What is ERISA Anyway?

In the last several posts, I’ve talked about some of the difficulties in resolving medical liens at the time of a personal injury settlement.  The final post in this series concerns ERISA liens, which have recently become a more frequent issue.

ERISA stands for Employees Retirement Income Security Act of 1974, a series of federal laws that were intended to provide protection for employees against their employers’ misuse of funds intended to pay various types of employment benefits.  Forty years later, ERISA has become a major problem for many injured victims and their lawyers–instead of protecting these employees, ERISA allows certain employers to recoup their payments from their employees’ settlements. One result has been the development of a cottage industry of companies who relentlessly pursue reimbursement of medical benefit payments with little regard for the effect on the employees.  Because of the “federal” nature of ERISA, the reimbursement process poses special problems in medical malpractice claims.

In ordinary (non-malpractice) personal injury claims, the ERISA status of a plan is often invisible, and usually irrelevant, as the insurance contract provides the insurer or employer with a right to be reimbursed out of third-party settlements.  But in medical malpractice cases, the effect can be significant, because some ERISA plans have a right to reimbursement that defeats the effect of M.G.L. c.231 s. 60G because they are based in federal law.  The bottom line is that certain health plans are entitled to reimbursement for medical payments made to victims of malpractice, despite the state law that would ordinarily relieve victims of this burden.

The key lies in the self-funded status of a particular health plan.  If the plan is funded by the employer’s own assets (as opposed to being purchased from a third-party company such as Blue Cross), federal preemption applies, and M.G.L. c.231 s.60G does not.  So the first step is dealing with a claimed ERISA lien in a malpractice case is to determine whether the plan is self-funded, information that may be obtained from the lienholder or from a website called   But the struggle doesn’t end there; even if the plan is self-funded, the plan documents must properly establish an equitable right to recovery benefits paid.  The scope of this right has been the subject of much federal litigation over the last decade, and the law in this area continues to evolve rapidly.

Thus far, some plans have not updated their language to conform with the new case law, making the validity of their liens at least questionable and sometimes completely ineffective.  A  careful study of the plan documents may provide significant negotiating leverage to counsel for the plaintiff.  However, given the enormous amounts of money at stake, it is a safe bet that these loopholes will close over the upcoming months and years, leaving plaintiffs at the mercy of their employers–or worse, the third party claims administrators.

Not surprisingly, large employers are the most likely to have self-funded plans.  As the prevalence of these plans continues to grow. the intended effect of state laws such as G.L. c.231 s.60G, which were intended to shift the burden of medical costs related to malpractice away from malpractice insurers and onto health insurers, will be greatly diminished.  In theory, this should increase the value of medical malpractice claims, as settlements will need to account for the plaintiff’s repayment obligation.  In practice, it is likely to harm the victims, who will be forced to spend significant amounts of their compensation to repay their health care insurers–a benefit they had already paid for.

Medical Liens from Government Payors

I’ve recently been describing the process of resolving medical liens when a personal injury case is settled.  There are some special considerations involved when the lien involves payments made by a federal (Medicare) or state (Medicaid, Mass Health Connector, Kayleigh Mulligan, etc.) program.

Liens asserted by government payors are automatically valid, even without notice to the patient or the attorney.  Because the right to subrogation is “based in … federal law,” see M.G.L. c.231, s.60G, the lien applies even in medical malpractice cases. (The state programs receiving federal funding, a condition of which is that the state seek reimbursement from responsible third parties, thus bringing them within the ambit of the “based in federal law” exception).

Medicare liens require a lot of patience and a long lead time.  Lawyers may submit an authorization to Medicare to receive access to a client’s Medicare account.  This will enable to lawyer to receive information about payments made on behalf of a client. The claim is first opened with a phone call to Medicare to provide identifying information.  Medicare then sends a form to be submitted together an authorization signed by the client, and will provide in itemization of amounts claimed in response to that submission. Updated lien amounts can take a month or more, and thus need to be requested well in advance of a mediation or trial.  The good news is that Medicare deducts its pro rata share of recovery costs (attorney’s fees and case expenses) as a matter of course, and will often make additional compromises.  The bad news is that it can take months to get final payment amounts.

Massachusetts state programs suffer from the opposite set of problems.  The Commonwealth’s Casualty Recovery Unit is readily accessible by phone, and usually quite responsive.  Again, the process begins with the submission of the Unit’s form and a signed client authorization, and ends a few weeks later withth receipt of an itemization of payments made for the beneficiary.  Unfortunately, Massachusetts does not automatically pay its share of costs and attorney’s fees, although the department will often consider a reduction, particularly where the settlement amount is limited by insurance coverage or liability concerns.  Once again, case law gives plaintiffs virtually no leverage in negotiating a compromise, see Whelan v. Division of  Medical Assistance, 44 Mass.App.Ct. 663 (1998) and Pierce v. Christmas Tree Shops, 429 Mass. 91 (1999).  The Unit will give updates by fax or email, often within hours.

Liability insurers are much more concerned about liens asserted by government payors than by private health insurers, because the applicable statutes can impose liability for repayment on insurers and attorneys if the lien is not satisfied at the time of settlement.  Thus, the plaintiff’s lawyer needs to prepare to address these concerns in advance of any settlement, in order to avoid delay in receipt of the client’s funds.


