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Assignment of What, Exactly?

On March 6, 2017
Jonathan A. Jablon, Esq.

If you’ve ever been disgusted with how much the BUCAs charge for health insurance premiums, you’re not alone. If you’ve ever wondered how the BUCAs determine their premiums and whether they’re limited, a case decided in May of this year helps shed some light on that subject. More relevant to ERISA, though, the case also presents some interesting information regarding the scope of an assignment of benefits as it relates to when a provider can sue a self-funded plan under ERISA.

A case in the United States district Court for the Southern District of Florida, MRI Scan Ctr., LLC v. Nat’l Imaging Associates, Inc., 13-60051-CIV, 2013 WL 1899689 (S.D. Fla. May 7, 2013), was brought by a provider to challenge the amount that Cigna charged for health insurance premiums. Insurance companies are required to charge premiums based on what is known as a Medical Loss Ratio, or MLR. In general, the higher an insurer’s MLR, the more it can charge for premiums. The MLR is the percent of premiums that the insurer actually spends paying claims; average MLRs, measured in percents, range from the mid-70s to low 80s.

Federal law requires that an insurer calculate its MLR based on “medical care and health care quality improvement,” and that it not include expenditures for administrative costs. In this case, the plaintiff, a provider, alleged that Cigna was inflating its MLR by about by including administrative charges in the amounts Cigna claimed to have paid for health care alone. The plaintiff sued under ERISA, alleging that Cigna had violated its fiduciary duties.

Unfortunately, whether Cigna was in the wrong – the “meat” of the case – was not decided by the court. The court got sidetracked when it was forced to determine whether the provider had standing – indeed, whether the provider was permitted – to bring the suit in the first place. The court did, in fact, determine that the plaintiff did not have standing to bring the suit, pursuant to certain provisions of ERISA. Specifically, ERISA § 502(a)(1) permits an ERISA claim to be brought “by a participant or beneficiary.” Federal courts have divined that “[h]ealthcare providers generally are not considered ‘beneficiaries’ or ‘participants’ under ERISA and thus lack standing to sue under the statute.” Borrero v. United Healthcare of New York, Inc., 610 F.3d 1296, 1301 (11th Cir. 2010).

A common misconception about assignments of benefits is that any effective assignment enables the receiver of the assignment to use all the rights otherwise guaranteed to plan participants. That is not the case, as the holding of this case plainly reminds us. Though both the issuance and revocation (or threat of revocation) of an assignment of benefits are strong tools for the Plan (see Medical University Hosp. Authority v. Oceana Resorts, LLC, 2012 WL 683938, [D.S.C. Mar. 2, 2012]), the court interpreted ERISA § 502 to stand for the proposition that an assignment of benefits does not, in fact, automatically grant a plaintiff standing to sue for ERISA relief unrelated to that which is explicitly outlined within the assignment of benefits. In other words, if a Plan participant’s right isn’t specifically assigned to the provider, the provider does not have that right.

According to the court, “Plaintiff is a provider of health care services and, therefore, is not a beneficiary or participant. … Accordingly, Plaintiff has standing to bring ERISA claims only if it received from its patients assignments broad enough to cover Plaintiff’s claims.” The court noted that the assignment of benefits within the Plan explicitly pertained to the provider’s right to billing and receiving payments, but failed to contain any provision sufficient to be interpreted to assign the right to sue for ERISA relief unrelated to payment of benefits, including the relief requested in this case.

The court’s conclusion in determining whether the plaintiff had standing to sue, then, is that ERISA § 502 does not automatically grant those in receipt of an assignment of benefits standing to sue under ERISA. Standing to sue for ERISA relief must be granted by the applicable assignment of benefits. Though the court did not address the topic of whether such standing must be explicitly stated, general trends of Plan interpretation seem to indicate that language sufficient to assign to the provider all rights applicable to the participant should be an acceptable way to accomplish just that.

