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Healthcare Subrogation and Reimbursement and Why it Matters

By: Cindy Merrell, Esq.

This holiday season while I am visiting friends and family, I know that there will be the inevitable question out of pure politeness asking me how my work is going. When I first started in subrogation, I felt it was my mission to tell everyone who asked all about healthcare subrogation and my passion for it. Then I realized that I had lost my audience after the word subrogation.

Although I do not anticipate “subrogation” to appear in my child’s sight words this school year, I do think it is important that not only attorneys and those working in the healthcare industry understand the far-reaching impact of healthcare subrogation for the health plans, but also their employees and dependents.

What is Healthcare Subrogation?

Most self-funded employee welfare benefit plans contain a statement in their plan document which allows the Plan to recover benefits in the event a third party caused a member’s injuries. The strength of a Plan’s language is vital to the extent the Plan recovers from the proceeds of a settlement or judgment.

There is distinction between subrogation and reimbursement. The one key difference is from whom the Plan seeks recovery.

From Whom Does the Plan Seek Recovery?

Depending on the Plan language, typically, a health plan is seeking reimbursement from the at-fault party’s liability insurance company. For example, Beth is a member of her employer’s self-funded ERISA health plan. She is injured from a motor vehicle wreck caused by Bob. Beth’s health plan pays for Beth’s medical expenses. Beth then retains an attorney to pursue a bodily injury claim against Bob through his auto insurance company. Depending on the severity of Beth’s injuries; applicable state law; and Bob’s policy limits; Beth may also make a claim against her own auto carrier through her underinsurance policy.

If the Plan wishes to pursue subrogation, the Plan will make a claim directly against any potential source of recovery. In my example with Beth and Bob, the Plan would assert a claim for the amount of benefits the Plan advanced on behalf of Beth. Although subrogation appears to be more straightforward, it is not, and, typically, it is more costly with greater risk to the Plan which can run afoul of the Plan’s fiduciary duties.

Why Does the Plan Seek Recovery for the Medical Expenses Through Subrogation or Reimbursement?

Per federal law the Plan Administrator has a fiduciary duty to the Plan. This duty is to operate the plan solely in the interest of the participants and beneficiaries for the exclusive purpose of providing benefits and paying plan expenses.

In my example above, Beth’s health plan has paid for claims that someone else (Bob or his insurance carrier) may be responsible. When those medical expenses are recovered through either subrogation or reimbursement those recovered funds can be used for the benefit of all employees.

In other words, when the Plan’s liabilities are reduced through the subrogation/reimbursement, the fund can maintain the benefits for all employees at a lower cost. The benefits include reducing employees’ premiums, maintaining the viability of the Plan, and many other positive outcomes for both the employer and employees.

Although subrogation and reimbursement may not be a hot topic at holiday parties this year, it does matter to many employers and employees.