Employer-Sponsored Health Plan (ERISA) Reimbursement
ERISA covers benefits provided through employer-sponsored plans covering the employees (and their covered family members) of most private employers. It does not generally apply to people covered by other types of health insurance, such as Medicare and Medicaid/Medi-Cal, or to public employees such as government workers, public school teachers, active duty military members, and most military retirees.
Somewhat more than half of all Americans have health insurance through their employers (both public and private). As of 2015, about 136 million Americans had health insurance through an ERISA-covered plan. This type of health insurance is the single largest slice of the American health insurance pie. Since it covers more than a third of all Americans, it is also the most frequently encountered type of health insurance in personal injury claims. Personal injury victims and their attorneys must be aware of the potential for ERISA health insurance reimbursement claims against the settlement proceeds from their personal injury claims. Identifying the type and likelihood of any such reimbursement demands early on in a personal injury claim is key.Self-Funded versus Non-Self-Funded ERISA Health Plans
By far, the most important difference in ERISA health insurance plans impacting personal injury claims is the distinction between “self-funded” and “non-self-funded" health plans. “Funded” in this sense refers to who is directly providing the pool of money from which medical providers are being paid.
In typical insurance with which we are most familiar, we contract with an insurance company for some type of coverage – auto, home, health, life – and then pay them a monthly or annual premium for the coverage. When and if a claim is submitted under the coverage, the insurance company directly pays out on the claim from their own pool of money. Since the insurance company may have many thousands or even millions of policyholders, it allows them to “spread the risk” of insurance claims over many insurance contracts to the point where the number of claims and typical payments on those claims becomes very regular and predictable. They are “funding” the claim payments because the payments are coming from their own accounts.
Similarly, some large employers – typically government entities and large corporations – will be sufficiently large and have enough money and enough employees that they will establish their own “self-funded” health insurance plans. They will regularly set aside funds specifically designated for paying their employees' medical provider claims. Private employers who do this have “self-funded ERISA” plans.
For small and medium-sized employers who offer employee health benefits, the employer will collect the employer and employee contributions for health insurance and pay this in a recurring premium to the health insurance company the employer has chosen. From that point, that health insurance company manages the health plan and pays any claims from medical providers out of the health insurance company’s own pool of money. For the large employers who choose to be self-funded, however, a health insurance company or other benefits management company will usually be hired for managing the medical provider reimbursements. Still, the actual payments will come out of the employer’s self-funded benefits account.
Although most employers in the United States are too small for self-funded employee benefit plans to make economic sense, those large employers for whom self-funding does make sense obviously have many more employees on an individual basis. As a result, about 61% of employees covered by ERISA plans are under self-funded plans.Why It Matters – Investigating the Reimbursement Claim
Self-funded ERISA health insurance plans – and reimbursements to the plans that may be demanded out of any personal injury claim settlement, award, or verdict funds – are generally subject only to federal law; and federal law for these self-funded plan reimbursements has historically been very generous. If the health insurance plan is correctly worded, a self-funded plan can and will demand 100% reimbursement of payments made to medical providers out of a personal injury claimant’s settlement funds. And the plan’s legal entitlement to be repaid is likely to come before that of the claimant, the claimant’s doctors, the claimant’s attorney, or anyone else who may need to be paid out of the settlement funds. A self-funded plan can have the legal right to claim an entire personal injury settlement for its reimbursement claim.
This last scenario is especially concerning when there may be inadequate liability insurance coverage to fully compensate the personal injury victim. If someone is injured in a car accident caused by a negligent person who does not have enough insurance coverage to fully compensate the victim (and if the victim doesn’t have an underinsured motorist or some other type of coverage to make up the difference), then the settlement funds are typically divided up on a “cents-on-the-dollar" basis between the injury victim, any “lienholders” on the case such as doctors who are still unpaid, and the injury victim’s attorney. However, if there is a self-funded ERISA plan health insurance reimbursement involved in this type of situation, the health plan can and will step in and demand all the settlement funds necessary to resolve its reimbursement claim.
Non-self-funded ERISA health plans, in contrast, are generally subject to state law, which may have many additional requirements and options for reducing the amount of reimbursement that may be demanded out of a personal injury claim settlement, award, or verdict. In some cases – especially where there is inadequate liability insurance to fully compensate the injury victim – it may even be possible to have the entire non-self-funded ERISA reimbursement demand waived.
Identifying the presence and type of ERISA reimbursement demand that is likely in a given personal injury claim is crucial -- it will significantly impact the economics of how any eventual settlement funds will be distributed. And identifying a self-funded ERISA reimbursement situation is especially important since there is significant leverage early in a personal injury claim to demand concessions from the health plan. Simply pointing out to them that, “Why should our client bother pursuing a personal injury claim if you as their health insurer are going to try to take all their settlement funds?” is usually a straightforward argument for getting the health plan to agree to accept a lesser amount. But this has to be done early in the personal injury claim – if the settlement occurs first, the health plan has no incentive to start bargaining.Other ERISA Benefits
Health insurance claims are the typical place where ERISA rules come into play in personal injury claims. However, there are some other types of benefits that may also be impacted. Any other employer-sponsored benefit that may be paid out due to a personal injury may also seek reimbursement. The most common of these are disability plans that an employer may provide for its employees. This does not apply to the more familiar state disability insurance -- “SDI” in California – that may benefit workers who are temporarily disabled. An employer may choose to provide either short-term and/or long-term disability insurance as a direct employee benefit. When one or another of these benefits pays out due to a personal injury, the ERISA rules for reimbursement of private employer self-funded and non-self-funded plans apply.
Identifying the presence and type of ERISA health insurance and/or disability insurance reimbursement demands that are likely to occur in a personal injury claim is a key service that an experienced personal injury attorney will be able to provide for clients.
For more information on insurance companies, their claim tactics, and how an experienced personal injury attorney should deal with them, see:
- Types of Auto Coverage and First-Party vs. Third-Party
- Insurance Company Tactics: Dirty Tricks Insurance Companies Play in Accident Claims
- Our Tools: How an Experienced Personal Injury Attorney Deals with Insurance Company Tactics
- The Insurance Industry and Individual Companies: Huge and Hugely Profitable
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