The Employee Retirement Income and Security Act, known as ERISA, is a complex federal law that permits employers to establish special self-funded insurance policies. These ERISA-based policies are special in that they are not subject to North Carolina’s strict insurance laws. Accident victims in North Carolina receive certain protections from North Carolina insurance laws due to the prohibition of subrogation clauses in privately funded health insurance policies. For this reason, North Carolina’s insurance laws are considered to have an “anti-subrogation rule.”
North Carolina’s “anti-subrogation rule” means that privately funded health insurance policies in North Carolina will not be able to seek and receive reimbursement (also known as “subrogation”) from your personal injury recovery. However, ERISA plans are not governed by North Carolina law and are therefore unique because they do not have to follow North Carolina’s anti-subrogation rules. For information about what subrogation is and how it works, please visit our Liens and Subrogation Overview.
If your health insurance policy is an ERISA-based insurance plan, your health insurance provider will likely be entitled to reimbursement for all medical expenses paid to any medical providers for treatment related to your personal injury claim. This right of reimbursement or right to subrogation means that your ERISA-based health insurance provider is entitled to be paid directly from your North Carolina personal injury settlement or judgment for those related medical expenses.
Furthermore, the federal government has ruled that as long as the notice or warning of subrogation is in your health insurance policy’s contract, the insurance provider will likely have an enforceable right to reimbursement from your personal injury claim. This information is extremely important and has significant implications for your personal injury claim, settlement and final recovery. Given the complex nature of ERISA, this article should be used as an introduction to understanding the mechanics of these potential claims on your North Carolina personal injury settlement or award.
Before you settle or resolve any personal injury case, you should first determine who may have a potential lien or subrogation interest on your settlement or recovery. Whenever your health coverage is provided through your place of employment, it will be important to determine whether your health insurance policy is an ERISA-based policy or not. You can find a detailed guide of how to determine whether your health insurance policy is entitled to reimbursement under ERISA by reading our Comprehensive ERISA Guide.
ERISA receives a right of reimbursement from a personal injury settlement or award based on the language contained within your heath insurance policy contract, namely the policy’s self-funded language. ERISA policies are required to include language establishing the plan’s provisions claiming their right of subrogation. The ERISA health insurance plan must explicitly authorize their claim for reimbursement. This means that the plan must actually state their right to reimbursement from settlements or awards in their plan contract.
Most people are not aware that the language even exists, but drafters of these plans know exactly what to include in order for the reimbursement clause to be enforceable. With this being said, if an ERISA contract neglects to include the proper language, the ERISA provider may not be entitled to receive the right to reimbursement. An ERISA plan’s failure to include the proper language is a rarity; thus, for the remainder of this article, we will assume that we are dealing with an ERISA plan that has included the proper language.
In order for an ERISA’s reimbursement clause to be enforceable, the plan must also be self-funded. This can be very tricky to determine, even for lawyers. Essentially, a plan is self-funded if the program is responsible for paying the medical bills of its plan beneficiaries (you and your family) as opposed to an insurance policy held by the plan. Determining whether a plan is self-funded is very difficult, as almost all health insurance plans claim to be self-funded. It is highly recommended that you consult with an experienced personal injury attorney whenever dealing with ERISA plans and their reimbursement rights.
So long as the proper contractual language exists and the plan is self-funded, ERISA liens will likely attach to personal injury proceeds. Therefore, if you are injured in an accident and accept benefits from this type of insurance plan to help cover your treatment, ERISA receives a subrogation interest in your personal injury settlement for the accident. Also, ERISA is not required to notify you or your attorney about their lien, as notice of the lien is already included in the plan’s contract.
