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 pgcreferral@phiagroup.com 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 pgcreferral@phiagroup.com for all your self-funding needs.

The winds of change are coming, and they blow closer than ever. It seems so recent that we were all looking forward to 2014, and feeling confident that we had plenty of time to get things in order and prepare – both financially and in terms of compliance – to address President Obama’s sweeping healthcare[insurance] reform law. Yet here we are, clueless as ever and full implementation looming.

Since the passing of the law, various waves of reform have impacted our industry, sending many of our clients into panic mode as they hustle and bustle to update their plans and implement measures to ensure compliance. At this point, SBCs seem like a thing of the past; as new “bigger and badder” issues arise!

As we sit here, with the air getting a little chillier and January 1st getting a little closer, we once again await our inevitable lives without pre-existing exclusions, no more than 90 day waiting periods, no annual limits on essential health benefits, and for some of us a change in clinical trial coverage.

But let’s not rush to winter; the fall is upon us and that means conference season is too. As we do each year, we road warriors head out to the major industry events to talk and listen; to address your greatest concerns. This interaction is invaluable to us; so when you see us, please let us know how we can help. It is your concerns, your requests, and your pleas that inspire us to research and develop new services and cost containment strategies focused on growing your businesses.

The time to chat is now! There has never been a more appropriate time to tell us how we can help and for us to be your strategic partner. The potential for financial burdens on plans means we must seek new and innovative ways to save our clients money, and ensure the preservation of our industry.

The use of strong, effective plan language can be the first step to maximizing plan benefits and savings. A successful claims recovery process to ensure every recoupable dollar spent is placed back in the mix for future health claims, is another step you must take – and something we are happy to assist with.

If you have yet to work with The Phia Group, now might be a great time to start. We are here for the long run and are dedicated to the growth and stability of the employer based health benefits industry.

AMICUS UPDATE
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

By Jennifer McCormick, Esq. and Corrie Cripps (The Phia Group, LLC)

Background: United States v. Winsdor
On June 26, 2013, the U.S. Supreme Court in United States v. Windsor struck down “Section Three” of the Defense of Marriage Act (DOMA), which prevented the federal government from recognizing any marriages between gay or lesbian couples for the purpose of federal laws or programs, even if those couples are considered legally married by their home state. The other significant part of DOMA makes it so that individual states do not legally have to acknowledge the relationships of gay and lesbian couples who were married in another state. Only the section that dealt with federal recognition was ruled unconstitutional.

Potential implications for plan sponsors and administrators of self-funded medical plans

ERISA plans
• Nothing in Windsor appears to have altered how self-funded ERISA plans establish their rules regarding eligibility. Self-funded ERISA plan sponsors continue to have broad discretion in determining the class of beneficiaries who are entitled to benefits.
• Plan sponsors/administrators should ensure that any references to DOMA in their plans’ spouse or marriage definitions are removed.
• Plans that operate in states that recognize same-sex marriages should ensure that their plan’s definition of spouse clearly states the plan’s intent so there is no confusion among the plan’s participants.
• Regardless of the plan’s eligibility requirements, same sex partners are eligible for the FMLA in the 13 states that recognize same-sex marriage.

Non-ERISA plans
• Plan sponsors/administrators should review plan documents, summary plan descriptions, employee handbooks, benefit notices, and policy manuals for compliance with state laws, and to ensure clear communication regarding treatment of same-sex spouses.

DOL Technical Release 2013-04

DOL Technical Release 2013-04, issued September 18, 2013, provides that wherever the Secretary of Labor has authority, it is the intention of the DOL that: (1) The term spouse shall mean any individual “who is lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who were domiciled in a state that does not recognize such marriages.” and (2) The term marriage shall include “a same-sex marriage that is legally recognized as a marriage under any state law.”

TR 2013-04 indicates that recognition of “spouses” and “marriages” based on the validity of the marriage in the state of celebration, rather than based on the married couple’s state of domicile, promotes uniformity in administration of employee benefit plans and affords the most protection to same sex couples. TR 2013-04 does indicate that the term spouse and marriage do not include individuals in a formal relationship recognized by a state that is not denominated a marriage under state law, such as a domestic partnership or a civil union.

Timeline and application of DOL TR 2013-04 for ERISA plans

DOL TR 2013-04 does not indicate an application date; it states that the Department’s Employee Benefits Security Administration (EBSA) intends to issue future guidance addressing specific provisions of ERISA and its regulations.

However, IRS Revenue Ruling 2013-17 provides a prospective application date of September 16, 2013 (as it relates to tax issues). Further, the IRS provides that it is their intention to issue further guidance on the retroactive application of Windsor. In addition, the IRS ruling provides that they anticipate that future guidance will provide sufficient time for plan amendments.

• A conservative approach to the DOL TR 2013-04 application would be to align with the IRS application date of September 16, 2013. Thus, suggesting the modification of the definition of spouse and marriage for plan years beginning on and after September 16, 2013.
• An alternative approach to the DOL TR 2013-04 application is to only implement the DOL’s definitions of spouse and marriage if the plan’s current language is vague. For example, some plans reference their particular state’s definition of a legal spouse, which is acceptable; however, plans should no longer reference DOMA in their definition.

As with all general guidance, each employer should consider these issues in light of its own business needs and plan designs. Phia Group Consulting can assist plans in determining which approach best meets the plan’s needs.

By: Sean Donnelly (The Phia Group, LLC)

A recent and unsettling trend in the healthcare industry involves medical providers paying insurance premiums or contributions on behalf of their patients in order to ensure that the patient’s coverage remains active. Providers engage in this practice because it is largely cheaper and easier to prolong a patient’s coverage and continue charging exorbitant amounts to the patient’s health plan or policy than to try and collect directly from a patient who would otherwise no longer qualify for coverage – a struggle that providers view as being akin to squeezing blood from a stone.

