ERISA Subrogation Is Not Always A Slam Dunk For The Health Plan

If an ERISA based plan is not self-funded, the plan is subject to state insurance regulation. Statutory limitations on subrogation and lien rights of health plans and auto insurance policies can be considered insurance regulations that are not subject to preemption. See FMC Corp v. Holliday, 498 U.S. 52 (1990).

Even in the self-funded setting, all is not hopeless. In the case of Providence Health Plan of Oregon v. Carol Simnitt, The District Court in Oregon ruled in 2009 that even though Providence Health Plan was self-funded in this particular case, it was not entitled to either lien recovery or subrogation recovery for its medical expenses, incurred in a third-party motor vehicle accident, because the plan had not specifically excluded the “Make Whole Doctrine.” Providence Health Plan had argued that the plan excluded the Make Whole Doctrine with the following language:

“By accepting membership in the Plan, you make an agreement with us – if you receive settlement for an illness or injury, you must pay us back for the cost of your treatment.” Id page 15.

The court concluded that the above language was not sufficient to disavow the Make Whole Doctrine and, therefore, applied the Doctrine in this case.

The victim in this case also argued that the Oregon statutory limitations set forth in ORS 742.534, ORS 742.536, and ORS 742.538 limited the recovery of the ERISA based plan as an insurance regulation. Because the court found that this particular plan was self-funded, it was not subject to those statutes. In so ruling, however, the court agreed with the victim that:

“Oregon insurance statutes outline three methods by which a plan can seek reimbursement of medical expenses caused by an automobile accident…Each of these methods of recovery is mutually exclusive and sets the upper limit to the amount of reimbursement that health plan can seek.” Id page 5 & 6.

Finally, the court also addressed the question of whether subrogation in this case was appropriate under ERISA. See 29 U.S.C. 1132(a)(3). The victim in this case argued that it would not be equitable or appropriate for the plaintiff to gut the settlement by requiring repayment in full of its medical bills citing Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006). The court there ordered a pro rata reduction based on equitable principles. That was a case which arose in the Medicaid setting. Arguably the same equitable notion should be applied in the ERISA setting. The court agreed the Ahlborn logic should apply in the ERISA setting, noting:

“If a jury decides that defendant has not been made whole and that plaintiff is not entitled to reimbursement, a ruling on this issue will be unnecessary. If a jury decides that plaintiff is entitled to a portion of defendant’s recovery, this court will then determine whether the award is ‘appropriate’ given the Supreme Court’s decision in Ahlborn.” Id at page 21.

See the Opinion and Order on reimbursement.

Subsequent to the decision in this case, the victim’s attorney submitted a cost bill asking the court to award attorney fees. The court did so. The court awarded prevailing fees in the amount of $41,595. You can view the Order Granting Attorney Fees.