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Supreme Court Affirms Health Plan Reimbursement Rights, With a Catch
04/22/2013

The U.S. Supreme Court issued an opinion last week (U.S. Airways v. McCutchen) affirming a health plan’s right to enforce express plan language allowing it to recover benefits paid on behalf of a participant when the participant later recovers those benefits from a third party. But the court created a new wrinkle with respect to a plan's obligation to share in the costs of that recovery.

Background. The facts of the case are fairly straightforward. An employee was injured in a car accident, and the plan paid $66,866 in benefits related to those injuries. The employee then sued the individual who caused the accident and recovered $110,000. 40% of the recovery went to the employee’s lawyer, leaving a net recovery of $66,000. The plan claimed it was entitled to the remaining $66,000 based on language in the plan giving it the right to be reimbursed out of any third­-party recoveries. The employee resisted paying the full $66,000 to the plan on the basis that it would be unfair for the plan to be reimbursed off the top without sharing in any of the costs of the recovery.

Plan Terms Control. The court first addressed whether general equitable principles (fairness, essentially) could override the express terms of the plan. In other words, could the participant defend against the plan's express right to reimbursement by asserting it was unfair? The court said no. The plan terms are controlling, even if they arguably work an unfair result.

But there was more.

Sharing the Costs of Recovery. The court observed that, although the plan language gave an express right to reimbursement, it said nothing about how the plan would share in the costs attributable to recovering funds from the third party. In light of this "gap" in the plan language, the court concluded that equitable principles could be applied to interpret how costs were intended to be shared. The court did not make a final determination on sharing of costs; it sent the case back to the district court for further consideration of that issue. But the implication is that the plan could be made to share proportionately in the cost of recovering the funds.

On this last point, the court signaled that the outcome would have been different if the plan had said something express about sharing of costs, including if the plan said that its right to reimbursement would come off the top without any sharing of costs. So plans that want to give themselves a right to full reimbursement without regard to sharing of costs may do so, if they take care to draft the plan language appropriately.

Takeaways. This case and the many authorities it cited show that reimbursement and subrogation rights continue to raise some sticky issues for health plans. But the rules seem to be getting clearer. A plan may preserve a right to reimbursement from third-party recoveries through express language giving it that right. And if the plan does not wish to share in the cost of that third-party recovery, it can draft around the obligation to share.

Note that this issue primarily affects self-insured health plans, because state insurance law generally prohibits fully insured plans from pursuing subrogation or reimbursement.

 


Editors
Don Berner Image
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers Image
Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
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