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The Problem with Wraps

On July 6, 2015
By Adam V. Russo, Esq.
(As published in Thompson Information Services’ Employer’s Guide to Self-Insuring Health Benefits)

If you are a long time reader of mine, I would first like to say thank you for being the only person other than my mother to read what I write.  It is extremely kind of you to do so!  As a loyal reader, you would also know that it doesn’t take a lot to get me going and in the self insured industry it seems like something new happens on a weekly basis that gets my water boiling.  For the past few years, amongst the threat of the exchanges and the state regulation of stop loss, nothing has bothered me as much as the wraps!  Wrap networks that is.  If PPO networks weren’t bad enough, in case you have a claim that doesn’t belong to a network, you can always pay the claim through the wrap network.   So if one network wasn’t enough, with a wrap you can even work with more.

What we have is an industry phenomenon.  TPAs and self funded plans complain about their networks all the time.  How the discounts are bad, how you don’t have the ability to audit the claims, how the networks really work on behalf of the hospitals and not the plans. Everyone seemed to complain about them yet need them to attract clients that aren’t willing to go the reference based pricing route.  You need a network to survive as I am told by every executive that has been in the industry longer than I have been alive.

Yet at the same time, these professionals long for the day when they see a large claim and have the ability to fight the facility about the excess charges, save their clients money, look like a hero to the broker, have the stop loss carrier thank them, and make the TPA some extra revenue from the savings they found.  The problem is they have this option right now and it’s called the out of network or wrap network claim.  Every day I see TPAs and self funded employee benefit plan throw good money down the proverbial toilet.

Wraps are everywhere yet I don’t see how they can actually help any self insured plan.  Before I start ranting about wrap networks too much, let me formulate a typical example for you and I will use our own self funded plan to illustrate.   The Phia Group’s self funded plan has primary access to the Blue Cross network in Massachusetts.  Over 98% of all of my plan’s claims are under $1000 and there is a network discount that applies to all in network facilities.  I cannot audit these claims, I cannot negotiate these claims but the reality is that I do not need to and I don’t want to.  The claims are small and the discounts off the charges are reasonable.  There is no need to make much of a fuss.  Now, the remaining 2% of claims are the issue and while my hands are pretty much tied on the large in network claims, luckily I am in Boston where there is a lot of competition for my dollar and the charges by the well respected hospitals in the city aren’t too much when compared to Medicare pricing.  So, you must be asking by now where is the problem.

The problem exists when there is a large claim outside of my network.  For example, let’s say I am on business in Montana and while on a trip, I decide to go skiing.  Let’s knock on some wood please as I keep the hypothetical going.  Let’s say I break my leg and need to be rushed to a rural hospital that is obviously not in my network.  This would be viewed as an out of network claim.  At this point I have two options, hire a negotiator to get the claim resolved or access a wrap network through my administrator that can offer immediate access to discounts without having to worry about picking up the phone and trying to work out a deal and ensure that there is no balance billing to me.  Even when the plan or administrator hires a firm to negotiate a claim, all that may be happening is that the negotiating firm is accessing the wrap discount rate and making a quick deal.  They aren’t negotiating anything but you think they are.  They are just accessing the same wrap network rate that anyone else (including you) can.  It’s stealing your money since not only are you paying way too much on the claim, you are paying the negotiation company a percentage of the so called savings for doing two minutes of work for you.

Wrap networks are a great option on a low dollar claim when the hassle of negotiating a deal isn’t worth the money but most out of network claims are large claims since they are typically emergency situations.  The greatest thing about wrap networks is that you do not have to use them!  This is what most of my clients do not understand.  There is a huge difference between a primary network and a wrap network. The biggest being that contractually you may be bound to pay the network rate on a primary PPO regardless of how outrageous the claims may be but in the wrap scenario, the use of the wrap is optional.  This is absolutely huge when it comes to finding some true savings.

I have spent almost two years convincing my TPA clients that there is a distinct difference between primary network and wrap claims yet so many administrators use the same claims process on both.  In this industry when someone says in-network they include wrap claims top that definition but they are just dead wrong.  Educating plan administrators on this is huge since if people do not know they have options then they will never choose an option.  As you know, the plan has a fiduciary duty to be prudent with plan assets.  Too many times they are being fooled by these so called cost containment firms that these claims are being negotiated when all that is happening is that the company is applying the agreed up wrap discount rate.  It’s embarrassing that we have snake oil salesmen in our industry but the reality is that we have plenty of them.

If you want to save some easy money for your plan, carve out these large out of network claims, place strong language into your plan document, and hire a true claims negotiation firm that will use innovative data and legal techniques to negotiate a fair deal and get signed off agreements on each claim.   A single claim can save your plan hundreds of thousands of dollars.  I see millions upon millions wasted every month by those in the dark.  Please do not continue to be one of them.

There is widespread confusion in the marketplace as the claim negotiation companies like to state that they negotiate your claims but the reality is that in many instances there is no actual negotiation as these vendors just access the wrap network so-called discounts and spend approximately 5 seconds on the actual claim.  Basically anyone on the street could actually get the same discounts that many of these wraps have just by picking up the phone and calling the facility.  You just tell them that you want 20% off the bill in exchange for sending the money within 30 days.  People do this with their credit card bills every day.  There is an entire industry built around credit card negotiations.  This is no different as you can do this yourself.  Think about it – these are out of network claims that otherwise would have balance billing to the member.  Do you really think that these facilities want to be chasing dollars from members by collecting ten dollars a week?  Of course not!  They want the money from the deep pockets of a health plan right away even if it’s 50 cents on the dollar.

