ERISA Health Care Plan Language

Posted by Michael Russell

Question:
My client has a self funded ERISA health care plan. A plan participant's dependent was hurt during childbirth and a lawsuit ensued. The hospital and the plaintiffs have agreed, in principle, to settle the claim for 2 million dollars.

In exchange for reimbursement of all past plan funds expended on medical care for the dependent, the plaintiffs have asked the plan to waive all future rights to subrogation from the settlement funds.

The plan does not have crystal clear language as to whether it is entitled to the future funds. Is there anything else in particular to be looking at when advising my client whether or not to take the deal offered? For what it is worth, my heart is voting for settling the claim.

Texas Attorney

Answer:
Subrogation and reimbursement rights are governed largely by the plan language itself. In this case I would look to the recovery elements that the Plan claims an interest. Here we are talking about whether or not a Plan is entitled to receive a credit against future benefits. To my knowledge the 5th circuit has not dealt directly with this issue. Generally, a Plan will be entitled to reimbursement only for payments made prior to the time the Plan participant settles UNLESS there is specific language creating a right to this credit or the plan has some type of exclusionary language.

- 7th circuit
o No future credit unless specific language (express clause required)
- 9th
o Exclusionary clause can achieve same result as credit
• Refusal to pay tortfeasor caused injuries unless payment considered advancement and granted lien

Because the Plan does not have crystal clear language it would seem there would not be a reimbursement right for future expenses from the settlement funds. Another thing to consider is the language of the settlement agreement. If the settlement funds were allocated for particular damages it could also affect right to future credit (ex. None of these funds are intended to cover future medical expenses/ claims for future medical are waived hence no reimbursement right). I hope you find this helpful and please let me know if you have any additional questions.

Michael Russell