The court granted deference to the arbitration provision agreed to by both parties, so hopefully the merits of this case will eventually be determined in that forum. Aside from any inequitable tactics that may be employed by Cigna to determine its premiums (and who knows how many other insurers), the implications of this case go beyond the substance of the case. The procedural dismissal of this case – that is, the court’s determination that the plaintiff did not have standing to sue – is itself a lesson for the self-funded community with regard to assignment of benefits.

Plan Sponsors may want to examine their respective Plan Documents to ensure that the rights of providers are limited under the Plan to billing and accepting payment. Providers suing Plans for ERISA relief is a dangerous concept, but the court has provided Plans a clear method to thwart it. The Phia Group has an experienced staff of expert plan-drafters who know ERISA inside and out. We can provide Plans with the language they need to prevent overbroad assignments of benefits and prevent providers from having rights under the Plan beyond what is needed for them to provide services under the Plan. Contact Andrew Milesky at or (781) 535-5664 for all your plan drafting, subrogation, and general consulting needs.

Federal Judge Denies United Healthcare’s Motion to Dismiss in Case Brought by Texas General Hospital for Unpaid & Underpaid Claims

On March 6, 2017


Texas General Hospital is a private, acute care facility located in Grand Prairie, Texas. It is outside of UnitedHealthcare’s (“United”) provider network. In January of 2015, Texas General was the subject of intense scrutiny after a FOX 4 investigation revealed multiple billing complaints. A woman who underwent gastric sleeve surgery was charged a total of $622,000, most of which her insurance company, United, refused to pay. Another woman was charged $360,000 for a hysterectomy, including $18,000 for a disposable cup. United indicated to FOX 4 that it was deeply concerned about hospitals establishing an out-of-network strategy to hike the rates that they charge for services.[1]

A recent study by Johns Hopkins that was reported in the Dallas Morning News found that Texas General ranks 11th among the worst 50 hospital in the nation for inflating patients’ hospital charges and has the most inflated charges of any hospital in Texas.[2] The Office of Representative Chris Turner (D) of Arlington, Texas also conducted research looking at the cost of cardiology, general medicine, pulmonology, and urology at Texas General, then compared it to Texas Health Harris Methodist Hospital in Stephenville, Texas. His office found that the charges were egregiously high. In addition, National Nurses United conducted research which shows that Texas General is the most expensive hospital in Texas and the 8th most expensive nationwide.[3]


In October 2015, Texas General Hospital sued UnitedHealthcare based in Minnetonka, Minnesota seeking more than $104 million in unpaid and underpaid medical bills. Texas General accused United of “drastically underpaying” and refusing to pay for medical care provided to United-insured members. The case is citation is Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc., 2016 BL 208258, N.D. Tex., No. 3:15-CV-02096-M, 6/28/16.

Texas General’s Second Amended Complaint against United details an alleged pattern of United drastically underpaying and/or refusing to pay Texas General (the plaintiffs) for health insurance claims that Texas General submitted to United for reimbursement since at least March of 2012. The plaintiffs allege that United violated the terms of applicable plans which require reimbursement of medical expenses incurred by United members at “usual, customary, and reasonable rates.” Texas General contends that the total billed charges do reflect the usual, customary, and reasonable rates for the particular medical services provided at the hospital. According to the Complaint, United paid 25% of Texas Generals’ billed charges for 1,969 claims. The Complaint also alleges that United violated numerous provision of the Employee Retirement Income Security Act (“ERISA”) by breaching plan terms, breaching fiduciary duties of loyalty and due care, and failing to provide a full and fair review of denied claims. Finally, Texas General alleges breach of contract (for the non-ERISA plans) and breach of the duty of good faith and fair dealing.[4]

In November 2015, United filed a 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. Specifically, United argued that Texas General failed to allege facts that plausibly established that United withheld any plan benefits. As detailed in United’s Memorandum in Support of the Motion to Dismiss, United contends that Texas General’s charges do not constitute the usual, customary, and reasonable rates for those services. Moreover, United contends that Texas General failed to establish that denials of payment were invalid, mistaken, or unsupported by applicable plan terms. United also contends that since Texas General failed to exhaust its administrative remedies, the claims for benefits should be barred.[5]

On June 28, 2016, Chief Judge Barbara M.G. Lynn of the U.S. District Court for the Northern District of Texas denied United’s motion to dismiss. In particular, Judge Lynn found that Texas General sufficiently pleaded claims and that United failed to provide “meaningful access” to its appeals procedures. As a result of the dismissal, Texas General can now pursue its claims for benefits and relief under ERISA. Furthermore, Texas General is now able to bypass United’s internal appeals process for all 1,969 United members and bring these actions against United directly in federal court. [6]

The case now moves forward in the litigation process.

