By Kristen S. Cross, Lee P. Fernon, Jr. and Thomas O. Sinclair
The acronym ERISA1 is enough to trigger an instinctive urge to run away in most lawyers, but this complex law2 often cannot be avoided entirely. According to the Bureau of Labor statistics, 52 percent of civilian workers received employer-sponsored medical coverage in March 2017, and the Kaiser Family Foundation used census information to determine that 46 percent of Alabamians were covered by employer insurance in 2015.3 Thus, it seems fair to say that lawyers in numerous fields will have to deal with ERISA at some point. One of the most common instances where ERISA may pop up is in the context of a healthcare insurer’s use of subrogation and reimbursement provisions to recover medical expenses.4
This article will consider, from a plaintiff’s and a defendant’s perspectives, those issues that may arise in managing ERISA-governed healthcare liens. Specifically, this article will address the implications of the Supreme Court’s recent decision in Montanile v. Bd. of Trustees of Nat. Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (2016). Before delving into these issues we provide a brief overview of the terminology involved in our analysis.
ERISA “Plans” and Equity
The terms of an “ERISA Health and Welfare Benefits Plan” or “Plan” are most often found in the group healthcare contract between the employer and healthcare provider. Unfortunately, as with most things ERISA, courts and litigants struggle with whether other documents such as “Summary Plan Descriptions” or “SPD’s” (think employee handbooks describing the benefits) are also considered to contain “Plan” terms.5 This becomes important when consulting the plan terms to determine the extent of the obligation to honor the lien. Larger employers often will have engaged their own counsel to help craft the plan terms and will not rely solely on the insurance carrier to define the employer’s plan, thus plan terms may be contained in more than one single document. Smaller employers may only have the healthcare insurance contract to serve as the plan terms. Once the plan terms are defined, you most often find the scope of the lien defined in a “subrogation” or a “reimbursement” (also referred to a “right of recovery”) provision within the plan. If an employee meets the requirements to participate in the plan, they then are referred to as a “plan participant.”
Once you have defined the plan terms and thus the rights/obligations of the plan and plan participant as set out in those terms, remember that this is ERISA. Nothing is that easy in ERISA. Now, dust off those equity court decisions and prepare for discussions of equitable claims and remedies.
ERISA contains one type of claim under 29 U.S.C. § 1132(a)(1) that is primarily used by plan participants seeking to have their benefit claim paid by the plan or insurance carrier. A second type of ERISA claim under 29 U.S.C. § 1132(a)(3) is often referred to as the equitable remedy claim. It is this second type of claim that plans must use when seeking to recover their lien which now must also seek an “equitable remedy” (if you are wondering why, you are in good company6 ). Now armed with the requisite uncertainty of an experienced ERISA litigator, we turn to the Supreme Court’s most recent attempt at “clarification.”
The Montanile Decision
In Montanile, the insured was severely injured by a drunk driver who ran a stop light, and the ERISA-governed health insurance plan paid more than $121,000 in health benefits as a result. Montanile later obtained a settlement of $500,000, and roughly $240,000 remained after paying his attorneys’ fees and repaying their case expenses. His attorneys retained the funds in a trust account while they attempted to resolve the lien with the plan, but eventually those negotiations fell apart. The attorneys then sent the plan a letter indicating that the full amount would be disbursed to Montanile unless the plan objected within 14 days. The plan took no action and Montanile’s attorneys disbursed the entire remaining settlement funds.
Six months after Montanile’s attorneys disbursed, the plan sued Montanile in the Southern District of Florida, seeking reimbursement for the money paid by the plan to his medical providers. In circumstances such as this, because ERISA only allows plans to bring “equitable claims,” the plan terms forming the basis of the plan’s claim must seek equitable (not legal) relief and seek recovery from specifically identified funds. See, e.g., Sereboff v. Mid A. Med. Services, Inc., 547 U.S. 356, 364 (2006); Popowski v. Parrott, 461 F.3d 1367, 1374 (11th Cir. 2006) (refusing to enforce provision that failed to identify any specific fund or limit recovery to any portion thereof).
By the time the plan filed suit against Montanile, it appeared he may have spent most or all of the settlement money. The district court rejected Montanile’s arguments that there was no specific, identifiable fund separate from his general assets upon which the plan’s equitable lien could be enforced.8 The Eleventh Circuit subsequently affirmed that decision, finding that dissipation of the settlement funds could not destroy an equitable lien once it had attached.9 The Supreme Court disagreed in an 8-1 decision.
The Court held that “when a participant dissipates the whole settlement on non-traceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under [29 U.S.C. § 1132(a)(3)].” In Montanile, the Court remanded the case to the district court to determine whether Montanile had separated his settlement fund from his general assets and whether he had dissipated the whole of the settlement on non-traceable items. The holding makes clear that there is no equitable remedy available to the plan when a participant has dissipated settlement funds through the purchase of non-traceable items (such as services or consumable items) because an action to enforce on the general assets of the insured seeks a legal remedy. Those confounded by this result may find company (though little solace) in Justice Gins-burg’s prediction in Knudson.
Plaintiff Practice Pointers
In the typical scenario, your office will receive a demand letter from your client’s medical insurance carrier asserting a lien on any recovery. If the medical insurance was provided to your client as part of a group healthcare plan, it is likely an ERISA-governed plan.11
This form letter may attempt to default you into representing the plan’s interests if you fail to respond or simply demand that you turn over all or a large portion of any settlement or judgment you obtain (after years of work). The plan may also assert it is not obliged to pay any of your costs or fees. Needless to say, this sort of communication from a party who does nothing to protect its own rights does not help your blood pressure.
The purpose of this section will be to generally run through the steps that need to be taken regarding potential ERISA-governed healthcare liens.
Investigation step 1
The first step after receiving such a demand should be to determine whether ERISA applies to some or all of the plan’s lien. A good starting rule of thumb is to assume that it does if the medical insurance was provided by the client’s employer.
Investigation step 2
The second step would be to determine how the plan is funded. An ERISA plan may be 1) self-insured or self-funded (the plan pays the benefits out of its own pool of funds),13 2) fully-insured (an insurance company pays the benefits) or 3) stop-loss (the plan pays benefits up to a certain amount and then an insurer pays the rest–akin to a deductible). This is important because claims from a self-funded ERISA plan are wholly governed by ERISA. On the other hand, fully-insured plans15 may be subject to insurance-specific state laws, which are often more desirable.
To find out how benefits were funded, often the fastest method is to check the federal filings mandated by ERISA. The form 5500 filings can be found on the Department of Labor’s website at https://www .efast.dol.gov/ portal/app/disseminatePublic?execution =e2s1. Some practitioners also prefer to use www.free
erisa.com (free registration...