Wednesday, November 17, 2010

"Stop-Loss" Scenarios in ERISA Plans

Does the fact that a self-funded ERISA plan purchased stop loss insurance bring it back under NYs new anti-subrogation law? If so is it complete or does the plan still have a lien up to its deductible?

“Stop-Loss” Scenarios. If the Plan benefits provided were both partially funded and partially insured we are dealing with a “stop-loss” coverage situation. These situations arise when an employer or Plan purchases insurance coverage intended to reimburse it for higher or catastrophic losses. In the case of a higher loss, a self-funded Plan would pay the entire loss but would be reimbursed for any amount above where the insurance policy (between the plan and carrier) took effect (known as the “attachment point”). The use of “stop-loss” insurance does not change a self-funded plan into an insured plan. Bill Gray Enter., Inc. Emp. Health & Welfare Plan v. Gourley, 248 F.3d 206 (3rd Cir. 2001), American Medical Security, Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997). Courts have reasoned that stop loss arrangements do not change the fact that the ultimate liability to plan participants remains with the Plan.

However, there is one potential exception. In some cases an attachment point could be set very low and the Plan is attempting to function as and enjoy the benefits of a self-funded plan under ERISA when in fact it is really an insured plan. Such examples would include a specific attachment point of $500 (individual claim) or $25,000 for an aggregate attachment point (total benefits paid for all participants). In such cases, courts could look to the substance of the Plan rather than its alleged form. See Brown v. Granatelli, 897 F.2d 1351, 1355 (5th Cir. 1990). In determining whether a stop-loss Plan is truly self-funded or merely illusory, a court will look to the loss experience and how often the stop-loss coverage has applied.

Thus if there is a low attachment point then it could be argued that the plan functions as insurance and NY anti-subro law should apply. Additionally the argument could be made that any payments made above the attachment point should be deemed an insurance arrangement and thus these amounts could be voided by the anti-subro law. A logical argument but there is no caselaw to substantiate and you would be hard pressed to find a plan which would agree to such an argument. However it never hurts to try. I would also note that sometimes stop loss carriers will actually assert a claim as well. These claims should not be honored as 1) there is no contractual privity between the stop loss carrier and the insured and 2) any claim would be barred by the anti-subro law.

I hope you found this helpful and please let me know if you have any additional questions.

My Best,
Michael D. Russell, Esq.

Thursday, November 11, 2010

ERISA Plan Language

A Malpractice case arose June 2006. The medical bills were paid by an insurance company. ACS Recoveries had submitted a subrogation claim. I received copy of the Employee Benefit Handbook in effect in 2006 with the following language: "Plan has the right to recover any benefits it has paid for these medical expenses from any settlement you may receive from the third party." Handbook goes on to talk about it being an ERISA plan. Does this language meet requirement of Sereboff?

I asked for additional info including plan description, reports filed with Sec. of Labor. ACS has not provided this info.

Will the above language & ACS not providing me with the plan description & reports give me traction to negotiate subro claim?

Thank you for the question. To have a valid and legitimate interest, the ERISA plan must have plan language which seeks an equitable right to reimbursement. ERISA plans are limited to seeking appropriate equitable relief and ERISA does not grant an express right to reimbursement. 29 U.S.C. § 1132(a)(3)(B). An ERISA plan has a right of reimbursement which sounds in equity if the plan language imposes a constructive trust or equitable lien upon a third party recovery. To qualify as equitable the plan language MUST 1) specify that recovery will be made from an identifiable fund and 2) specify that recovery must be limited to a specific portion of paid fund. If either of these requirements are not met in the plan language, the plan does not have an equitable right to recovery and thus they do not have a reimbursement interest under ERISA. See Sereboff, 126 S.Ct. 1869 (2006).

Based on the language presented in your question the plan arguably meets the requirements of Sereboff. First the language specifies the fund when it states "from any settlement you may receive from a third party". Second the language specifies a specific portion when it states “any benefits it has paid." While the plan may seek an equitable remedy it is important to identify other plan weaknesses including whether the made whole or common fund doctrine may apply.

With regard to the document request portion of your question, ERISA grants a plan participant the right to make a written request and receive certain specified documentation from the plan administrator. This right is stated at 29 U.S.C. § 1024(b)(4) which provides as follows:

The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.

The failure to provide this information within 30 days can result in the imposition of a penalty of up to $110 per day for each day of noncompliance. See 29 U.S.C. § 1132(c)(1)(B) and 29 C.F.R. § 2575.502c-1 (increased penalty from $100 to $110).

However it is important to note that 1) this penalty is purely discretionary and in cases where courts have enforced the actual figure is closer to $50 per day and 2) ACS is not an administrator, the actual employer is the administrator. Thus the teeth to this provision are not as big as they appear but it certainly is something that you can use for leverage. I would try to argue that they are an agent of the administrator and thus you could seek to impose such a penalty.

Also you may find this recent case of particular interest. In Thompson v. Transam Trucking, Case No. 2:08-cv-927, 10/26/10, the U.S. District Court of Ohio, Southern District, ruled against the plan participant on her claim for benefits for an out-of-network medical care, BUT the Court does rule in favor of the participant on her claim for statutory penalties against the plan administrator for failure to provide requested documents. The court assesses a penalty in the amount of $50 per day, PER DOCUMENT, for a total of $17,600.

I hope you found this response helpful.
Michael D. Russell, Esq.