Question: My client, 19 years old, was injured in a motor vehicle accident and the ER/hospital bill will approach $300,000. Her parents each have insurance through work. The mom's plan has less onerous reimbursement language, but mom's birthday comes after dad's, so dad's plan will pay the bill first (which is one of the funkier rules I've seen).
Dad's plan is ERISA with some component of insurance, although we don't yet know how the insurance comes into play. The plan administrator wants our client and her dad to fill out some paperwork in order to begin processing the claims. The problem with the paperwork is that it sets forth a series of acknowledgements and agreements, including the agreement to assign rights to the plan and the understanding that the plan is asserting an equitable lien against any recovery.
As I recall from a recent CLE, if insurance is involved in the plan, then state law governing reimbursement may govern the reimbursement. In our state, the law requires that the insurer reduce for its share of attorney fees and costs.
I am concerned that the form my client is being asked to sign could permit the plan to claim an equitable lien for all payments, even those that might otherwise be subject to state law. I also wonder if by asking the client to agree to something beyond the language of the policy and the law, the plan has opened a window for our client to request her mother's plan to cover the claims (recall mother's plan has friendlier reimbursement language).
Finally, what requirement is there that client and father sign the agreement at all? The insured should not have to make additional agreements (beyond what is in the plan documents) in order for the plan to process the claims and make payments.
Thanks.
Answer: Thank you for the question. I have answered your question in two separate parts. If you should have any questions with regard to this response please feel free to reach out so we can discuss further.
1. ERISA Plans: Self-Funded & Fully Insured
Both insured Plans and self-funded Plans are both ERISA-covered. ERISA defines an employee welfare benefit plan as a plan, fund, or program; established or maintained; by an employer, an employee organization, or both through the purchase of insurance or otherwise, for the purpose of providing medical, surgical, or hospital care or benefits in the event of sickness, accident or disability, for its participants or their beneficiaries. The only exceptions are individual plans, government plans, and religious group plans. ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)). HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A). This is known as the savings clause and if an ERISA plan is in fact insured you can use state law insurance defenses. This would include the common fund doctrine mentioned in your question.
Funding status can be determined by analyzing the plan language and the Form 5500 (annual filing with Depart of Labor). Special attention should be paid to the Schedule A(s). If these documents are ambiguous another good option is requesting a signed affidavit from the plan administrator.
2. Reimbursement Agreements
The first consideration should be whether or not the plan language provides for or requires the signing of a separate agreement. The second consideration should be whether or not the language of the reimbursement differs or changes the right laid out in the original plan documentation. If the plan says that no benefits may/will be provided unless an agreement is signed then beneficiary may stuck between a rock and a hard place. If, in the alternative, there is no mention of the agreement in the plan language and/or the terms of the agreement differ substantially from that of the plan then you may a serious challenge. The strongest argument is that such a reimbursement agreement would be void for lack of consideration since the plan is already obligated to pay for the benefits.
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