Then there is the actual wrap contract that is no better in most cases than the typical primary network access contract.  The rate is set at the percentage of billed charges and with wraps the discounts are much smaller that the primary networks.  In addition, the plan is also specifically prohibited from using any sort of usual and customary or clinical editing logic.  Therefore, the one time you can actually audit the claim for excess charging, you agree not to!  The wrap agreement is also tethered to a participating provider agreement – and that, of course, is still confidential like in primary networks.

The bottom line is that wrap contracts are just as bad as primary contracts, except often worse, because the discounts are lower. A TPA is doing its groups a disservice if it accesses a wrap network instead of negotiating claims. That’s especially true when it comes to a complimentary or supplemental wrap when the payer is not obligated to use the wrap.  In these situations it would be insane not to negotiate the claims. A claim that can be out of network if the payer so chooses is always better off paid as out of network with the ability to negotiate than using a wrap network meager discount.

The best approach is to have well written plan document language that gives you the best possible weaponry to negotiate these claims.  You must leverage favorable plan language into settlements with providers that result in a plan payment of far less than it would have otherwise had to pay if a network rate was used.

There are hundreds of vendors that negotiate claims; most TPAs are either familiar with more than a few or perform their own negotiations. Either way, though some providers will negotiate robotically without regard to whether the plan is required to pay their bills, others – including the most egregiously charging ones, with expensive legal counsel to prevent exactly this – scrutinize the plan document language and are able to pick apart arguments to negotiate. Defining usual and customary as the prevailing charge in the area, grouping payment based on the provider rather than the claim, and not affording the plan administrator the proper discretion to determine payable amounts are examples of plan language that will make cost containment unduly difficult.

Here is what you should be stating in your plan document to ensure the most rights possible when it comes to negotiating large out of network claims.  The plan should state that claims must be reasonable meaning that services and fees are in compliance with generally accepted billing practices for unbundling or multiple procedures.  Usual and customary shall mean the lesser of fees that a provider most frequently accepts from the majority of patients for the service or supply, the cost to the provider for providing the services, the prevailing range of fees accepted in the same area by providers, and the Medicare reimbursement rates.   Usual and Customary charges may be determined and established by the Plan using normative data such as Medicare cost to charge ratios, average wholesale price for prescriptions and manufacturer’s retail pricing for supplies and devices.

At the end of the day, you want to give your plan as many options as possible to get the biggest savings possible on a claim.  Networks – especially large ones – are not known for their sensitivity to the plan’s problems. There are dozens of different scenarios that can arise within any given plan that will lead to a dispute with the network over payable amounts.  Having clear language that comports with network agreements and discussions with providers regarding carve outs are crucial aspects of effective cost containment programs when using networks. Some networks allow plans to engage in creative cost containment techniques such as carving out dialysis, specialty drugs, air ambulance claims, and carving out certain specific providers – but many others don’t.

Here is my bottom line – if you have a large claim (define large based on your risk level) and have the ability to negotiate the claim, do it.  Prepare yourself for the opportunity by having the best possible language in your plan document, ensuring that your administrator doesn’t automatically send these claims to a wrap network that you don’t need to use, and ensure that you work with a claims negotiator that not only has the ability to work a claim but has access to the best claims data, legal minds, and plan language to ensure maximum savings.  Besides it’s your fiduciary duty to do it so stop breaching your obligation to be prudent with plan assets.  The employee benefit plan bank account will thank you for it.

The Road to Recovery: Subrogation Gets Its Day In Court

On July 6, 2015

By Christopher M. Aguiar, Esq.

(As published within The Self-Insurer)

 In a country with a seemingly infinite amount of regulation and concerns regarding benefit plan compliance following the passage of the Affordable Care Act in 2010, one would expect much attention from courts in the employee-sponsored health benefits arena.  Most might be surprised when they realize the amount of attention that subrogation has received in The Supreme Court of the United States, the highest court in the land, over the last 25 years.  Subrogation, a concept few truly understand and even fewer recognize, has been reviewed by The Supreme Court several times since 1990.  Even legal practitioners unfamiliar with the world of insurance law might struggle to provide a satisfactory explanation of it.  Many an industry practitioner can tell tales of their encounters with even subrogation professionals with questionable understanding of the concept.

In the 226 years of The Supreme Court’s existence, It has reviewed approximately 1,742 cases, or eight cases per year.  Most courts in America review more than that per day.  With such limited volume, it is surprising that the issue of subrogation has been directly dealt with four times since 1993 (i.e. 4 of the last 469 cases). While two applications for review have been denied, a fifth case, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, case # 14-723, is now slated to be heard by The Supreme Court in 2015.

To be clear, it is somewhat disingenuous to say that subrogation, specifically, has merited so much attention. To understand why subrogation has been reviewed so often, one must understand the legal framework that is actually being implicated.  The issues The Court is really tackling are the circumstances under which a plan can enforce a right to be reimbursed from the injury settlement of plan participants, and if so, to what extent. The Employee Retirement Income Security Act of 1974, better known as ERISA, allows a plan to seek “appropriate equitable relief” and The Court is being asked to define the framework to be applied.  Stated more simply, whose definition of equity, or fairness, is more appropriate – the states, or the benefit plans providing benefits to employees of companies in America?

