failure to reimburse under the reimbursement agreement) was preempted by ERISA. That's good news for some in the Ninth Circuit, but there are states within the Ninth Circuit that will not uphold reimbursement agreements. If you are in one of those states, you are SOL.

[Don Levit]

Randy:

It is a lot easier to discuss specific states and specific cases.

Can you provide the citation for the Providence case?

Can you list other cases?

Would you like for me to introduce a few cases, and the appropriate excerpts?

I believe one is far from SOL on this issue.

Don Levit

[Randy Watson]

Don,

See Providence v. McDowell, 385 F3d 1168 (9th Cir. 2004) addressing the lack of removal jurisdiction. It's a good case for employers. For the state of the law in the Ninth Circuit with respect to the enforceability of reimbursement provisions under ERISA, see FMC Medical Plan v. Owens, 122 F3d 1258 (9th Cir. 1997) and Reynolds Metal Co. v. Ellis, 202 F3d 1246 (9th Cir. 2002). I assume you have the Great West case, but if not you can find that at 534 U.S. 204 (2002). I'd like to hear your comments on these cases. There is no need to talk about the state cases, as the state I am speaking of has long held that reimbursement agreements between an insured and an insurer are against public policy and unenforceable.

[GBurns]

These are all "after the fact" cases.

What I was wondering about was in essence stopping the expense from being assigned to the wrong insurer/payer initially, not trying to collect "after the fact".

[Don Levit]

Randy:

Thanks for the citations. I have located the cases, and will respond soon.

Don Levit

[Kirk Maldonado]

Randy:

Is this a fully-insured plan? I'm asking you that because you stated:

the state I am speaking of has long held that reimbursement agreements between an insured and an insurer are against public policy and unenforceable.

If it is fully-insured, how are you going to be able to unilaterally effect the desired change? Wouldn't that require, at a minimum, the insurance policy be re-written, which might conceivably require the consent of the applicable state insurance commissioner?

Of course, if the plan is fully insured, then you could implement this change easily. But it does make your references to insured and insurer out of place.

As MJB pointed out to me in a message a few months ago, offsets like the ones you propose are permissible with respect to the benefits under a tax-qualified retirement plan so that your proposed solution should be acceptable.

[Randy Watson]

It is a self insured plan administered by a thirdy party.

[Don Levit]

Kirk:

It would be interedting to know, Randy, the state in which the plan resides.

Could you explain your rationale, Kirk, between whether the plan is self insured or fully insured?

Would it be possible that the subrogation provision, regardless of how the plan is insured, would be preempted, due to the plan sponsor having the right to include the subrogation provision at his discretion?

To not be able to include this provision may violate the sponsor's fiduciary responsibility to protect the financial liability of the plan, regardless of how it is funded.

It is interesting that I came across this link today: http://www.groom.com/_library/SupremeCourt...rReview.pdf.pdf.

It deals directly with this issue!

One excerpt: "Great-West 534 US at 217 states, "An insurer's subrogation right is driven by the fundamentally equitable desire to prevent unjust enrichment, rather than to make the insurer whole through breach-of-contract damages."

Don Levit

[Guest mjb]

I dont think it is an equitable remedy to deny benefits to one covered person in a family because of benefits received by another family member. Seperately you need to review whether the offset complies with ERISA 510 if it only applied to participants who have exercised rights under the plan.

[Randy Watson]

Good point on the family member issue. But what if the offset provisions are only applied to the individual that received the benefits, not "innocent" family members? Is that impractical?

I'm not sure how we would have a 510 issue. If the offset provisions are set forth in the plan document and apply to everyone on a nondiscriminatory basis how can this be intereference with a protected right? The "right" is merely a benefit that has built in limitations.

[Kirk Maldonado]

mjb:

While I didn't mention it, I had assumed that the offset only applied against the particular participant. I agree that applying it against other family members is problematical.