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 amilesky@phiagroup.com or (781) 535-5664 for all your plan drafting, subrogation, and general consulting needs.