Therein lies the crux of the problem – words and phrases like “fair” or “appropriate equitable relief” – as utilized in ERISA – lack any definite meaning.  Certainly, definitions for them exist, but they are relative terms, the actual meaning of which reasonable people can (and will) disagree upon.  They are the kind of terms that allow lawyers to make a living, those that lend themselves to disagreement, advocacy and, ultimately, the opinions of an appointed arbiter.  So what exactly is the issue?  In layman’s terms, The Court is trying to answer a simple question; when is it fair for a benefit plan that provides health benefits, with the explicit understanding that if those benefits arise due to the acts of a third party, and the beneficiary receives a settlement from a third party to the health benefits arrangement, to expect those funds to be returned to the health plan?  Most reasonable minds will agree that, theoretically, it is fair for a benefit plan to recoup those funds because a person who causes damages should be held responsible for them.  As a practical matter, however, the persons who cause these injuries rarely have the means to atone for them financially, and those who suffer the injuries are often the ones left feeling undercompensated for their losses.  For that reason, The Court has stepped in repeatedly to try to resolve this issue

The Court has, for the most part, sided with the employee benefit plans.  As set forth in Great West Life & Annuity Insurance Co. Et Al. v. Knudson, 534 U.S. 204 (2002), and then reaffirmed in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S 356 (2006), a benefit plan that establishes an equitable right of reimbursement can enforce that right in equity as long as the fund is 1) identifiable, 2) traceable, and 3) in the possession of the party against whom the claim is made.  Indeed, the benefit plan in Great West Life lost its case because the plan brought action against the plan participant, Knudson, but the funds were being held in a trust on her behalf.  Since the Plan failed to bring suit against the party in possession of the funds, i.e. the trust, The Court held the Plan had not protected its rights and could not enforce its action in equity.  What followed were misinterpretations and overstatements, leading to substantial unrest in the world of subrogation and a concern that a benefit plan could not enforce its equitable rights on the whole.

In 2006, The Court clarified much of the confusion that arose from Its decision in Great West Life when it reviewed Sereboff.  Essentially, The Court ruled in Sereboff that when a benefit plan follows the blueprint laid out in Great West Life, it can enforce an equitable remedy against the plan participant.  Unfortunately, The Court left one issue unresolved and to the interpretation of lower courts: when a plan seeks to enforce an equitable remedy, will that remedy be limited by traditional rules of equity, i.e. the Common Fund and Made Whole Doctrine? While most jurisdictions were in support of the enforcement of clear language in favor of preemption of equitable limitations, a few still sought to avoid application of the plan terms.  Such was the status of the law until 2013 when The Court once again granted review of a subrogation case, U.S. Airways, Inc. v. McCutchen, 133 S. Ct. 1537.

In McCutchen, The Court finally resolved this very prevalent issue.  Most reasonable people can agree that a plan should be able to recover funds from a party who causes injuries to a plan participant – it is when the available funds are lacking that disagreements arise. Naturally, nearly everyone believes the injured person deserves to be compensated.  Thanks to The Supreme Court and Its decision in McCutchen, however, a benefit plan can craft its provisions such that the plan is reimbursed first, in full, regardless of the impact that reimbursement has on the patient’s situation.  Many a plaintiff’s attorney will argue incredulously that an outcome wherein the participant is not made whole, or the plan benefits from the efforts of the injured person and their attorney to secure a recovery without having to pay for that benefit, is not fair.  The Supreme Court, as ultimate arbiter establishing the supreme law of the land, has decided that it is fair for a benefit plan to provide for and enforce reimbursement without equitable limitations.

With all the attention in the last 25 years, one might think that The Supreme Court has had Its fill of subrogation and resolved the disputes around the law … enter Montanile.  In Montanile, The Court will tackle yet another pivotal issue – when exactly does a benefit plan’s right attach to recovered funds?  Stated even more simply, can a benefit plan’s right be defeated if the plan participant spends all the money?  In Montanile, the plan participant was involved in an accident with a drunk driver and incurred over $121,000.00 in medical claims that were paid by the plan.  As a result of that accident, the plan participant brought a lawsuit against the driver and received a settlement of $500,000.00, which he claims he then spent on everyday living expenses.  Since he spent the money, he argued, the plan could no longer enforce its reimbursement right.  Both the trial court and the Eleventh Circuit ruled that the plan can still enforce its right.  Eight federal jurisdictions have now ruled on this issue, six of them agree that simply spending the money does not defeat a plan’s interest.  This split in authority has laid the groundwork for The Supreme Court’s review of Montanile.

If The Court rules in favor of Montanile, plaintiff’s lawyers will unquestionably threaten to spend settlement proceeds unless the plan takes action to protect the recovery.  Benefit plans can take some solace in the overwhelming nature in which the Court has previously ruled in favor of the plan.  In Sereboff, for example, the Court ruled unanimously their favor.   In McCutchen, five justices ruled against the plan, however, in that case the benefit plan lacked the necessary language to avoid equitable limitations, but the opinion made clear that the terms of the language create a valid contract and therefore should govern the rights of the parties.  If those cases are any indication, and The Court continues with its theme of strict enforcement of established plan terms, we should see another favorable decision.

Regardless of the outcome of this case, though, benefit plans should always look to follow established best practices.  A plan can put itself in the best position to succeed by ensuring it has clear language that establishes automatic attachment of its lien.  Great language is not always enough, though.  Early intervention and follow through on the status of the case provides the plan with the opportunity to monitor the case and, if necessary, intervene to protect its interest.  By taking these relatively simple actions, the plan can maximize its chance of recovery – and maybe, plans will get a little bit of help from The Supreme Court in Montanile.  Oh, and for all you subrogation enthusiasts out there, do not fret – there are a few more issues that could use some clarification from The High Court, I am guessing It gets Its hands dirty on some subrogation cases a few more times in the next few years.

Size Doesn’t Matter- But the Regulators Do

On July 6, 2015

By Adam V. Russo, Esq.