[1] Becky Oliver, A FOX 4 Investigation of Hospital Billing Struck a Nerve with Our Viewers, and Now, an Austin Lawmaker is Stepping In, FOX 4 (Jan. 22, 2015),

[2] News Release, Johns Hopkins Bloomberg Sch. of Pub. Health Pol’y Mgmt., Some Hospitals Marking Up Prices More Than 1,000 Percent (June 8, 2015),

[3] FOX 4 Investigation, supra note 1.

[4] Plaintiff’s Second Amended Compl., Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc., 2016 BL 208258, N.D. Tex., No. 3:15-CV-02096-M, 6/28/16.

[5] Memorandum in Support of Defendant’s Motion to Dismiss Plaintiff’s Second Amended Compl., Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc., 2016 BL 208258, N.D. Tex., No. 3:15-CV-02096-M, 6/28/16.

[6] Jacklyn Wille, United HealthCare Can’t Duck Hospital’s $104M Lawsuit, Bloomberg BNA (June 30, 2016),

Attack on ERISA Preemption Continues…

On January 23, 2017
By: Chris Aguiar, Esq.

ERISA preemption seems like such a simple concept; further proof that reasonable minds can disagree.  In just the past 10 days we have received mixed messages from some of the highest courts in the country.  First it was the 8th Circuit’s unanimous pro-preemption decision, and then it was the Supreme Court’s refusal to hear a case to overturn the 6th Circuit’s anti-preemption decision regarding the HICA tax.  All of this while the ACA is in danger under the Trump Administration, and states continue to attack a key component of self-funding; stop loss (with New Jersey being the most recent culprit).  I am interested to see how the ACA repeal will develop and whether the anti-preemption momentum brought on by the states in their attempt to thwart employers from providing cost effective benefits in an effort to bolster the exchanges will slow down.

For a bit more history and background visit

Recoupment or Embezzlement? Cross-plan Offsets in the Crosshairs

On September 26, 2016
By Andrew Silverio

When a self funded employee benefit plan, or indeed any payer of health benefits, overpays a benefit claim to a medical provider, it is often a tall task to later secure refunds.  This is especially true when the payment, even if clearly an “overpayment” pursuant to the terms of the plan document or policy, is still less than the amount of the provider’s billed charges.  From the provider’s prospective, they have received less than the amount of their bill, and from the payer’s perspective, the beneficiary and/or provider have been paid more in benefits than they are entitled to.  It is no surprise, then, that payers have developed various methods to facilitate overpayment recoveries beyond simply asking for refunds.  One of the most common such methods is “offsetting”, reducing the amount of future benefit claims to “cancel out” a previous overpayment.

The practice of offsetting claims as a method of overpayment recovery has been the subject of much conflict, and more than handful of lawsuits in the past months and years, and the practice does indeed appear more objectionable the farther removed the claims being offset are from the original overpayment.  For example, reducing a later benefit claim from the same plan participant for treatment at the same facility may seem perfectly reasonable.  However, reducing a benefit claim from another, unrelated participant may seem unjust, as the plan participant whose benefit payments are being reduced will be subject to additional exposure from the provider, despite having no connection to the original overpayment.

