Many of our clients ask whether they will be required to reimburse their health insurance carrier for the payments it made for accident related treatment. These amounts can often be significant, as back and neck surgery expenses between $50,000 and $100,000 are common. The combination of a substantial reimbursement requirement and less than optimum liability coverage for the accident can result in a disappointing, and seemingly unfair, net recovery for the client. The interplay between Virginia law and federal law make it difficult to predict whether a client will have to repay the health insurance carrier until careful inquiry is complete.
This topic has been the subject of much conversation among personal injury lawyers over the last year or so, since the United States Supreme Court ruled in June of 2013 on a case that raised several reimbursement issues. As the law stands today, any personal injury attorney in Virginia will carefully scrutinize the law and fact applicable to each client’s particular case. The standard of care owed to a client requires that a lawyer make reasonable efforts to investigate the law and facts of a case sufficiently for the client to make an informed decision about settling, litigating, or dropping a case. That investigation includes attempting to determine whether the client’s benefit plan is entitled to reimbursement for health insurance expenditures. A determination is made by checking into the client’s health benefit plan and/or the law that provides the health insurance for the client. This is necessary, because Virginia law does not permit state regulated health plans to seek reimbursement, but several federal statutes do.
ERISA (Employees Retirement Income Security Act) is a federal statute that trumps Virginia’s anti-subrogation law. It provides that a fully self-funded ERISA medical plan that is otherwise ERISA compliant is entitled to reimbursement of all of its expenses that are part of its insured’s claim against a third party. The Federal Employee Health Benefit Act (FEHBA) and has the same rights. Medicare, Medicaid and workers compensation plans are also entitled to reimbursement, albeit with an allowance for the claimant’s pro rata attorney fees. This is so even when there is less than what would be considered a full and fair recovery for the claim by virtue of the there being inadequate insurance and/or assets to cover the personal injury claim’s full value. As a practical matter in such cases, the reimbursement of an ERISA plan can severely reduce the client’s net recovery.
In a case decided by the US Supreme Court last year, McCutcheon v. US Airways, the Court ruled that a plan does not have to recognize long standing common law “make whole” equitable principles, and it does not have to share in the attorney fees of getting the recovery, if it has appropriate language in the plan. Absent an unlikely change in the law by Congress, this rule will not change. Interestingly, the existence of the right to reimbursement does not always result in the right being exercised.
Unlike Medicaid, Medicare, and workers compensation obligations, an attorney does not have an affirmative duty to an ERISA plan to see that it is reimbursed. Accordingly, we are occasionally confronted with a plan perhaps being entitled to reimbursement but not being aware of a third party claim by its insured. This circumstance creates a dilemma for the attorney and client, because the plan might never ask for the money, in which case the client can legitimately keep it, but there is always a chance that the plan could discover its error prior to the expiration of the applicable statute of limitations and seek reimbursement from the client. It does not matter that the liability case has settled and the money disbursed at settlement. That is, the disbursement to the client does not defeat any rights of a legitimate health plan claim. If a client is in this position and wants to “wait it out”, my advice to the client is to set the money aside until the statute of limitations has expired so that it can be paid if legitimately requested. The lawyer’s obligation is to fully advise the client of all of the above circumstances so the client can make a wise decision under his or her circumstances. The lawyer is not required to notify the ERISA plan and affirmatively protect its interests.
In some cases, protection of the plan’s interests is an affirmative duty for the lawyer. Medicare, Medicaid, and workers compensation interests in the proceeds are good examples. In those cases, an attorney is required to seek out the amount of the lien and pay it out of settlement proceeds. The good news in that scenario is that such plans allow an offset for attorney fees so the client is not paying for the collection of someone else’s funds.
Many states allow subrogation and reimbursement in virtually all cases. In those states there is little confusion about reimbursement issues; it simply has to be paid in virtually every case. Not so in Virginia. There is no one size answer for issues of reimbursement in personal injury claims. Questions regarding plan reimbursement are best addressed by an experienced personal injury specialist.