Surprisingly, the Internal Revenue Service (IRS) actually condones this practice as reflected in its Final Rule issued in 64 Fed. Reg. 5160-01 (Feb. 3, 1999). The IRS’ Final Rule, which clarifies the accepted methods for paying for COBRA continuation coverage, makes it clear that employer-sponsored health plans must accept premium payments made by a provider on a qualified beneficiary’s behalf. The Final Rule states:

“Many plans and employers have asked whether they must accept payment on behalf of a qualified beneficiary from third parties, such as a hospital or a new employer. Nothing in the statute requires the qualified beneficiary to pay the amount required by the plan; the statute merely permits the plan to require that payment be made. In order to make clear that any person may make the required payment on behalf of a qualified beneficiary, the final regulations modify the rule in the 1987 proposed regulations to refer to the payment requirement without identifying the person who makes the payment.” (emphasis added).

Accordingly, it does not appear that providers are engaging in any unlawful practice by paying premiums or contributions on behalf of their patients, at least from the perspective of the I.R.S. However, group health plans may be able to discourage this practice by arguing that such payments by medical providers constitute taxable income to the patient.

The starting point for the determination of “taxable income” is the computation of “gross income.” Internal Revenue Code § 61(a) defines gross income as “all income from whatever source derived.” Gross income includes “income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as cash.” 26 C.F.R. § 1.61-1. There is no provision in the law that excludes insurance premiums from the category of “income realized in any form,” and insurance premiums fit in very well with the examples of income provided in the regulation.

Furthermore, the doctrine of “assignment of income” posits that money paid to and received by a designated agent, but which is really intended for and paid for the benefit of a third person, is considered taxable income for that third person. Thus, when a hospital pays an insurance premium or contribution on behalf of a patient, the patient is considered to have “constructively received” that income, and it ought to be reported on the patient’s income taxes. Consequently, insurers and group health plans should argue that a provider paying an insurance premium or contribution on behalf of a patient amounts to nothing more than a provider giving money indirectly to that patient.

Finally, insurers and group health plans can also argue that when a provider pays a premium on behalf of the patient, the patient is thereby relieved of his or her obligation to continue making payments in order to maintain coverage. As such, a patient who is relieved of his obligation to make premium payments realizes an economic benefit – namely, the provider’s assumption of the patient’s obligation to pay the premium amount.

Next time a provider tries to pay the premium or contribution for one of your policyholders or plan members to further their own commercial interests, make sure they know that the patient may not be off the hook financially – money indirectly received is nothing more than income for tax purposes.

August 26, 2013 – Comments made by regulators over the weekend at the summer meeting of the National Association of Insurance Commissioners (NAIC) in Indianapolis made it clear that ongoing pushback by SIIA and other stakeholder groups has dampened enthusiasm for new stop-loss regulation.

As an alternative, the NAIC ERISA Working Group agreed to move forward with the preparation of a white paper discussing regulatory issues associated with small employer self-insurance and the use of stop-loss insurance. To initiate this project, the Working Group recently surveyed all 50 states to obtain preliminary data regarding perspectives on regulatory activity.  
Survey results included the following:

• 23 states responded to the survey (AK, AL, AR, CT, CO, GA, HI, MI, MD, ME, MO, NC, ND, NE, NV, OK, OR, TN, UT, VA, WA, WI, and WY);
• 16 of the states responding (AK, AR, CT, CO, MD, ME, MO, NC, ND, NV, OK, OR, TN, UT, WA, and WI) reported having laws or policies regarding medical restrictions;
• The remaining seven states (AL, GA, HI, MI, NE, VA, and WY) reported either not having specific stop loss insurance laws or did not include specific requirements beyond filing requirements for stop loss;
• 12 states (CT, CO, GA, ME, MI, NC, NE, NV, OR, TN, UT, and WI) indicated some level of interest in self-funding in the small employer market since the passage of the ACA;
• 11 states (AK, AL, AR, HI, MD, MO, ND, OK, VA, WA, and WY) responded that the level of interest in self-funding in the small employer market was unknown or very little;
• One state (MI) indicated that it has seen an increase in self-funded MEWAs;
• Five states (AR, CO, NC, RI, and UT) have changed their stop loss rules recently in response to the ACA; These changes affect stop loss by either imposing specific limits or introducing restrictions or caveats regarding the writing of this risk.

​It was reported that work will continue on this White Paper, with the goal of completion by the end of the year. Individual states could then utilize the findings on an advisory basis.

In Other ERISA Working Group News….
DOL Presentation on New Employee Benefits Security Administration Final Rule on Ex Parte Cease and Desist and Summary Seizure Orders for MEWAs.  The DOL made a presentation to the Working Group and reminded them that the ACA authorizes the DOL to issue a cease and desist order ex parte (without prior notice or hearing), and the DOL may issue a summary seizure order when it appears that a MEWA is in a financially hazardous condition.  The DOL talked about MEWA regulations, and there was significant discussion regarding insolvent plans and the need to identify and police these better.  The DOL mentioned with regard to cease and desist orders and summary seizures that it has expanded its breadth of financial review to include the brokers as well as the fiduciaries of the plans.  However, the DOL noted the distinction between unfunded health plans, which pay claims out of their operating budgets, and self-funded health plans, which pay claims from a trust or separate account.  The DOL noted that it does not have a good method to locate these unfunded plans prior to an insolvency event.  Members of the Working Group asked if the DOL could develop regulations to address this deficiency, but the DOL said it did not think it was feasible to write such regulations.

Sham MEWA Plan Investigations.  The regulators then met afterwards in a private session to discuss sham MEWA plan investigations.