High Court Approves Insured’s Failure to Reimburse Health Plan
An Employee Retirement Income Security Act of 1974 (ERISA) health benefit plan is a health insurance plan sponsored by a person’s employer. In other words, it is health insurance that is, at least, partially paid for by a person’s employer and provided to the employees as a benefit of their employment. ERISA plans are created pursuant to federal law, and federal law controls the rights, duties and responsibilities of the parties to the insurance plan.
Federal law has been quite beneficial for ERISA plan providers (employers/insurers), allowing them to write essentially any conditions or requirements into the insurance contract that they desire, including a requirement that an employee/insured refund the plan for all medical bills paid related to an injury/accident where a third-party is at fault (i.e. auto accident, slip/fall, medical malpractice, etc.). This is known in the legal world as subrogation and reimbursement.
Generally speaking, the vast majority of ERISA health insurance plans provide the plan with the right of subrogation and/or reimbursement. Most often, these subrogation/reimbursement clauses require a 100% refund, regardless of the amount the employee/insured recovers and regardless of the fees and expenses that the employee/insured incurs in recovering his or her damages. For example, if an employee/insured incurs $100,000 in medical bills paid by his ERISA health insurance plan due to injuries sustained in a car accident that was someone else’s fault, but can only recover $25,000 from the at fault party because of insurance limits, the ERISA health plan is entitled to take the entire $25,000 as reimbursement for the health insurance expenses incurred, despite the fact that the employee/insured had to pay an attorney nearly $10,000 to recover that $25,000, and will receive nothing for his lost wages, pain, suffering, etc.
In a surprising twist, the United States Supreme Court recently denied an ERISA plan’s right to reimbursement from an injured insured, despite sufficient plan language entitling the plan to 100% reimbursement. In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (2016), US S. Ct. Case No. 14-723, SCOTUS found that because the recovery had been disbursed to the employee/insured without any payment to the plan for reimbursement, the plan was only entitled to recover from the employee/insured those funds which were able to be identified as part of the recovery or assets purchased with funds recovered. If those funds or assets could not be identified, then the plan was not entitled to obtain reimbursement from the other general assets of the employee/insured. In other words, if the employee/insured had spent all the recovery funds and had nothing left to show for it, the plan would not be able to recovery anything under its reimbursement clause.
The facts of Montanile are a little unique. After the recovery was obtained for the employee/insured, his attorney attempted to negotiate the health plan’s reimbursement claim, asking them to accept a little less than 100% of the claim, since the employee/insured incurred fees and expenses related to the recovery, while the health plan sat idly by and paid nothing to earn the recovery. This is quite common, and nearly every subrogation/reimbursement claim is compromised in some manner. The health plan refused to compromise, and after months of failed attempts to resolve the claim, Montanile’s attorney informed the plan that he would be disbursing the funds to the employee/insured unless the health plan objected within 14 days. The health plan did not object, so Montanile’s attorney disbursed the funds to his client. Six months later, the health plan sued the employee/insured in federal court under its reimbursement claim. By this time, Montanile claimed that he had “dissipated” (spent) all the money from the recovery, and that there was no longer any funds left to pay back the health plan. The health plan argued that it could seek recovery from the other general assets of Montanile (i.e., house, cars, bank accounts, etc), since he had spent all of the recovery monies disbursed to him. SCOTUS disagreed, holding that under ERISA, the health plan was only entitled to recover from Montanile those funds that he still had left from the recovery or specific items that he purchased with those recovery funds. The case was sent back to the trial court to determine whether any money was left or if there were specific assets purchased with those funds still in Montanile’s possession.
This case is a first under ERISA law, and sets forth a murky precedent. Attorneys for injured employees/insureds have to tread very carefully. On the one hand, it gives the injured employee/insured a bargaining chip, arguing that if the health plan refuses to negotiate and compromise its lien fairly, the employee/insured can simply spend all the recovery money and defeat the plan’s reimbursement claim. On the other hand, the health plan could simply file suit and request a restraining order to hold the funds until the claim is resolved. Even if the funds are dissipated before any recovery, many ERISA plans provide other remedies, including denial of future medical claims or dropping the employee/insured from medical coverage all together.
Though the US Supreme Court has seemed to approve of the right for an employee/insured to squander away his or her recovery to the detriment of the health plan, doing so could result in severe consequences for the insured, especially if he/she and his/her family lose their health insurance coverage. For the protection of the client and his/her attorney, best practice, in our opinion, is to hold the disputed funds until a resolution can be reached with the health plan, through negotiation or litigation with the health plan. And because the right of recovery is provided for by ERISA laws and by most ERISA plan’s contract language, the Ohio Rules of Professional Conduct may ethically bind the attorney to hold said funds until any dispute is resolved.