A major step beyond this practice of cross-participant offset is the primary conduct in question in Red oak Hospital, LLC v. AT&T Inc., AT&T Savings and Security Plan, and Larry Ruzicka, case 4:16-cv-01542 (S.Dist. TX, June 01, 2016).  In this case, it is alleged that United HealthCare, acting as claims administrator for AT&T’s self funded benefit plan under an ASO arrangement, violated ERISA by recouping claims overpaid by the plan from future claims submitted to a different payer, even, as is alleged, a fully-insured plan insured by United.  If true, this would mean that self-funded plan assets are essentially being converted into United HealthCare assets under the guise of overpayment recoupment. The Plaintiff’s complaint goes so far as to describe the practice as:

. . . an elaborate scheme to abstract, withhold, embezzle and convert self-insured Plan Assets that were approved and allegedly paid to Plaintiff for Plaintiff’s claim, to purportedly, but impermissibly, satisfy a falsely alleged ‘overpayment’ for another stranger claim, especially when the stranger is a plan beneficiary of a fully-insured plan that is insured by the Plan’s co-fiduciary, United Healthcare . . . Defendants knew or should have known . . . that converting the Plan Assets by a fiduciary or co-fiduciary of the Plan, in this case United, to the use of another and ultimately its own use, to pay to its own account is absolutely prohibited under ERISA statutes.

The complaint continues:

Defendants and United continued to conceal this kind of unlawful embezzlement and conversion of Plan Assets, camouflaged as overpayment recoupment or offset, even after becoming fully aware of   this self-dealing and embezzlement through investigation by the Department of Labor and repeated appeals, notices, and alerts from Plaintiff.  Defendants failed to remedy the verified embezzlement even after investigation by the Department of Labor and at least three (3) levels of administrative appeals, notices, and alerts by Plaintiff.

This complaint is not the first against UnitedHealth, and similar complaints have been filed against other large carriers acting as ASO claim administrators in the self-funded realm, such as Cigna. Interestingly, United HealthCare, the alleged perpetrator of the conduct in question, is not a party to the action.  The benefit plan itself, AT&T (as Plan Sponsor), and the plan’s individual Plan Administrator are collectively named as Defendants.  Employers and advocates of self funding everywhere should be cognizant of this fact – as plan fiduciaries, any of these parties can be found liable, and there is no better reason to seek out trustworthy and transparent partners.

ERISA Plan Cannot Recover Settlement Funds That Have Been Spent

On January 25, 2016
MyHealthGuide Source: William H. Payne IV and René E. Thorne

Case: Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, Supreme Court Ruling

The U.S. Supreme Court has narrowed, ever so slightly, the ever-changing definition of “appropriate equitable relief” under ERISA Section 502(a)(3). In the above case, Montanile, the high court addressed whether a plan fiduciary can recover medical payments made on behalf of a participant when the plan fiduciary has not identified third-party settlement funds still in the participant’s possession at the time the plan fiduciary asserts its reimbursement claim.

On 1/20/2016, the Supreme Court held in an 8-1 ruling that when a plan participant has spent — on nontraceable items such as fees for services or travel — all the settlement proceeds that could have been used to reimburse the plan, the plan fiduciary may not reach the participant’s other assets as a broader means of recovery.

Case Background

The facts of Montanile were mostly undisputed by the parties. Plaintiff, Board of Trustees of the National Elevator Industry Health Benefit Plan (the “Plan”), was an employee welfare benefit plan, which reserved for itself in its summary plan description (SPD) “a right to first reimbursement out of any recovery.” Montanile, a plan participant, was injured in a car accident, and the Plan paid out more than $120,000 in medical expenses on his behalf.

Meanwhile, Montanile retained counsel to pursue personal injury damages and ultimately settled for $500,000. When the Plan attempted to enforce its right to reimbursement and subsequent negotiations broke down, Montanile’s attorney notified the Plan that he would distribute the settlement funds to Montanile unless the Plan objected within 14 days. After the Plan failed to respond by the deadline, the funds were distributed to Montanile. The Plan then waited six months before suing under Section 502(a)(3)(B) of ERISA to enforce an equitable lien on the settlement funds, during which time Montanile spent most of the proceeds.

