ERISA Reimbursement Language Should Not Be Included

In the Pension Reform Conference Report

 

Section 307 of the House-passed Pension Protection Act would hand insurance companies broad new powers they are presently denied under ERISA. Inserted into the Manager’s Amendment at the eleventh hour, this provision would authorize plan insurers to go to court in order to obtain all, or part, of the compensation that has already been awarded to an injured party.  Persons who receive medical care under employer-sponsored ERISA plans would effectively lose their ability to recover for injuries caused by a negligent wrongdoer. Existing law presently forbids this result – the Conference Report on the Pension Bill should not now allow it.

 

·        What is ERISA?  Congress passed the Employee Retirement Income Security Act (ERISA) in 1974 after ten years of debate.  ERISA regulates employer provided health and pension plans, including limitations on a how a plan can be reimbursed for benefits provided to a beneficiary.

 

·        What is Current Reimbursement Law and How Does It Work? Suppose a driver is seriously injured in a car accident caused by the other driver.  The injured driver, who has health insurance through his employer, receives $100,000 worth of medical care paid for by his health insurance plan.  In addition, the driver is unable to work for six months while he recuperates and has to pay someone else to perform household tasks while he recovers.  The driver sues the other driver to recover his expenses.  Unfortunately, the negligent driver only has $50,000 worth of auto insurance.  The case settles for the $50,000 insurance limit.  Under state law, health plans may not sue the injured driver to recover the medical expenses paid out by the health plan unless the injured driver is made whole.  Why is this policy important?

 

o       First, it allows the injured driver to benefit from his prudent decision to purchase health insurance. A person obtaining health insurance through his or her employer pays premiums and deductibles in exchange for health insurance coverage.  If the plan gets completely reimbursed, then the covered person actually pays for coverage, but gets nothing in return.

o       Second, it prevents the injured driver from relying on government welfare.  If the injured driver’s future medical and disability expenses are given to the health plan, instead of reserved for future medical care, the driver will need financial assistance from the government.

o       Third, it provides an incentive for the driver to hold the wrongdoer accountable.  When plans are reimbursed first, the attorney who represented the injured driver does not get paid or reimbursed for the costs of bringing the claim against the bad driver.  Essentially, the plan gets the benefit of the attorney’s work without having to pay for it.  If this happens, attorneys will not take these cases and wrongdoers will not be held accountable for their negligent conduct.

 

·        How Does the House-Passed Provision Limit Rights?   The House passed language would allow the health plan to be reimbursed first.  Before the injured party is compensated at all, the plan could be reimbursed for the entire $50,000 of available insurance money from the bad driver, leaving nothing for the injured driver who brought the claim.

 

·        What about the Senate?  The Senate-passed, S. 1783, the Pension Security and Transparency Act of 2005, contains no language relating to ERISA subrogation or reimbursement.  Thus, Section 307 becomes an issue for conference.

 

The Provision Was Surreptitiously Added During House Floor Debate. H.R. 2830 as introduced did not contain any reimbursement language.  The bill that was reported out of the House Education and Workforce Committee and the House Ways and Means Committee did not contain the language.  The language was added in a Manager’s Amendment just prior to floor debate without any opportunity for debate or discussion about the issue.

 

The Provision Has Nothing to Do With Pension Reform.   The ERISA reimbursement provision is very controversial and has nothing to do with the underlying pension reform bill.  If anything, this controversial provision will bog down the conference and interfere with the ability to have the conference report completed and enacted prior to the April 15th deadline for pension plan contributions.  If Congress feels that ERISA should be amended, then a separate bill, carefully deliberated, is the correct process—not sticking the provision in a Manager’s Amendment just prior to floor debate.

 

The Provision Overturns Supreme Court Precedent.  In 2002, the U.S. Supreme Court in an opinion written by Justice Scalia decided that self-funded ERISA plans were limited in their ability to sue their own beneficiaries.  (Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).  

 

·        Knudson: In that case, Janette Knudson was seriously injured in a car accident and the health plan provided by her then-husband’s employer paid for her medical care.  Now a quadriplegic, Ms. Knudson subsequently brought a state tort action against the manufacturer of the automobile for defects in the car that caused the accident.  The case settled and earmarked $13,828 to reimburse the health insurer for past medical expenses.  The insurer rejected that amount claiming that it was entitled to $411,157.11 of the $650,000 settlement.  That settlement included $256,745.30 to a Special Needs Trust to pay for Ms. Knudson’s future medical care plus money to reimburse California Medicaid and to pay attorney’s fees and costs.  The Court in analyzing the remedies available under ERISA concluded that the legal relief sought by the insurer was not allowed under ERISA, which provided only for equitable relief.

 

·        Sereboff: In November, the Supreme Court granted review of a 4th Circuit Court of Appeals decision (Mid Atlantic Medical Services v. Sereboff, 407 F.3d 212 (2005)) dealing with a similar issue regarding plan reimbursement.  In that case, Joel and Marlene Sereboff, Maryland residents, recovered damages from California defendants in California court for a car accident that injured them there.  Unlike the Knudson case which involved damages placed in a special trust, the money paid by the California defendants went directly into accounts controlled by the Sereboffs.  The Supreme Court granted review of this case to resolve a split between the circuit courts.

 

Congress should not resolve issues prematurely.  Congress should not resolve an issue currently pending before the Supreme Court by sneaking legislative language into a Manager’s Amendment.  The ERISA is a comprehensive and complicated statute.  If Congress decides that changes are necessary, it should do so in the light of day and not by dint of night.