ERISA reimbursement rights can greatly affect the amount that you receive from your personal injury settlement or award. ERISA does not have a cap or limit on how much of your recovery they can claim. Because these policies are not capped, it is possible for your health insurance to satisfy their subrogation interests by receiving your entire settlement or award. This problem may occur when the plan’s lien or right to reimbursement exceeds the settlement or recovery amount. Furthermore, ERISA will be reimbursed from the proceeds of a settlement or award before your attorney receives his or her share, so long as the plan’s language provides payment before attorney’s fees. Generally, the plan must be specific as to having a priority in receiving reimbursement from your recovery proceeds and the ability to receive up to the full amount if necessary. With this being said, if the plan’s language fails to state priority or the amount of proceeds it can recover, attorney’s fees will be deducted before ERISA takes its share. The following example will illustrate how an ERISA lien may affect your recovery amount.
Let’s assume that Steve was in a car accident and received $100,000 in medical treatment. Steve’s insurance plan is an ERISA-based policy, and his insurance paid for the entire $100,000 of treatment. Steve’s plan has a lien on any recovery he receives from the accident. Also, the ERISA plan disavows (denies responsibility for) any obligation to share in cost for attorney’s fees. Steve eventually receives a settlement for $60,000 from the at-fault party’s insurance provider. In this example, ERISA will be entitled to Steve’s entire $60,000 settlement amount, as their lien amount was $100,000 (greater than the settlement amount). Therefore, Steve will receive nothing from his settlement. Also, if applicable, Steve’s attorney will receive no payment from the settlement as ERISA properly disavowed responsibility to deduct for attorney’s fees.
Now, let’s use the same facts from above, except in this example let’s assume that the ERISA plan failed to deny responsibility to share in attorney’s fees. In this example, if Steve hired an attorney, the attorney would receive their share, and then the plan would receive the remaining portion. Thus, if Steve and his attorney agreed to a 1/3 (one-third) contingency fee, the attorney would receive $20,000 (1/3 x $60,000), and the ERISA plan would receive the remaining $40,000.
Important Note: While this information may seem overwhelming at this junction, there are several effective tactics and techniques that can be employed to assist you in ensuring that your health insurance policy’s right to reimbursement is balanced against your need to seek adequate compensation for your injuries.
If you have determined that your North Carolina personal injury claim is subject to an ERISA lien, it is paramount to prepare your claim for dealing with the subrogation interests before settlement. The most effective approach to handling ERISA liens is a well-planned and well-executed negotiation strategy with the entity that will be representing your health insurance plan’s interests. First, it is essential that you identify and negotiate with the correct party. Secondly, negotiations should begin very early in your claim process, as your health insurance company will likely seek full reimbursement once a settlement agreement is reached or litigation has begun.
First and foremost, the best way to reduce an ERISA lien is to request a final itemization and to dispute any claims that you feel are not related to your personal injury case. You can do this by contacting your plan administrator. You can find the plan administrator’s contact information on the network’s IRS 5500 form under Box 2c. Below is an example of the location on the 5500 form where the contact information can be found.
2a Plan sponsor’s name and address, including room or suite number (Employer, if for a single-employer plan)
2b Employer Identification Number (EIN)
2c Sponsor’s telephone number
2d Business code (see instructions)
Once you have received an itemization of the medical expenses, carefully check all charges the plan is claiming. Any items that you feel are not related to your accident should be disputed. For instance, if your accident occurred on February 1, 2016, and the ERISA’s final itemization includes medical expenses they paid for on January 15, 2016, the charges should be disputed. The charges could not be related to your accident because they occurred before your accident date. Auditing and disputing ERISA’s claim to reimbursement is important because you can potentially lower ERISA’s lien amount.
Moreover, ERISA is only allowed to recover for medical benefits provided. Thus, the argument can be made that your health insurance should only have a lien on the portion of the proceeds for medical expenses. Therefore, you should argue that the ERISA lien should only receive reimbursement from the portion of your recovery that is designated for medical expenses. For instance, if your case had a large pain and suffering and/or lost wage component, and the recovery was small in comparison to those damages, you will want to argue that most of the settlement proceeds were not for medical expenses. Unfortunately, ERISA is not limited to only receiving the part of your recovery that is designated as medical expenses. However, ERISA has an obligation to be equitable and fair when dealing with those whom they cover, so making this argument may prove to be effective.