District Court Ruling

The district court in Montanile was facing a situation where restitution could theoretically expose Montanile’s general assets to a judgment: the third party settlement funds earmarked to reimburse medical expenses paid by the Plan had either been spent or comingled by Montanile by the time the Plan filed suit. Acknowledging the lack of Eleventh Circuit authority on point, the district court found that the Plan had a right to reimbursement on the grounds that “a beneficiary’s dissipation of assets is immaterial when a fiduciary asserts an equitable lien by agreement.” The Eleventh Circuit easily affirmed the decision in Montanile relying on its recent holding in AirTran Airways, Inc. v. Elem, 767 F.3d 1192 (11th Cir. 2014).

Supreme Court Ruling

In the Supreme Court, the issue became whether spending settlement funds could destroy the enforcement of a lien. Justice Thomas, writing for the majority, explained that:
• “… where a defendant has already spent proceeds that are subject to reimbursement — a restitution claim may only be asserted where funds or property in the defendant’s possession are clearly traceable back to the proceeds that were subject to reimbursement and, where such traceable funds or property exist, the plan can create and enforce an equitable lien over such funds or property.”
Rejecting the Plan’s arguments that ERISA’s general objectives, concepts of fairness and the fact that the equitable lien was by agreement – by virtue of being set forth the in SPD – justified a recoupment, Justice Thomas clarified that enforcing an equitable lien over a participant’s general assets is not “typically available” relief under the principles of equity.
The majority remanded the case back to the district court to determine “how much dissipation there was” and whether Montanile mixed the settlement funds with his general assets. So, there is still some possibility of recovery by the Plan.
Plan Should Have Acted More Expeditiously To Secure Funds

From a public policy and legal theory perspective, the broad question put to the Court in Montanile — what is “appropriate equitable relief”? — was unlikely to spawn a new “tracing” rule for all types of reimbursement claims. Instead, the Montanile decision demonstrates that all but one of the justices — Justice Ginsburg, who dissented in the case — are unwilling to turn ERISA Section 502(a)(3) into a damages free-for-all.
At the end of the decision, Justice Thomas explained that the Plan should have acted more expeditiously to secure the settlement proceeds before they were dissipated. That statement is the complete scope of Montanile: equitable tracing rules for plan reimbursement remain in place and plans need to act promptly if they want to be repaid.

What Does the Montanile Decision Mean to Plan Fiduciaries?
A narrow decision of this nature has two practical impacts for plan fiduciaries.
• First, SPDs should include language that puts participants on notice of the plan’s reimbursement rights in the case of a tort recovery and the obligation of participants to guard and not spend any medical expense funds received in a tort recovery that may be subject to the plan’s claim for reimbursement.
• Second, plan fiduciaries must anticipate the need to enforce and monitor the plan’s subrogation rights when plan assets are paid related to personal injury scenarios and should establish administrative procedures to carry out such enforcement and monitoring.
As an example of the importance of the second point, in AirTran, the plan only learned of the defendants’ full recovery — $425,000 instead of $25,000 — by accident when the defendants put a copy of the wrong check in the mail! It is incumbent upon plans to communicate with all parties in a tort suit, calendar important deadlines, and consult with outside counsel when third-party settlement funds are on the horizon.
Please follow this link to a comprehensive Jackson Lewis article concerning Montanile:

Anti-Assignment Clauses Bar Provider’s ERISA Claims

On January 7, 2016
By Carmen Castro-Pagan
An out-of-network health-care provider can’t continue with her claims under the Employee Retirement Income Security Act for unpaid benefits, fiduciary breach and failure to disclose documents against four health benefit plans, the U.S. Court of Appeals for the Eleventh Circuit ruled.
In the unpublished opinions issued Dec. 29 and Dec. 30, a three-judge panel affirmed the district court’s ruling dismissing the provider’s claims, and held that the participant’s assignment of benefits to a provider was void and unenforceable because the plans’ terms included valid anti-assignment clauses.
The cases are Griffin v. Health Sys. Mgmt., Inc., 2015 BL 428919, 11th Cir., No. 15-12138, unpublished 12/29/15 ; Griffin v. Gen. Mills, Inc., 2015 BL 428915, 11th Cir., No. 15-12157, unpublished 12/29/15 ; Griffin v. Southern Co. Servs. Inc., 2015 BL 430044, 11th Cir., No. 15-12135, unpublished 12/30/15 ; Griffin v. Focus Brands, Inc., 2015 BL 429997, 11th Cir., No. 15-12137, unpublished 12/30/15 .

