ERISA Subrogation Rights
Sheila Aiken July 23rd, 2008
Employers today are constantly searching for new and effective methods to decrease the amount spent for employee health care. Consumer driven health plans, HSAs, HRAs, and wellness programs are a few of the strategies that are being used. However, a number of employers are not adequately using a tool that their plan already contains in the fight against rising health care costs - reimbursement through subrogation.
Subrogation, in one form or another, has been around for a long time (some of the earliest recorded cases involving subrogation are from England in the 1700s). YourDictionary.com (www.yourdictionary.com) defines subrogation as “the substitution of one creditor for another, along with a transference of the claims and rights of the old creditor”. It goes on to describe the subrogation process as a legal procedure where an insurance company pays for a claimed loss, then attempts to recover the paid claims from another, legally responsible party (e.g., the person who caused the loss, another insurance company, etc.). Subrogation was originally applicable almost exclusively to property insurance claims. However, the concept has expanded over time, and now encompasses a large variety of insured areas, including health insurance.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that governs most employee benefit plans, such as retirement plans and group health plans. ERISA does not require employers to provide employee benefit plans, but if an employer chooses to offer benefits, the plans must comply with the rules and regulations contained in ERISA (and its amendments).
ERISA allows employers the right of subrogation, so many group health plans contain what is commonly called “subrogation” provisions. Generally, these provisions state that the plan is entitled to reimbursement from the participant of any medical expenses the plan previously paid that the participant later recovers from another party responsible for those expenses. For example, if a plan participant is in an auto accident and sustains injuries, his/her health benefit plan would pay for the medical expenses (per the plan’s provisions). However, if the participant that was injured in the auto accident has a claim against another party (such as the driver who was at fault, or an auto insurance company), and receives a settlement or judgment under the claim, the participant may be required to reimburse the health plan for the medical claims it paid related to the auto accident. This requirement for reimbursement would be based upon the health plan’s subrogation provisions.
According to the U.S. Supreme Court (see Great-West Life v. Knudson), subrogation relief for employers under ERISA can only be determined by the characterization and mechanics of the plan’s subrogation provision. Essentially, this means that the ability of an employer to recover benefits under a subrogation provision depends on how the provision is written and whether the action brought by the plan to recover is legal or equitable. ERISA allows plans to bring suit for “appropriate equitable relief”. However, monetary damages are considered legal rather than equitable relief, and therefore are not usually permitted under ERISA. These restrictions mean that the subrogation language contained in the plan document as well as the operational procedures for subrogating claims becomes vital to an employer’s success in pursuing subrogation.
While a subrogation provision may be present in most health plan documents, employers frequently do not utilize their rights under the provision to the fullest. Subrogation provisions should be reviewed to ensure that the provision’s language and operations are structured to provide the greatest benefit to the plan. Provisions should include items such as: clearly identifying recoverable claims, providing for attachment of equitable liens, providing for attorney’s fees to be paid outside of recovery, and requiring segregation of recovered claim amounts before distribution to participants. Plans should have procedures in place to routinely audit and investigate claims for potential subrogation rights.
Actively investigating and pursuing subrogation on all appropriate claims can be a strong weapon in the fight to reduce health care costs. Please contact our office for additional information.
- Benefits , ERISA , Health Care
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