At the end of 2018, over 176.9 million Americans, approximately 54% of the population, were receiving private health insurance coverage.1 With the emergence of the private health insurance market place, an increasingly global facing private sector, and the perpetual need for advanced health care services, a personal injury attorney is likely to see a private health insurance lien over any other type of lien. Since private health insurers are becoming more active in protecting recovery and subrogation rights, understanding how to verify, resolve, and satisfy private health insurance liens is a critical part of an attorney’s settlement checklist.
Background - Private Health Insurance Liens
A private lien is any right to reimbursement asserted by a non-governmental health plan, like an employer plan or individually purchased health insurance policy.2 A private plan’s right to recover benefits from the alleged fault of a third party may be equitable or contractual and its strength of recovery is mostly dependent on plan type.
While “private” is broadly classified, these liens can take on a variety of forms and depend on what type of plan a member subscribed to at the time benefits were advanced. Private health insurance plans generally fall into four broad categories: ERISA (plan issued through private sector employment), federal employee (plan issued through federal employment), individual (e.g., Marketplace, Medicare Supplement), and state employee plan (plan issued through state employment).
The resolution of a private health insurance lien is highly dependent on plan type, the language of the plan’s contract with its member, and the applicable source of law - either federal or state.
Private ERISA plans are those which are regulated by the Employee Retirement Income Security Act of 1974. The federal law governs private employee benefits which includes health plans.3 The law applies to plans established or maintained by an employer, and does not (in general) cover plans offered by a church entity, government employees, or individually purchased policies. Of note, church sponsored health plans may elect to be subject to ERISA requirements and protections.4
Benefits in an ERISA plan may be self-funded, wherein the employer group pays the benefits out of company funds or a trust though there is a possibility that members are required to contribute. A self-funded plan (sometimes called self-insured) is often administered by a third party health insurance company, but the insurance company only acts as an administrator. An ERISA plan may also contain benefits that are fully insured, meaning that an outside insurance company insures the benefits and the member pays a premium directly to the plan rather than the employer group. ERISA plans often contain both types of benefits. For example, general health benefits may be self-funded, but optional add-ons such as life insurance may be fully insured.
The source of funding for an ERISA plan is often apparent from the plan contract (or “plan language.”) Plan documents may be explicit about the source of funding while others can be less obvious. All ERISA plans are required to stipulate which portions of the plan are self-funded from employer assets and which are insured.
Whether a plan or a specific set of benefits (such as health benefits) are self-funded or fully insured determines whether the plan contract terms govern the plan’s reimbursement rights or whether the plan is also subject to state law. For self-funded plans, the right to reimbursement from a third party settlement is governed by the terms of the contract, which preempts state law5 but this is not the case for insured plans. ERISA contains a savings clause that prevents ERISA from overriding state law for insured portions of benefits.6 Thus, insured benefits are subject to state regulation, which can sometimes include anti-subrogation rules.7
Other Plan Types
While federal law generally governs ERISA plans, not all health plans are deemed subject to ERISA requirements. Generally, such plans include state and federal employee health plans, church employee plans, individually purchased policies, and Medicare supplement plans. For these plan types, a combination of state law and the language of the contract will determine a plan’s recovery rights as well as potential defenses to a health care lien.8
Anti-Subrogation and Non-Equity States
If a plan is subject to state insurance laws, the status of the state’s anti-subrogation or non-equity laws becomes an important tool to determine the plan’s recovery rights.
Generally, states with anti-subrogation laws prohibit health insurers from subrogation reimbursement in third party recovery actions. If the plan’s governing law is subject to state laws in one of the “anti-subrogation states”, then the health plan’s recovery rights are limited, if not eliminated.9
Separate from anti-subrogation states are non-equity states. Most state courts have recognized an equitable right to reimbursement, which means that the reimbursement right does not need to be explicitly defined in the plan language. However, a handful of states do not recognize an insured plan’s equitable right to reimbursement. These states prohibit an insured plan from exercising a right of subrogation or asserting a lien, unless its plan contract contains certain recovery language.10
Private Lien Resolution Best Practices
With all these rules surrounding plan types and plan rights, resolving private liens can get complicated fast. However, attorneys can follow some key guidelines to move their personal injury settlements towards payment.