(As published in Thompson Information Services’ Employer’s Guide to Self-Insuring Health Benefits)

What is the perfect size for a self-funded plan?  This is one of my favorite questions and I love to ask it at any conference at which I happen to have the pleasure of attending and speaking.

The answers I receive are pretty funny and actually typical, ranging anywhere from 200 lives to 1,000,000.  Yes, somebody actually stated that the perfect self-funded plan size is 1,000,000 lives.  I almost passed out when he said this as I realized right away that this gentleman is a broker and has clients who place their trust in him.  I started praying for those clients right after that session!  The right answer is surprising to most as it potentially can be just one person.  A self-employed person who happens to have a lot of money and is in great health could easily be self-insured.  It really isn’t the size that matters at all; it is the behavior of the employee population.  That one person can walk into any medical facility and negotiate his or her own bills.  We all know that cash is king!

Think this through…which is the better plan to self-fund?  (This is just a hypothetical, so please do not get upset at this example – I have plenty of friends and family who drive trucks for a living!)  The first plan is the 5,000 employee plan of truck drivers where the average employee is 75-lbs overweight.  The employee population has a major drug addiction issue, loves to drink, smoke, and do some very dangerous activities outside the workplace.  Or would you believe that the plan with 30 yoga instructors who don’t drink, don’t smoke, don’t do drugs, are in better shape than anyone could possibly be in and just overall make everyone else in the country look out of shape?  Who do you think is the better risk for self-funding their benefit plan?  If you are the stop-loss carrier, who would you rather insure?  Exactly.  The size of the employer doesn’t always matter.  The plan demographics, the plan language, the claims data, and potentially the wellness programs are what matter the most.

Making it Happen in Massachusetts

When I look at the self-funded industry as a whole and I attempt to make predictions as to what will occur in the near future, in my opinion, you have to look to Massachusetts as the bellwether state.  What happened in Massachusetts will probably happen everywhere else.  Why do I say it so confidently?  It is because my home state is the first to have a state wide exchange and has had one in existence since 2006.

So as we all know, people were freaked out when the ACA was coming to fruition, yet as I tried to explain to anyone that would listen, I believed it would be a great thing for the self-insured industry.  Look at what has happened to my state since we were the first to the exchange platform.  Overall, 73.8% of workers in Massachusetts were in self-insured plans in 2011, the highest rate in the nation.  Again, this is five years after the exchange was put in place.  Since 2006, when Massachusetts passed its healthcare reform law, the percentage of workers statewide in self-insured plans has increased tremendously.  In firms with 50-99 employees, the percentage that is in self-funded plans went from 54.4% in 2006 to 67.2% in 2011.  In firms with 100-999 employees, it increased from 16.6% to 29.2% and lastly, in firms with 1,000 or more employees, the rate went from 74.1% to 86.4%.  [1]

This is not some insignificant statistical anomaly.  We are talking about an increase of 15 to 25% depending on the size of the employer.  These are employers who had the alternative of not worrying about purchasing healthcare coverage and just allowing their employees to join the state exchange plan.  Why would this be any different for the rest of the country?  In my opinion, it will not be, and based on the proactive approach taken by the regulators to limit self-funding options, they are petrified that I am correct in this assessment.

Stop Loss Concerns

Speaking of the regulators, they are very concerned about the growing trend of self insurance since it potentially means less healthy lives in the exchanges.  The states and the federal government need healthy lives in the exchanges in order to keep the costs from blowing up.  In other words, they need the yoga instructors to leave self-funding opportunities and enter the exchanges.  The easiest way to make this happen is by limiting the availability of stop-loss, since if you reduce the ability to purchase stop-loss coverage; you reduce the ability for an employer to self-fund.  Period.  Plain and simple.

According to federal statistics, self-funded plans cover over 60% of the private sector workforce, totaling almost 90,000,000 workers and dependents. According to a 2012 Kaiser Family Foundation survey, those numbers include 15% of small companies with fewer than 200 workers and 52% of mid-sized companies (200 to 999 workers).[2]

One study finds that without further regulation of stop-loss policies, over 60% of small businesses will self-fund, leaving mainly older, more costly employees in the exchanges and the fully-funded small group market. This could increase premiums in the exchanges and small group market by up to 25%. A review of stop-loss policies marketed to small firms also indicates this potential shift.[3]

This trend was driven primarily by an increase in the number of self-funded large employers. In 2012, 93% of businesses with 5,000 or more employees were self-funded, and of the next largest employers, those with 1,000 employees to 4,999 employees, nearly 80% self-funded.  Based on the new Affordable Care Act requirements, the number of small employers that self-insure will continue to rise, especially if these employers are able to find ways to minimize their risk, such as the ability to purchase stop loss coverage.[4]

Department of Labor’s (DOL’s) Report to Congress

Section 1254 of the Affordable Care Act required the Department of Health and Human Services (HHS) and the DOL to provide an annual report to Congress that compares fully-insured and self-funded plans.  The main focus is on determining the extent to which the new market reforms are likely to encourage small and midsize employers to self-insure.

The sad news is that past reports have portrayed stop-loss as regular health insurance, except with a higher deductible. I have never seen a stop-loss policy insure individuals.  They do not cover employees or their dependants and do not pay claims on behalf of patients.   Seems like a rather big distinction to me.  Who are these people and from where do they get their facts?  They have never read a single column of mine, attended one of my webinars, or called me to ask any questions.  They just do not understand how the self-insured market works.

