On October 1st, 2012, the United States Supreme Court opened its current session. This year, the Supreme Court will address a question that frequently impedes personal injury or wrongful death settlements. The question before the Supreme Court will be to what extent a victim of personal injury must repay ERISA based health plans for medical expenses paid by the medical insurance provider when there has been a settlement of that personal injury claim.
The typical situation is not unlike the following fact pattern: An individual is injured when his or her vehicle is hit by an at fault driver. A settlement is offered in response to the individual’s claim for personal injury. The individual wants to accept the settlement offer but a health care insurance company, which has paid some or all of the injured individual’s medical bills, refuses to authorize the settlement unless the medical insurance provider is repaid-in full-for all medical expenses it has paid on the injured party’s behalf.
Certainly, in some cases, repayment of some amount to the medical insurance provider may be warranted. However, in most cases, available insurance proceeds for the injured person are insufficient to pay for the injured person’s total damages. When a health insurance provider is demanding payment in full of all health insurance costs paid, the injured person can end up with nothing.
Consider, for example, an individual injured through no fault of his or her own. Hospital and other medical expenses paid by an ERISA based health plan total $100,000.00. The at fault driver has no assets that can be used to satisfy a judgment and the limit of the at fault driver’s insurance is $50,000.00. The insurance company for the at fault driver wants to pay its policy limit of $50,000.00 in exchange for a full release of the at fault driver. The injured individual, realizing that $50,000.00 is the most that can be recovered, wants to accept the policy limit.
With an ERISA based health plan demanding full payment of all monies it has paid under the health plan, the injured individual will receive no monies from the settlement. What happens to that portion of the $50,000.00 that is paying for the individual’s pain and suffering or lost wages or future out of pocket medical expenses?
The aggressive stance taken by ERISA based health plans is based upon a United States Supreme Court decision known as Sereboff v. Mid Atlantic Medical Services where the Supreme Court held that ERISA based health care plans can seek reimbursement from an injured individual who receives a settlement that includes past medical bills. The Supreme Court did not, however, tell those ERISA based health care plans just how much reimbursement they can receive. Without specific direction from the Supreme Court, most ERISA plans have continued to insist on full repayment even when that leaves the injured person without any monies in their pocket despite at times devastating injuries.
The case of U.S. Airways v. McCutchen is before the Supreme Court this term and presents the Court with an opportunity to determine just how much reimbursement is required. Since the injured party likely has contracted with an attorney to pay a certain percentage of any recovery as an attorney fee, shouldn’t the ERISA plan be required to at least reduce its claim for reimbursement by the percentage of attorney’s fees paid? What about the expenses that the injured person has had advanced on his or her behalf to successfully resolve the claim? Shouldn’t the health care insurance company pay at least a pro-rata share of these? What of the situation where the Plaintiff’s has future medical procedures that will be required? Should some of the settlement be set aside to cover out of pocket expenses for these future medical procedures? How about the pain and suffering that the injured person will suffer for the rest of his or her life?
We will watch carefully as the U.S. Supreme Court issues its opinion in this case which hopefully will give consideration to the individual loss and not just consider the wishes of the insurance industry.