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.

Texas Prompt Pay Law Not Preempted; Enforceable Against Self-Insured Health Plan TPAs

On June 17, 2015
EBIA Weekly
A federal district court has ruled that ERISA does not preempt the Texas Prompt Payment Act as it applies to TPAs of self-insured benefit plans. The state law generally requires “insurers” to pay benefit claims within 30 or 45 days (depending on the claim’s format), or face penalties. The TPA in this case received a demand letter from two health care providers alleging that the TPA owed them more than ten million dollars each in late-payment penalties. In response, the TPA filed suit seeking a declaratory judgment that the law does not apply to self-insured plans, or, if it does apply, that the law is preempted by ERISA. The court considered only the preemption issue, deferring to an earlier state court determination that the law applies to the TPA with respect to claims administered for self-insured plans.

As background, ERISA generally preempts state laws that “relate to” ERISA plans; certain state insurance laws are not preempted, but those laws generally do not directly apply to self-insured plans. The court focused its analysis on the “relates to” standard and explained that a law relates to an ERISA plan if it (1) addresses an area of exclusive federal concern, such as the right to receive plan benefits; and (2) directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries. The TPA argued that the Texas law addresses an area of exclusive federal concern because it undermines ERISA’s goal of achieving uniform regulation of ERISA plans. The court disagreed, finding that the imposition of late-payment penalties on a TPA does not affect the underlying plans. The court also rejected the TPA’s argument that the law affects the relationship among traditional ERISA entities, finding that the health care providers are not ERISA entities, nor are they “standing in the shoes” of plan beneficiaries. The court noted that the providers’ demands arose because of their contractual relationship with the TPA and emphasized that ERISA does not prohibit parties on the “periphery” of an ERISA plan from contracting with one another.

EBIA Comment: The court’s decision contrasts with a recent Eleventh Circuit ruling that ERISA preempts a similar prompt payment law in Georgia (see our article). The TPA in this case has filed an appeal with the Fifth Circuit, creating the possibility of a split between the federal appeals courts and eventual review by the U.S. Supreme Court. Self-insured plan sponsors and their TPAs and advisors should continue to monitor ERISA preemption developments as these and other cases make their way through the courts. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H (“Preemption Analysis Applied to Specific State Laws”); see also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”)

The Phia Group, LLC – 1st Quarter 2015 – The Stacks

On April 8, 2015
The Stacks

To Be, Or Not To Be … A Fiduciary
by Andrew Silverio, Esq.

The Employee Retirement Income Security Act (“ERISA”) provides the federal regulatory framework for private sector employee benefit plans.  As one of the primary goals of ERISA is to establish a uniform statutory framework for employee benefit plans, a major feature is the preemption of most state regulation which touches on employee benefit plans falling within its scope.  It is because of this that a self funded employee benefit plan under ERISA is essentially immune to most forms of state regulation, and must look primarily to ERISA (and of course, the Affordable Care Act in the case of health and welfare plans) for regulatory guidance.

Plan fiduciaries are those exercising discretionary authority over plan assets, plan management, or both.  ERISA holds these plan fiduciaries to a high standard; such fiduciaries have significant duties toward their respective benefit plans and their participants, and must carry out these duties prudently, faithfully adhere to the applicable plan document, and act in the best interests of the plan and its participants.  A significant aspect of this fiduciary status, and the reason it is so important to know whether one is acting as a fiduciary, is the personal liability imposed on fiduciaries for breaches of their duties.  In the context of a health plan, a breach of fiduciary duty can result in enormous damage to the plan, damages which can then be claimed from the responsible fiduciary’s personal assets.

