The Supreme Court revisited the issue yesterday of whether a health plan is entitled to full reimbursement for payments made to a plan participant injured in an accident where the participant sues and recovers damages from a third party.
The Court heard arguments in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan and will determine if, under ERISA, a reimbursement to an employee benefit plan can be recovered if the beneficiary has already spent the funds he or she recovered from a third party.
Most plan documents contain what’s known as “lien by agreement” language that specifies if a plan participant is paid benefits and then subsequently recovers money from a third party, the benefits must be repaid to the health plan first.
In Montanile, the question was “if the individual receives dollars from a third party but then the individual simply spent the dollars on child care and their own expenses, can the plan then still obtain those dollars from this individual?” says Erin Sweeney, counsel with Miller & Chevalier, who was in the court room during yesterday’s oral arguments. “If there’s nothing left in the account, can the plan still obtain those dollars?”
Plan sponsors will want to pay attention to this case because “if there is litigation, litigants often bring in everyone and so they may very well be named in a lawsuit,” says Sweeney. “And if the plan is self-insured, then the employer is going to be, typically, the entity who is going to be defending this type of lawsuit.”
She advises employers to check in with their third-party administrators to “make sure the language that is in the plan document is going to accurately track where the Supreme Court is going with these subrogation reimbursement cases so the employer doesn’t get scooped into a lawsuit that they’re not interested in having to deal with.”
Most circuit courts are in agreement that plans should be able to recover funds from participants who receive damages from third parties and “the fact that they have been spent is irrelevant to the plan’s claim for equitable relief,” says Doug Haloftis, partner with Barnes & Thornburg. “However the 9th Circuit Court of Appeals has held to the contrary.”
During yesterday’s oral arguments, Sweeney says Chief Justice Roberts repeatedly focused on the administrative cost and burden of monitoring settlement of third party actions, and pointed out that “we try to avoid complicated procedures” in this area of law because employers aren’t required to establish employee benefit plans.
The Supreme Court is expected to issue a decision in Montanile by the end of June 2016.
In a similar case from 2013, U.S. Airways v. McCutchen, the Supreme Court ruled 5-4 that James McCutchen, a U.S. Airways employee, did not have to pay his health plan back all of the money he recovered from a third party following a car accident. According to the decision, the health plan had a right to be reimbursed, but McCutchen would be able to charge his health plan for part of his legal fees.
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