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.