Reasons to Oppose Adding ERISA Reimbursement Language to the
Pension Reform Conference Report
The ERISA reimbursement language found in Section 307 of the House-passed H.R. 2830, the Pension Protection Act of 2005, would greatly undermine the ability of a person injured by a negligent wrongdoer to recover damages for his or her injuries. If this language is adopted in conference, it would allow health and disability insurers to gobble up the damages that an injured person recovers from a negligent wrongdoer, leaving the injured person without adequate resources to pay for their care. This, in turn, would be a drain on state and federal treasuries.
Here are reasons to oppose adding the language to the conference report.
This wouldn’t happen in state court. When Congress passed ERISA in 1974, it limited the right of the plans to sue to recover their interests. Congress also reserved for the states the right to regulate core insurance principles, and many of the states adopted what’s called the “make whole doctrine.” This doctrine allows injured persons to keep the damages they recover from negligent wrongdoers, rather than repay their health or disability insurer, if the tort recovery fails to cover the injured person’s loss. Many states also adopted the “common fund doctrine,” which requires health insurers and disability insurers to bear a pro-rata share of the recovery expenses when plans get paid back from the damages award. These two doctrines are fair and reasonable.
· First, if the recovery is inadequate, the doctrines allow the injured person to keep his or her recovery to pay for future medical care and living expenses, a preferable approach to having the state or federal government paying for the care.
· Second, it fairly asks the plan, which bore none of the costs or risks of the litigation, to pay for a reasonable share of the costs and attorney’s fees associated with the recovery.
It is against the insurance companies’ interests to change the law. Section 307 would change the law so that the insurance companies get paid first no matter what. Because they would not be required to contribute to the costs of the litigation that results in the recovery, injured persons with ERISA plans will no longer be able to find a lawyer to take their case. This would set up a complete perversion of the law under which injured persons would be better off if they had no insurance.
Section 307 would put ERISA Plans Ahead of Medicare and Medicaid. In many cases of catastrophic injury, the injured person exceeds the policy limits of his or her health plan. In these cases, Medicare or Medicaid often ends up paying for the care. Why should the health plans, which have received insurance premiums, a deductible, and co-pays from the insured, recover before the taxpayers?
Section 307 is not necessary to prevent double recovery. Proponents of Section 307 argue that the provision is necessary to prevent the injured person from recovering twice. This is completely false. Recoveries are typically inadequate to cover all the costs of the injured person’s care due to policy limits, such as an automobile insurance policy, of the negligent wrongdoers.
· The verdicts and settlements in these cases are often less than the expenses. Thus, the injured person in such cases cannot be made whole once, let alone twice.
· The insured person paid the premiums, deductible, and co-pays associated with the policy. Allowing the health plan to recover every cent it paid means that the insured person received nothing in return for purchasing an insurance policy.
· Tort reforms enacted by the states already reduce these awards. Many states have enacted tort reforms that make it impossible for the injured person to be made whole. For example, states that cap damages automatically reduce the amount of a jury award to the amount of the cap. States with certain evidentiary rules let the jury know about the injured person’s insurance coverage which reduces the amount of the jury’s award.
The argument about costs is completely speculative. The insurance industry will argue that reimbursement is necessary to keep costs down for everyone. But that turns the concept of insurance on its head! The purpose of insurance is to pool risk. Thus, many persons are paying for the catastrophic injuries of a few. For the industry to argue that it should be completely reimbursed for the costs of care provided and retain the money paid by the insured person for premiums is disingenuous. The industry cares about its bottom line, not about keeping rates down for other policy holders.