Past reports have also stated that in a typical stop-loss arrangement, the reinsurer agrees to pay a proportion of medical expenses.  Again, I have reviewed many stop-loss policies – almost all of them that are in existence today – and I have never come across this.  These statements indicate a fundamental misunderstanding of the nature of stop-loss and self-funding in general, which is especially unfortunate given that these are the very entities that are tasked with enforcement and regulation of our industry.  How can you be the police for the industry and not know the rules in place?

Self-funding 101 would tell you that stop-loss is not health insurance as stop-loss pays claims to the plan sponsor and not medical providers. Stop-loss reimburses the self-funded plan for claims that the sponsor has already paid to providers. The risk of loss and the responsibility for paying medical providers remain solely with the self-funded plan.  The actual plan member (the employee and dependants) are unaware of who the stop-loss carrier is or what they do.  I guarantee you if I polled all 150 employees at The Phia Group regarding who the stop-loss carrier is for our benefits plan, less than 5% of them would know.

The fact that the DOL and HHS believe that stop-loss is a form of health insurance, and that it pays all claims beyond the specific deductible is dangerous. That being said, efforts by associations such as the Self Insurance Institute of America (SIIA), have rallied against these misinterpretations, and courts have begun to acknowledge the true nature of stop-loss and the plan sponsor’s risk. However, the battle has just begun and we have a long way to go.

It’s Up to You, New York

In early May, SIIA met with New York legislators and staff and urged them to pass A.1154/S.2366, legislation that would allow companies with 51-100 employees, including those who participate in multiple employer plans, to continue to have access to stop- loss insurance after January 1, 2016.  If SIIA is unsuccessful, then many employers that have between 51 to 100 employees will not have access to stop-loss coverage in New York and basically have no chance to be self-insured.  This would be exactly what state regulators across the country want in order for them to have the control of what these employers can do when it comes to healthcare coverage.  Trust me, every state is watching New York closely as it can set a dangerous precedent in the nation and drastically halt the growth of self-insurance.  Many companies will have no choice other than being fully-insured or joining the exchange.  In either case, they will be under the control of the state insurance commissioner.  Not good.

The Profits Stay with the Plan and so Does the Tailoring

In an era where people are finally paying close attention to their healthcare spending, another major benefit of self-funding is that employees save money by not paying for the major insurance carrier’s CEO’s Ferrari.  A percentage of all insurance premiums in the fully-insured carrier world are allocated to pure profit but with self-funding, employees pay a nominal amount for health benefits coverage and in general, plan sponsors do not make a profit on self-funding.  Funds stay in the benefit plan to pay for future claims.

Another major draw for employers and probably the most significant benefit of self-funding is the ability to customize the plan to suit the employee base or the employer’s own preferences. If the employer has a certain sympathy for individuals in need of weight loss surgery, the employer can tailor its plan to cover that surgery.  If the employer has a very young, healthy employee base, the employer can offer a plan for a low cost to its employees that have a high deductible. In other words, the employer has the ability to structure its plan any way it wants.  The fact remains that the yoga instructors’ health benefit plan should not be the same as the truckers’ plan, yet in the fully-insured world, they are.

The Risks are Worth the Reward

The bottom line is that sponsoring a self-funded plan has its risks, but it also has its rewards.  While self-funding may not be the right fit for every employer, for those employers that want to be able to get creative with their employees’benefits, self-funding is an option that can be very beneficial. While the group may incur unexpectedly catastrophic claims amounts, stop-loss is designed to mitigate those claims.

Our industry is growing, innovation is on the rise and at the end of the day, employee benefit plans sponsored by self-funded employers are offering more benefits with fewer costs.  Let’s hope that the government entities don’t punish our employers for finding better ways to deal with our health insurance crisis.  It’s what America was built on – integrity and innovation.

Texas C.P.R.C. c. 140: The New Standard for Subrogation Rights

On September 17, 2014
Texas health plans seeking reimbursement via subrogation, are now forced to deal with new guidelines. C.P.R.C. c. 140, governing subrogation, went into effect January 1, 2014; enacting H.B. 1869, which was passed months prior; but the finer points are still being explored.

Who Does This Affect?

The new law impacts municipal health and retirement plans and fully insured health plans; (policies and plans where state law is not exempted by ERISA).  Medicare, Medicaid/CHIP, workers’ compensation, and private self funded ERISA plans are not affected.

What’s Changed?

Chapter 140 limits benefit plan subrogation to half of the plan member’s total recovery.  If the plan member is represented by counsel, this rule further requires plans to “reasonably” contribute to the attorney’s fee, (usually one third of the share).  In practice, this results in a three way split of the total funds recovered.

The rule seems to limit a benefit plan’s rights, but The Phia Group recognizes benefits of this new law as well, such as the elimination of Texas’ made-whole rule.

What Does This Mean For Affected Plans?

Other elements have yet to be fully explored by the courts.  For example, the cap imposed on subrogation and reimbursement interests (up to one half of the total recovery) is a “communal cap”, meaning that if there are multiple entities claiming reimbursement rights, their combined recoveries are capped at one half of the member’s recovery. The law does not address how funds are to be allocated between the respective interests in such a case. How can you ensure your rights take precedence over all others?  Knowledgeable, creative advocates like The Phia Group can identify the best route to maximize your recovery. C.P.R.C. c. 140 creates a solid framework governing (and limiting) subrogation and reimbursement recoveries in Texas. There are cracks, however, in the wall erected by Texas legislators. Plans which are able to identify these cracks and find creative ways to take advantage of the law’s non-obvious opportunities will be the ones who reap the benefits.

What Should I Do?

For information about The Phia Group and how they can help, contact:

Michael Branco
The Phia Group, LLC
Phone: 781-535-5618
Fax: 781-535-5656

New York Governor Signs Legislation Prohibiting ERISA Liens on Settlement Proceeds

On November 19, 2013
McGivney & Kluger, P.C.