Whenever possible, utilize your ability to not pursue a claim. In other words, you are never required to pursue a personal injury claim, and if ERISA’s lien amount will likely be greater than your total recovery, it may not be advantageous to pursue. For example, let’s say you are injured in an accident in which ERISA covers all of your medical expenses. During your settlement negotiations, you come to realize that your total recovery will likely be less than what health insurance paid toward your medical bills. In this case, you would likely receive nothing from the settlement because ERISA will be entitled to your full recovery amount. In instances such as this, you will want to let the plan know that as the lien amount stands, you will not pursue the claim, as you would not receive any of the proceeds. ERISA may then be willing to negotiate their lien amount. If you choose not to pursue a claim, ERISA will either receive no reimbursement or have to pursue the claim on their own. The idea that the insurance provider may have to pursue a legal claim on its own could lead to a willingness to negotiate, as the plan generally lacks the resources to pursue such cases on their own.
Also, when dealing with ERISA lien holders, make sure to reiterate the economic incentive to reach an agreement with those to whom they provide coverage. For reasons previously mentioned, ERISA providers do not want pursue litigation, so use this to your advantage. You can do so by mentioning that, at the current lien amount, it will not be advantageous for you to pursue your claim. Also, be sure to reiterate the fact that the plan benefits from having an agreement concerning repayment in place, as it potentially saves them money and can ensure some form of payment from you.
As a word of caution, the ERISA statute and the liens by which it creates are very difficult to understand and navigate. Whenever you are negotiating an ERISA-based lien, it is always a good idea to speak with an experienced personal injury attorney for guidance.
The way in which your recovery proceeds are to be disbursed when multiple liens, including ERISA liens, are attached to your recovery proceeds has generally been left unanswered by the courts to date. It is evident that ERISA may claim a priority right to reimbursement in their contracted plans. It is not evident, however, as to when the priority right is actually enforceable. Generally, a lien is established either contractually or statutorily. Federal statutory liens such as Medicare and TRICARE also claim a first right to reimbursement. Generally speaking, when in conflict, federal statutory liens should trump contractual-based liens. A contractual lien and statutory lien are in conflict when both are claiming the same rights. ERISA liens and Medicare/TRICARE liens fit this situation because they both claim a first right of reimbursement. Therefore, Medicare and TRICARE Liens (federal statutory liens) should probably be reimbursed before ERISA liens (contractual liens). With all this being said, I would highly recommend not paying any liens until the amount to be paid is approved by each lien holder or interested party. This can be done by sending a letter to each lien holder providing them with a breakdown of the reimbursement plan.
When a statutory lien and contractual lien are not in conflict, then the contractual lien will likely take priority. For instance, physicians liens under North Carolina law do not claim a right to priority; therefore, an ERISA lien will receive reimbursement before a physician lien.
As you can see, dealing with ERISA liens and their interactions with other liens can be very difficult because there really is no right or wrong answer. It is always a good idea to try to get all lien holders to compromise and work together to come to a reasonable agreement.
ERISA liens should always be dealt with appropriately, as failing to do so can have significant consequences. If an ERISA reimbursement claim is not handled properly, you will still be liable for the amount to which the plan was entitled. In other words, ERISA will likely sue you for the lien amount. Not paying ERISA’s claim for reimbursement can cost you a lot more in the long run, as the cost of litigation is very expensive.
Also, if you neglect to use your recovery to pay what is owed to ERISA, the plan can follow the proceeds of your recovery. Essentially, the plan will be entitled to place liens on items purchased with your recovery proceeds. For example, let’s assume that you received a settlement from an accident and neglected to pay a valid ERISA lien. You then used those proceeds to purchase a new vehicle. ERISA will be able to put a lien on the new vehicle. This is significant because you will not likely be able to sell or receive a clean title until the lien is paid.
If you have questions about ERISA-based health insurance policies and how they may affect your personal injury settlement, please contact an experienced personal injury lawyer. Feel free to use our Lawyer Locator or chat with one of our attorneys using the button below.