- Know the Plan Type
Plan type plays a defining role in the navigating a private health plan’s lien. A resolution strategy cannot be accurately developed and executed without knowledge of the member’s plan type and an understanding of its implications.11 Plan type can be determined through a review of plan documents, as well as a review of certain reports, like the plan’s annual Form 5500 filing with the Department of Labor.12
- Know the Applicable Law
After an attorney confirms plan type, they must then determine the law governing the health insurance contract.
Generally, Self-Funded ERISA and Federal Employee Plan governing rules are more straightforward. The language in the contract establishes the plan’s right to reimbursement as well as any limitations or defenses to plan reimbursement and state law will not come in to play. However, the twelve Federal Circuit Courts of Appeal have differing interpretations of ERISA reimbursement requirements that should be noted when analyzing the plan’s recovery rights. The below map outlines the United States Circuit Court of Appeals geographic lines. For example, attorneys with ERISA liens to address in Ohio would need to consider the 6th Circuit Court of Appeals decisions, whereas, attorneys with cases in Oregon would consider the 9th, etc.13
Other plan types, such as state employee and individually purchased policies, will be governed by a combination of state law and their plan language. For instance, provided a state does not fall into the anti-subrogation or non-equity categories, it may, through statute, stipulate certain rules about private health insurance liens, but still default to the language of the plan to govern other aspects of the private lien. Additionally, not all states have codified their rules about private insurance subrogation. Some states rely on contract principles enumerated through years of case law.
- Determining a Plan's "Recovery Strength"
After identifying plan type and governing laws, an attorney has to examine the plan language to determine how strong a plan’s recovery rights are to better resolve health care liens.
Self-Funded ERISA plans have notoriously strong recovery rights as they are protected by the federal statute and governed by their own contract language. However, repayment rights are not guaranteed by statute alone. ERISA does not specifically provide for reimbursement. Instead, ERISA provides for “appropriate equitable relief” to enforce the terms of the plan. Meaning, the plan must contain a subrogation or reimbursement clause and the contract language must establish it.14 The Supreme Court has reinforced that when it comes to self-funded ERISA plans, reimbursement and subrogation terms govern a plan administrator’s action to enforce an equitable lien by agreement.15 An ERISA plan must also meet certain minimum requirements to establish such rights.
For plans that are subject to state law, best practice requires a determination of which state has jurisdiction over the plan and whether the state’s laws surrounding insurance subrogation allows a plan to recover, that is, if the state falls into a “non equity” or “anti-subrogation” bucket. First, to determine which state governs, as contract law would dictate, a claimant’s state of residence is a good place to start. However, plans will often argue that the law where treatment occurred and where the plan provided benefits governs the contract rights. As a result, sometimes choice of law rules also apply.
From a practical standpoint, it is increasingly rare that non-equity and anti-subrogation rules come into play when determining a non-ERISA plan’s recovery right. Health plans usually have contracted rights to reimbursement, so non-equity will seldom apply. People are increasingly working for large employers in the United States and large employers frequently have self-funded ERISA plans that preempt application of state law. Additionally, health plans may not go through the trouble of asserting a lien when state law bars recovery. For many cases, resolving these liens involves the human element since many plans have certain discretionary language and can create a better result where the facts and circumstances call for such equity.
- Know the Equitable Doctrines
Attorneys must also understand the “Made Whole” and “Common Benefit” doctrines and how a plan or state law addresses these equitable concepts. Generally, these concepts can serve to reduce or eliminate a health care lien. “Made Whole” attempts determine whether the plan beneficiary has recovered all of their damages, and as such, has been “made whole”. For example, if recovery was less than total damages due to the policy limits of a tortfeasor’s insurance coverage, arguably, that beneficiary was not made whole. Under certain circumstances, a plaintiff not being made whole can bar a plan’s lien recovery.
In contrast, the “Common Fund” doctrine, is more about unjust enrichment and ensures that a plan pays for its share of a member’s litigation costs. Under this doctrine, a litigant who creates, discovers, increases, or preserves a fund to which others also have a claim, is entitled to recover litigation costs and attorney's fees from that fund to ensure the plan is not unjustly enriched by such work.16 Typically, this means that a plan reduces its lien (following audit for injury-relatedness) by a pro rata percentage of procurement costs (attorney fees and expenses incurred by the plan member).