On November 13, 2013, the Governor of New York signed legislation which clarifies the scope of General Obligations Law (“GOL”) Section 5-335. As a result of this amendment, ERISA plans are prohibited from asserting liens against settlement proceeds in personal injury, medical malpractice and wrongful death actions.

This legislation was motivated by the legislature’s finding that the “settlement of certain types of claims have been impeded as a result of health insurers’ attempts to intervene into pending litigation, as well as similar attempts to institute subrogation and reimbursement actions against litigants. As a result, settlement of claims made by accident victims and others are imperiled and prevented, thus causing undue burdens and pressures upon the court system. In addition, defendants in such actions are being subjected to claims made by health insurers, exposing them to additional liability.”

Amendments to GOL Section 5-335 previously enacted in 2009 were made for the purpose of protecting “parties to the settlement of a tort claim from certain unwarranted lien, reimbursement and subrogation claims.” However, the United States District Court for the Eastern District of New York, in Wurtz v. Rawlings Co., LLC, 2013 WL1248631 (E.D.N.Y), has held that this legislation was preempted to the extent it applies to any insured employee benefit plan covered by the Employee Retirement Income Security Act of 1974 (“ERISA”).

The November 13th amendment to GOL Section 5-335 is intended to define the purpose of the “general obligations law which is to ensure that insurers will not be able to claim or access any monies paid in settlement of a tort claim whether by way of a lien, a reimbursement claim, subrogation, or otherwise so that the burden of payment for health care services, disability payments, lost wage payments or any other benefits for the victims of torts will be borne by the insurer and not any party to a settlement of such a victim’s tort claim.This law is specifically directed toward entities engaged in providing health insurance, thus falling under the ‘savings’ clause contained in ERISA, which reserves to the states the right and the ability to regulate insurance.”

Please do not hesitate to contact Greg Gaines of McGivney & Kluger, PC at with any questions regarding this important legislation

Amicus Update: New York Governor signs into law anti-subrogation bill

On November 15, 2013
November 15, 2013

Kammy Poff, Amicus Committee Chair
Joseph Willis, Legislative Affairs Committee ChairOn November 13, 2013, Governor Andrew Cuomo signed into law New York Assembly Bill 7828 whose purpose was to tighten perceived loopholes in NY Gen. Obl. 5-535, which was enacted in 2009 and generally prohibits health insurer subrogation. The unintended consequences of the law appear to jeopardize the subrogation rights of municipalities and short term disability carriers.

Adding Another Weapon to the Subrogation Arsenal

On October 31, 2013
By: Sean Donnelly and Jon Jablon

It may only be October, but Christmas has come early for self-insured health plans.  A recent court decision out of Washington affirms a self-insured plan’s right to offset claims as part of its subrogation and reimbursement rights – that is, to deny future benefit payments equal to the amount of past benefit payments that have not been reimbursed. The noteworthy case, Corbett v. Providence Health Plans, clarifies the nature of an offset provision and specifies that the use of such a provision is a valid method for Plans to recover on their existing liens, even when the offset provision is not added to the Plan Document until long after the lien is established.

In order for an offset provision to be effective, however, a Plan first needs to have certain essential language already contained within its Plan Document.  Specifically, in order to assert a right to offset future claim payments in the amount of the Plan’s existing lien, the Plan must have established, at the time of payment of the claims for which the subrogation right is asserted, proper language entitling it to reimbursement for claims that were incurred due to the fault of a third party. Some plans lack proper reimbursement and recovery language and courts consequently hold them to have made benefit payments free and clear, meaning they are not subject to a lien.  Moreover, Plans must also ensure that they have proper offset language, which is language permitting the Plan to refuse to pay a participant’s future claims in the amount for which the participant is obligated to reimburse the Plan but has failed to do so.

Make sure your Plan has robust subrogation and reimbursement rights. The Phia Group works with Plans to maximize cost-containment; please contact and we can help make sure your Plan contains the proper offset language to allow the Plan to fully realize its recovery potential.

Self-funded plans thought they got a lot with Sereboff v. Mid Atlantic Medical Services, Inc., (547 U.S. 356 (2006)) – but the windfall keeps coming.  In Corbett, the United States District Court for the Western District of Washington at Tacoma held that public policy is not frustrated by a Plan’s utilization of newly-added offset provisions to recoup funds paid by the Plan years earlier.  The court’s holding explained that self-funded health plans are allowed to utilize newly-added recovery methods to exercise existing rights.

Facts of the Case

In Corbett, the Plan paid medical claims in 2007 for injuries incurred by two of its participants, a husband and wife, who were hurt in a motor vehicle collision caused by a third party.  At the time the claims were paid, the relevant Plan Document contained language asserting the Plan’s right to reimbursement for medical expenses that were due to the fault of a third party.  

In 2010, the participants reached a settlement with the responsible party.  The Plan, pursuant to its right of reimbursement, demanded full reimbursement of the claims paid but the participants refused the demand.  Subsequently, in 2012, one of the participants gave birth and incurred a number of medical expenses related to her maternity.  Since the Plan had not yet been reimbursed for the claims it paid on behalf of the participants in 2007, the Plan declined payments equal to the amount the participants had failed to reimburse.  The Plan derived its authority for this offset from a new provision contained in the 2011 version of the Plan Document.  The participants appealed the Plan’s denial of the maternity expenses, arguing that the Plan’s offset provision was not applicable because it was not contained in the 2007 version of the Plan Document that was in effect at the time of the accident.