Most agreements in the industry contain numerous disclaimers and indemnifications, purporting to evade any fiduciary liability and adamantly denying fiduciary status. However, many plans, TPAs and vendors focus far too much on contractual disclaimers and indemnifications, and too little on the nature of their actual activities. While it is required that an ERISA plan have at least one “named” fiduciary pursuant to its plan document, this is by no means the only way to attain fiduciary status.  “An entity’s status as a fiduciary hinges not solely on whether it is named as such in a benefit plan, but also on whether it ‘exercises discretionary control over the plan’s management, administration, or assets.’” Hartsfield, Titus & Donnelly v. Loomis Co., 2010 WL 596466, 2 (Dist. N.J. 2010), citing Mertens v. Hewitt Assocs., 508 U.S. 248, 252 (1993).

In addition to precluding any attempt to disclaim fiduciary status, ERISA also does not allow one to disclaim fiduciary liability.  See 29 U.S. Code § 1110(a), “Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.” Although this liability cannot be “extinguished”, it can be allocated, by one who understands the nature of the fiduciary status and its corresponding duties and liabilities. Pursuant to 29 U.S. Code § 1105(c), the “instrument under which a plan is maintained” may expressly provide for an allocation of fiduciary responsibilities (other than those of a trustee) among named fiduciaries.  Additionally, the instrument may allow such named fiduciaries to designate persons or entities other than named fiduciaries to carry out fiduciary responsibilities. More importantly, if a fiduciary allocates such a responsibility to another person, “…then such named fiduciary shall not be liable for an act or omission of such person in carrying out such responsibility…” 29 U.S. Code § 1105(c)(2).  In other words, once a named fiduciary properly delegates away a fiduciary duty, they are released from liability to the extent of the scope of the duty delegated.

They are not released from all liability, however.  The original fiduciary still has fiduciary duties in prudently selecting a party to appoint as a fiduciary, as well as following the proper plan procedure for doing so, and reasonably monitoring the actions of the appointed fiduciary.  Once a fiduciary duty is properly allocated, the original fiduciary can be held liable for a breach of that duty only through ERISA’s rules on liability between co-fiduciaries (or through his own breach in imprudently selecting or failing to monitor the designated fiduciary). Under these rules, one is liable for the actions of a co-fiduciary only if he knowingly participates in or conceals the co-fiduciary’s breach, enables the co-fiduciary’s breach through his own breach of fiduciary duties of prudence and diligence, or has knowledge of the co-fiduciary’s breach and makes no effort to cure the breach. 29 U.S. Code § 1105(a).

Once an examination of an entity’s activities in relation to the plan is complete, the next question is of course what to do about this liability.  An option is to identify activities which subject your company to fiduciary liability and manage this liability by delegating them out to another party as discussed above, making sure to follow proper plan procedure in doing so.  Another option is to acknowledge this responsibility and ensure adequate protections are in place, via various forms of insurance policies. It is important to note that the “fidelity bond” required by ERISA will not protect a fiduciary from personal liability.  This bond, required for any person who handles plan funds, is in place to protect the plan in the event of dishonest conduct which damages the plan.  It will not help the responsible party in the event of a breach.

No matter which course of action is undertaken, a thorough understanding of one’s responsibilities and liabilities in any given situation gives crucial insight into the true value of the services being provided.  There is a good reason agreements which openly assume fiduciary status and liability come with higher fees than those which disclaim such status.  If the activities to be performed under an agreement will subject one to fiduciary liability regardless of contract language, why not assume that liability in the agreement?  If assuming additional liability in the agreement, this risk and its potential costs should be taken into account in calculating the TPA’s fee.  Additionally, an entity armed with this knowledge is better equipped to assess the extent of the liability it truly wishes to take on.


Never More Important …

By:  Ron E. Peck, Esq.

Sr. VP & General Counsel

The Phia Group, LLC

As employers begin to seriously consider self-funding for providing health benefits to their employees, figuring out how to contain costs is a balancing act we must all master.

Before the Patient Protection and Affordable Care Act (PPACA) was implemented, carriers and employers knew there would be costs involved.  In the wake of these new expenses, many employers’ knee jerk reaction was to analyze the “Pay or Play” mandate, and realize that the penalties for not offering coverage was less than the cost they’d incur maintaining their policies.  Many savvy employers and brokers, however, learned about the benefits of self-funding.  No wonder that we saw growth in self-funding in Massachusetts following the passage of “RomneyCare,” and similar self-funded growth nationwide following the passage of “ObamaCare.”

