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 freeerisa.com. 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.