The Court’s Holding

The court held that the settlement payments made to the participants by the responsible party were always subject to the right of reimbursement provision set forth in the 2007 Plan Document.  In amending its Plan Document in 2011 to include the new offset provision, the Plan merely added a new method by which it could seek reimbursement pursuant to the original right of reimbursement provision established in 2007.  The court found that “[The Plan] merely amended its [Plan Document] to add a new method to collect reimbursements that it already had the right to collect.  This is distinguishable from retroactively applying a new amendment to deny prior, vested benefits” (emphasis in original).

The court further held that the benefit payments made to the participants “had not vested through payment because they were always subject to a right of reimbursement.”  The court determined that because the Plan had secured for itself proper reimbursement rights at the time of payment, the Plan’s payment had not vested.  Rather, the Plan’s benefit payments were subject to the Plan’s reimbursement rights and thus not “unalterably and irrevocably conferred.”    

The court concluded that if a plan is validly entitled to reimbursement for payments made, then the benefits paid by the Plan are not considered to have vested because such payments are not made free and clear, but rather are subject to an equitable lien as explained by prior Supreme Court decisions such as Sereboff.  The court in Corbett determined that a Plan may use any valid means of recovering its lien, provided that the method used is a means of enforcing a previously-established right of reimbursement.

Limitations of Holding

The court’s holding in Corbett provides Plans with a valuable weapon in their arsenal to more effectively pursue reimbursement.  Nevertheless, this weapon is not without its limitations. 

First, as this case was decided in the Western District of Washington at Tacoma, its holding is presently only binding within that district.

Second, the court’s holding only applies to Plans to which participants are currently subject; if a participant has since termed, then there is no agreement to which the participant is bound.  Therefore, this case is only relevant to participants whose Plan enrollment has not termed since the date of the Plan’s unreimbursed payments.

A Valuable Tool for Plans

Despite the limited binding nature of this holding, a Plan can still use this decision as support for its ability to enforce its reimbursement rights through the use of offset provisions.

If participants are hesitant to reimburse their Plan using amounts recovered from third parties, the Plan can assert its right to offset future benefit payments; that can be an incentive for the participant to reimburse the Plan with settlement funds as opposed to years down the line when the settlement funds are long since spent.  The knowledge that the participant’s health plan will not pay a certain specific dollar amount in the future can be a daunting prospect.

A traditional view of the Plan’s activities in a case such as this is that the Plan pays claims, learns of the third party settlement, attempts to secure reimbursement, and continues to pay the participant’s claims regardless of whether or not the participant has reimbursed the Plan for previous claims.  However, the Corbett decision establishes case law to the effect that even if the Plan did not contain an offset provision at the time the Plan paid claims, the addition of such a provision at any time while reimbursement is still due (that is, until the participant is no longer enrolled in the Plan) will be sufficient to allow the Plan to use the offset provision for past payments that have not been reimbursed.

Although this case is only binding within the Western District of Washington at present, there is significant potential for this case to gain widespread acceptance as the principles cited by the Corbett court should be strong enough to persuade courts in other districts to reach the same conclusion in similar cases.

In this industry, we frequently see instances where a Plan loses substantial rights due to poorly-drafted subrogation language. The plan language developed and perfected by The Phia Group is second-to-none and our subrogation professionals, legal team, and helpful support staff are ready to help you enforce your right to reimbursement using both long-established legal doctrine and emerging theories, such as the one described above. Please contact for all your self-funding needs.

The Domestic Partnership Benefits and Obligations Act of 2013 Seeks to Amend Federal Law

On October 14, 2013
United States Senate Bill 1529, the Domestic Partnership Benefits and Obligations Act of 2013, seeks to amend federal law to provide insurance benefits for federal employees in a same-sex domestic partnership and their domestic partners. The Act’s purpose is to offer the same benefits to employees in a same-sex domestic partnership, as statutorily provided for married federal employees and their spouses. Interestingly, the introduction of the bill presented an opportunity to add provisions to Section 402, “Health Insurance”, which attempts to modify Federal Employee Health Benefit (FEHB) laws and address recovery, preemption and jurisdictional issues faced by federal employee health plans seeking to enforce subrogation and reimbursement rights.

Regarding recovery, the bill states that a contract between the federal government and a federal employee plan carrier may require the carrier to make subrogation or reimbursement recoveries for benefits provided to federal employees.

The preemption provision currently found in federal statutes would be modified to express that not only the provisions of a federal employee plan contract but, also the federal statute (5 U.S.C. 8902), preempt state and local laws and regulations which relate to health insurance or any plan.
Finally, a new section would be added to the federal statutes to specifically state that federal district courts have exclusive jurisdiction over civil actions and claims arising under the FEHB statutes, except civil actions and claims against the United States within the exclusive jurisdiction of the U.S. Court of Federal Claims.

The recovery and preemption sections would take effect in the calendar year following the end of a six (6) month period beginning on the date of the enactment of the bill. It would appear that 2015 would be the earliest plan year those sections would apply. The jurisdiction section would take effect immediately upon enactment and would apply to all civil actions pending or filed on or after the date of enactment, regardless of when the injury or illness occurred.

United States House Resolution 3121, the American Health Care Reform Act of 2013, would repeal the Affordable Care Act, make changes to various health insurance laws, and most importantly for NASP members, modify medical liability laws. The bill creates a federal statute of limitations for medical lawsuits, limits damages and attorney fees, addresses punitive and future damages and specifically applies to subrogation claims arising out of a health care liability claim. A health care liability claim is defined as a claim against a “health care provider, health care organization or the manufacturer, distributor, supplier, marketer, promoter or seller of a medical product.”

