Subrogation Rights of Health Plans Established Under Erisa
| Publication year | 2012 |
| Pages | 47 |
| Citation | Vol. 41 No. 2 Pg. 47 |
2012, February, Pg. 47. Subrogation Rights of Health Plans Established Under ERISA
February 2012
Vol. 41, No. 2 [Page47]
Tort and Insurance Law articles provide information concerning current tort law issues and insurance issues addressed by practitioners representing either plaintiffs or defendants in tort cases. They also address issues of insurance coverage, regulation, and bad faith.
Coordinating Editor
William P. Godsman of the Law Office of William Godsman, Denver-(303) 455-6900, wgodsman@qwestoffice.net
Evan P. Banker is the senior associate at Chalat Hatten and Koupal, PC. His practice focuses on civil trial work, with an emphasis on ski- and snowboard-related accidents, automobile accidents, and professional negligence-ebanker@chalatlaw.com.
This article explains the process of determining the reimbursement rights of ERISA-based health plans, current legal trends, equitable defenses, and negotiation strategies.
The Employee Retirement Income Security Act of 1974 (ERISA) governs nearly all employer-maintained benefit plans.(fn1) Sixty percent of American workers who have employer-sponsored health insurance are enrolled in self-funded ERISA plans,(fn2) which are exempt from state laws regarding insurance and subrogation.(fn3) This represents an 81.7% increase in self-funded plan enrollees over the last ten years.(fn4) Of relevance to the practitioner representing personal injury plaintiffs is the self-funded plan's right to bring a federal civil action "to enforce any provisions . . . of the terms of the plan."(fn5)
When a tort settlement or verdict is reached, payors of health benefits frequently assert a subrogation interest in the recovery. Plans established under ERISA routinely claim exemption from Colorado's made whole and common fund statute, CRS § 10-1-135, although only those that are self-funded and with appropriately drafted plan language are entitled to the exemption.(fn6) This article explains the process for determining a health plan's status and subrogation rights.
Plan Funding and Federal Preemption
When an ERISA plan is self-funded by the employer, it is exempt from state laws governing insurance.(fn7) The plan document will be construed under federal law and, if appropriately drafted, its terms will be given full effect.(fn8) Plan drafters typically include onerous subrogation rights, providing for reimbursement of every dollar paid without regard for procurement costs or attorney fees.
On the other hand, where a plan established under ERISA holds one or more policies of insurance that pay for the injured employees' health benefits, state laws regulating insurance apply to the plan equally as they would to the insurer.(fn9) ERISA preserves the states' traditional role of regulating insurance policies issued within their borders.(fn10) Therefore, when the employer does not bear the risk of loss-but rather puts that burden on an insurer-it is not entitled to federal preemption.(fn11)
The plan's funding determines the applicable law. Thus, the first step for the practitioner dealing with an asserted subrogation interest from an ERISA plan is to ascertain whether the plan is funded by the assets of the employer or by policies of insurance.
The key to understanding the plan's funding can be found in its required federal filings. Employers maintaining ERISA plans must file an IRS form 5500 annually with the U.S. Department of Labor (DOL). These are publicly available documents, and can be found at www.freeerisa.com (registration required), or requested from the plan administrator. The form 5500, with its Schedule As and Cs, will give the practitioner the best understanding of the plan's funding.
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