As employers with healthy, low risk lives, chose to self-fund; so too did employers with high risk lives take advantage of the health insurance exchanges.  Paying a relatively small penalty to send costly employees to the exchange is an enticing option.  As this influx of costly lives flooded the exchanges, the hope had been that healthy lives would join them, balancing the risk.  Sadly for supporters of PPACA, the healthy lives remained (or became) self-funded.  Seeing this disaster as a risk to PPACA, many have joined forces with state insurance commissioners and the NAIC to make self-funding less attractive for otherwise healthy employee groups.  Due to the federal preemption created by the Employee Retirement Income Security Act of 1974 (“ERISA”), they have been unable to attack self-funded plans directly.  Instead, they have restricted the ability of stop-loss insurance carriers to offer protection to self-funded plans.  Without being able to secure stop-loss with a reasonable deductible, many employers who were interested in self-funding cannot accept the kind of increased risk they are now being asked to bear.  Only if the costs can be contained, can the risks inherent in a “higher deductible” stop-loss policy be deemed acceptable.

Some believed that by giving “everyone” insurance, the amount charged for medical care would decrease.  Once the number of patients with deep pockets increased, however, so too did prices.  Changing “who” pays had no effect upon “how much” is paid.

Six years following the passage of RomneyCare in Massachusetts, a so-called “cost control” or “Health Reform 2.0” law was passed; (the legal name is Chapter 224 of the Acts of 2012).  The bill sets annual spending targets, encourages the formation of accountable care organizations, and establishes a commission to oversee provider performance.

We can hope that we see such change at a federal level, but in the meantime, it falls upon us to identify ways to contain costs, and keep self-funding viable.  Health plans must renew their focus on such “classic” cost containment measures as:

– Subrogation & Recoupment of Funds from Liable Third Parties

– Overpayment Identification and Recovery

– Eligibility Audits & Fraud Detection


In addition, now is the time to consider “new” cost containment methods, such as:

– Revisiting How Out of Network Claims are Priced

– Revisiting How The Plan’s Network is Structured, and Negotiating Better Deals in Exchange for Steerage

– Carving Out High Cost Procedures, and Negotiating for Their Payment on a Case-by-Case Basis

– Focusing on Preventative Care, Wellness, and Other Low Cost / High Reward Benefits


By focusing on cost-containment, employers can take steps to reduce the risk they face, making the attack against stop-loss and self-funding less impactful upon our ability to self-fund.


UPDATE:  SCOTUS Denies CERT in the 2nd Circuit … Now What?

            By Christopher M. Aguiar, Esq.

A few months ago, the 2nd Circuit took it upon itself in the case of Wurtz v. Rawlings to throw a bit of a wrench in the ability of a benefit plan to remove a law suit brought to enforce anti-subrogation laws to federal court.  Industry pundits advocated for the Supreme Court of the United States to once again step in and resolve a pre-emption dispute relating to subrogation for an almost unprecedented 4th time in 15 years.

Unfortunately, this time it was not to be.  Just last week the Supreme Court denied an application to hear the case and now leaves a bit of a dispute in the law; essentially, the standard for removal to federal court is different in the 2nd Circuit than in almost any other federal jurisdiction in the country.  Self funded benefit plans can take solace in the fact that it seems the 2nd Circuit case does not apply to them, but plaintiff lawyers in the pertinent states are doing a great job at ignoring the part of the case that excepts those plans from this rule, so those handling subrogation claims in the 2nd Circuit must be prepared for a bit of a war to ensure their ability to preempt state law anti-subrogation laws continues unfettered.

Supreme Court upholds ERISA plan document statute of limitations

On December 20, 2013
By Andrea DavisIn

What can be viewed as a victory for plan sponsors, the Supreme Court ruled on Monday that statute of limitation periods written into plan documents are valid, as long as those periods are “reasonable.” The court, however, declined to define “reasonable.”