The statute of limitations in the bill is the sooner of one (1) year after the claimant discovers, or through reasonable diligence should have discovered, the injury or three (3) years after the date of manifestation of the injury. The statute of limitations shall be tolled for the following: (1) fraud, (2) intentional concealment or (3) the presence of a foreign body not having any therapeutic or diagnostic purpose in the claimant. The bill also provides for specific tolling rules for minor claimants.

The bill would limit the amount of noneconomic damages to $250,000 and limit contingent attorney fees to 40% of the first $50,000, 33/13% of the next $50,000, 25% of the next $500,000 and 15% of any amount above $600,000.
Also, the bill would generally preempt any conflicting state law but also specifically supersede state laws providing for a greater amount of damages or contingency fees, a longer statute of limitations or reduced applicability or scope of periodic payments of future damages, as well as a state law which “prohibits the introduction of evidence regarding collateral source benefits or mandates or permits subrogation or a lien on collateral source benefits”. However, the bill does not preempt a state law which provides health care providers or organizations with greater protections from liability, loss or damages than those set forth in the bill. And, the bill does not preempt a state law which specifies a particular amount of compensatory or punitive damages that may be awarded in a health care lawsuit or any defense available to a party in a health care lawsuit.

District of Columbia Bill 339, which was enacted earlier in 2013, modifies the District’s workers’ compensation law. Previously, an injured private sector worker had 6 months from the date of injury in which to file suit against a third party who caused the employee’s injury. If the employee failed to file suit within 6 months, the right to file suit against the third party passed to the employer and its insurer. Bill 339 states that if the employer or its insurer does not file suit against the third party within the six (6) month period, the right to file suit reverts to the employee for the remainder of a 3 year statute of limitations.
Missouri House Bill 339 was enacted effective August 28, 2013. The bill prohibits an uninsured motorist from pursuing noneconomic damages against an at fault driver who is in compliance with the state’s financial responsibility laws.
However, the prohibition does not apply:
• If the at fault driver is proved to be under the influence of drugs or alcohol or is convicted of involuntary manslaughter or second degree assault; or
• If the uninsured motorist’s policy was terminated for failure to pay the premium and the uninsured motorist was not given notice of termination for failure to pay the premium at least 6 months prior to the time of the accident.

Also, in a lawsuit against an at fault driver who is in compliance with the state’s financial responsibility laws by an uninsured motorist, any aware to the uninsured motorist shall be reduced by the amount of the award designated for noneconomic damages and the trier of fact shall not be informed of the inability of the uninsured motorist to pursue or collect noneconomic damages. Finally, passengers in the uninsured motor vehicle are not subject to the recovery limitation.

Special thanks to Adrienne Johnson, CSRP and Senior Subrogation Strategist with Insurance Subrogation Group, for alerting the Amicus Committee to the Missouri Bill.

Kammy Poff, Amicus Chair

Joseph Willis, III, Legislative Affairs Chair

New York Assembly Bill 7828 (Companion Senate Bill 5715)

On June 28, 2013
Article Taken From: The National Association of Subrogation Professionals AMICUS Updates

As you may recall, New York introduced a bill which would close perceived loopholes which allowed a fully insured ERISA plan to pursue subrogation or reimbursement. New York General Obligations 5-535 prohibits a health carrier from pursuing a subrogation or reimbursement claim that is not protected by ERISA preemption. One federal court in the case of Wurtz v. Rawlings, 2013 WL1248631 (E.D.N.Y.), recently held an insured ERISA plan was protected by preemption and the carrier was able to pursue subrogation and reimbursement claims. TheWurtz court found the NY statute was not “saved” from preemption as the regulation of insurance. The case is currently on appeal and the National Association of Subrogation Professionals (NASP) has been requested to write an Amicus Brief.

In response to this decision, Assembly Bill 7828 was introduced to clarify that health insurers and fully insured ERISA plans fall under NY General Obligation 5-535.Bill 7828 specifically claims that 5-535 is directed to the health insurance industry necessary to qualify under ERISA’s savings clause.This means NY General Obligation 5-535 would apply to fully insured ERISA plans as it involves a state’s right and ability to regulate insurance. Essentially, the bill seeks to reverse the Wurtz decision and barring fully insured ERISA plan’s right to subrogation or reimbursement. This bill further clarifies that the anti-subrogation law applies to not only claims in suit, but pre-suit claims.

Last minute amendments to the bill appear to protect personal injury protection (PIP) subrogation rights. However, short term disability carriers and municipalities did not fare as well and certain subrogation rights of theirs may be in jeopardy. The bill is headed to the Governor’s desk for his signature and seems a foregone conclusion that the bill will be signed.

Read More…

Maine Amends Anti Subrogation Bill

On May 23, 2013
As you may recall, Maine recently introduced a bill, Maine Legislative Document 756, which attempted to eliminate Med Pay subrogation claims.  This bill was recently amended to allow for the limited pursuit of subrogation claims.  The new language would allow the casualty insurance policy to provide for Med Pay subrogation rights or priority over the insured when the insured’s awarded or settled damages exceed $20,000. 

Although, the amended language is restrictive and does not allow for the pursuit of all Med Pay subrogation claims where there is a responsible party, it does allow a carrier to pursue claims where the insured has settled with the tortfeasor or been awarded damages of more than $20,000.  

Additionally, the amended language purports to give the carrier priority over the insured on allowed claims.  This suggests the insured would not be able to assert the Made Whole Doctrine as a defense to the carrier’s right to recover.  The bill appears applicable to only those cases where the insured is pursuing a claim against the responsible party.