ERISA Health plan liens

        Many consumers don't realize that if they recover damages for a serious injury, they will probably have to re-pay their health insurer (if they are fortunate enough to still have health insurance) for its out-of-pocket expenses.  This is a completely logical rule and a reasonable response to the high cost of medical care, but the right of reimbursement or subrogation has been taken to an inappropriate extreme by some insurers and courts.

        Historically, the right to be reimbursed was enforced through a legal principle called "subrogation".  If the injury victim had a right to recover for his or her injuries from the at-fault person, that right to collect is transferred to the insurer who actually paid the medical expense.  The health insurer's rights were exactly coextensive with the injury victim's rights, and if any money was collected, the insurer was obligated to pay its share of the related fees and costs necessary to recovery from the at-fault.  The Courts have allowed "reimbursement"  of medical expenses in this manner from the victim's entire recovery, whether the recovery is called wage loss, pain and suffering, a even a spouse's consortium.  Many companies such as Blue Cross-Blue Shield continue to write their contracts to follow these principles, and many insurers will agree to cover their share of fees and expenses, even if their plan does not obligate them to, in order to encourage the victim to seek compensation and share in the recovery.   Historically, a frequent compromise position has involved an agreement between health insurer, victim and counsel to share severely limited resources on an equal, one-third each, basis.

        As medical expenses have made their phenomenal rise and caused a greater hardship for employers, the Courts have begun to recognize an increased right in health insurers to be more aggressive in writing contracts to give the insurer a more extensive right of reimbursement.  Many contracts are now written to allow the health insurer--particularly if it is an employment-based ERISA plan--to recover the entire cost of medical expenses, regardless of limits on the victims' recovery and without sharing in the related legal fees or expenses.  Under these rules, for example, if a wrongdoer has only limited insurance available, or only limited ability to pay for his mistake, the entire recovery to the victim may belong to the health insurer--even if the result is one hundred percent recovery for the insurer and no compensation to a catastrophically injured victim for lost wages, future medical expenses or suffering or loss of quality of life.  This is a far cry from the more nuanced and balanced approach that had been the rule of law.

          The right of an insurer to seek "repayment", "reimbursement" or "subrogation" is usually defined in the employee's Summary Plan Description and more fully in the underlying contract.  If the SPD is not clear on this point, attorney and victim can check the insurer's Form 5500, which is available to the public, or demand a copy of the relevant language from the Plan Administrator under 29 U.S.C. 1024(b)(4).  Various federal circuits have disagreed, but Michigan law is controlled by the Sixth Circuit which currently holds that if an ERISA plan does not provide otherwise, the "default" rule is the "make whole" doctrine, which allows subrogation only where the victim's recovery includes his or her own loss and insurer-paid medical expenses.  Needless to say, most insurers have adequate legal support to assure the most aggressive grab and do not fall in to the "default" category.   If the write their contract to entitle themselves to complete repayment without sharing in fees or costs, the victim's right to wages, future medical expenses, or non-economic damages may be waived even before the catastrophic event.