Understanding the applicable law and equitable doctrines that may apply to a plan type is key to being able to eliminate or reduce a private lien.
- Remember to look for Medicare and Medicaid coverage in a "private plan"
The proliferation of outsourcing in the health care industry means attorneys have to be aware of mis-identifying plan types. At first, a mis-identifying plan looks like a private plan but may actually be a Medicare Part C plan, a Medicare Part D sponsor, or even a Medicaid Managed Care Organization. Requesting a copy of a client’s health insurance card, and where necessary, requesting a written statement of plan type from the plan administrator or recovery contractor can save the headache of having a plan “pay and chase” the client after settlement, arguing federal or state statutory recoveries, which can in some cases, carry with it significant penalties, such as double damages in the case of Medicare Part C or Part D plans.
Keeping the above points of law and best practices in mind will allow for a more accurate assessment of how private liens may affect a client’s third party settlement. Navigating through plan types, federal legislation, equitable doctrines, and pro rata reductions is no small task. The above primer has demonstrated that the process can be riddled with nuance and exceptions. Further, attorneys must always look to the particular facts and circumstances of their case, as the human element often plays an important role in securing a fair repayment value that balances a plan’s need to recover for the benefit of all plan beneficiaries, including the plaintiff-member, with a fundamental need to treat the injured plan member fairly.
Epiq can consult with you and take the leading role in helping you verify and resolve private health insurance recovery claims. For more information or to speak with our subject matter experts, call us at (704) 559-4300.
1 See Kaiser Family Foundation, Health Insurance Coverage of the Total Population (2018) https://www.kff.org/other/state-indicator/total population/?dataView=1¤tTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D (last visited April 29, 2020).
2 Although by definition, this means that a private lien will not follow Medicare, Medicaid, VA/Tricare or Indian Health Service lien resolution rules, attorneys must be careful to correctly identify whether a seemingly private plan is, in reality a Medicare Part C or Medicaid MCO plan type, as those plans are administered by private health insurance companies.
3 29 U.S.C. § 1001, et seq.
4 26 C.F.R. § 1.410(d)-1.
5 29 U.S.C. § 1144(a).
6 29 U.S.C. § 1144(b)(2)(A).
7 FMC Corp. v. Holiday, 498 US 52, 61 (1990).
8 Although Federal Employee plans do not fall under the scope of ERISA, their plan language also governs them.
9 Currently, Arizona, Connecticut, Kansas, Jew Jersey, New York, and Virginia all have such statutes, noting that certain state laws carve out exceptions for certain employees, such as for state employees. (See Allstate Ins. Co. v. Druke, 118 Ariz. 301, 304 (Ariz. 1978); Ariz. Rev. Stat. Ann. § 12-962; Conn. Gen. Stat. § 52-225c (1993); Kan. Admin. Regs. § 40-1-20 (1987); Travelers Indem. Co. v. Chumbley,394 SW 2d 418, 424 (Mo. Ct. App. 1965); N.J. Stat. Ann. § 2A:15-97 (1987); 11 N.C. Admin. Code 12.0319 (1978); Va. Code Ann. § 38.2-3405.)
10 States currently subscribing to non-equity policies include Illinois, Louisiana, Maine, New Hampshire, Ohio, and South Carolina, and, in part, Michigan. (See also, In Re Estate of Scott, 567 N.E.2d 605 (Ill. 1990)).
11 Generally, all plans will fall into ten different types, the last three for which will be resolved following federal or state statute: (1) ERISA Self-Funded, (2) ERISA Insured, (3) Fully Insured, (4) Medicare Supplement, (5) Federal Employee Health Plan, (6) State Employee Health Plan, (7) Church Plan, (8) Medicare Advantage (Part C), (9) Medicare Part D, and (10) Medicaid MCO.
12 Forms 5500 can be requested from the plan administrator, or can sometimes be found online (e.g. www.FreeERISA.com).
13 See http://adacourse.org/courtconcepts/circuits.html (last visited May 4, 2020).
14 29 U.S.C. 1132 §(a)(3).
15 U.S. Airways, Inc. v. McCutchen, 133 S.Ct. 1537 (2013).
16 In Re Cedant Corp. Pick-up Truck Fuel Tank Prods. Liab. Litig., 55 F. 3d 768, 820 n.39 (3rd Cir. 1995).