Medical Liens in Medical Malpractice Cases

In the last post, I explained the general procedure and theory behind liens that may be asserted by health care providers.  However, Massachusetts, Rhode Island, and a number of other states, have passed statutes that alter these procedures in medical malpractice cases.  Unlike other tort defendants, who are responsible for the medical costs of their victims, these statutes in effect allow doctors and hospitals to avoid paying for the medical treatment necessitated by their negligence, instead leaving that burden on the victim’s health insurer.

The statutes (G.L. c.231 s. 60G in Massachusetts and Rhode Island Statutes s. 9-19-34.1 in Rhode Island) generally allow the plaintiff to offer evidence of the amount of his medical and hospital bills at a medical malpractice trial, just as he would do in an ordinary negligence case.  But if the plaintiff receives a verdict that includes compensation for medical expenses, the defendant is entitled to deduct from the verdict the amount of all medical bills paid by a health care insurer.  When this deduction is made, the plaintiff is no longer responsible to repay his own insurer for these expenses.

In theory, this does not affect the plaintiff, but simply shifts the burden of medical costs away from the medical malpractice defendant and back onto the health care insurer.  In practice, many plaintiffs’ attorneys simply don’t offer evidence of past medical bills at a malpractice trial, because they feel it avoids possible confusion and simplifies the process for the jury.  Additionally, some lawyers are concerned that, if a jury awards a significant amount for medical expenses (which the plaintiff will never receive, because the amount of insurance payments will be deducted from the verdict), the jury may award less for other items of damage, figuring either consciously or subconsciously that the plaintiff’s bills were paid by insurance, and unaware of the repayment obligation.  Where counsel decides to offer evidence of bills, it is good practice to ask the trial judge to instruct the jury that the bills must be repaid out of any award, so that the jury knows there will be no windfall or double recovery to the plaintiff.

But once again, there are some important exceptions.  Bills paid by government insurers such as Medicare and Medicaid, and certain self-funded ERISA plans, are exempted from this process.  The resolution of these liens can be technical, time-consuming and complicated, and will be discussed in the next post.

Dealing With Medical Liens

Many clients are surprised to learn that when they receive a personal injury settlement or verdict, they may be required to repay their health insurer for any medical expenses that were caused by the negligence of the defendant. This may seem unfair, because after all, the client has been paying health insurance premiums, sometimes for many years, in order to have that medical coverage available when needed.  This week begins a series of posts explaining the various types of medical liens and how they may affect the settlement of a case.

Unfortunately, there is usually little that can be done to avoid completely the reimbursement obligation—either at the time of settlement or in advance.  The health insurer’s right to be repaid is almost always a matter of contract, an infrequently noticed paragraph in the long document that explains the health insurance coverage and rules.  Usually titled “Third Party Recovery,” “Subrogation,” or something similar, the clause says that when an insured patient receives compensation from a third party for injuries that have required medical treatment, the health insurer must be reimbursed for any treatment costs it has paid.

Most people don’t notice this provision when they get their health insurance policy, so it comes as quite a shock when the proceeds of a lawsuit are being distributed.  The legal reasoning behind these provisions is that the cost of an injury should be borne in full by the person or entity that caused it, and not by the injured person or his health care insurer.  Thus, in theory, the victim recovers his medical costs from the defendant, and in turn, reimburses the health insurer.  Even where the victim has no health insurance, a medical provider may assert a lien against the tort recovery, by following the procedures in G.L. c.111 s.70A.

And it gets worse.  In most cases, the health insurer is not required to pay any of the attorney’s fees or costs incurred by the client in obtaining the recovery.  Essentially, the insurer gets a free ride, recovering 100% of its expenditures, while the client pays the cost of recovery.  And the Supreme Judicial Court, in Pierce v. Christmas Tree Shops, 429 Mass. 91 (1999), has said this is legal.

But things aren’t always that bleak.  Some insurers do negotiate with plaintiff’s counsel to accept less than the entire amount owed.  The insurer may agree to reduce the lien to take into account the client’s costs, because the defendant has limited funds or insurance coverage to compensate the client, or because liability questions may make it advisable to settle a claim for less than full value.  Figuring that something is better than nothing, many insurers will reduce their lien to make it more attractive for the client to settle a case, rather than risk a loss at trial where both the client and the insurer may get nothing.  And sometimes plaintiff’s counsel may be able to convince the insurer that not all of the claimed payments were related to the negligence.  This argument may be particularly successful where causation of injuries is a disputed issue in the lawsuit.  And if the lien is claimed by a medical provider, rather than an insurer, it must be properly perfected by giving notice as required by G.L. c.111 s.70B.

If a settlement is contemplated, it’s important for the client and the lawyer to discuss what liens might be asserted against the recovery and how they should be handled.  If the repayment obligation is ignored, either the client, the lawyer, or even both, may be liable to the insurer down the road—long after the funds are gone.

Special rules apply to medical payments made by government programs such as Medicare and Medicaid, or for injuries suffered as a result of medical malpractice.  Some of these rules will be explained in the next post.