Wednesday, November 21, 2007
Roy Harmon of the Health Plan Law Blog brings to my attention a distressing Wall Street Journal article discussing the overlap between employer-provided health insurance plans under ERISA and the law of subrogation:
A collision with a semi-trailer truck seven years ago left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank's care . . . .
Instead, all of it is now slated to go to Mrs. Shank's former employer, Wal-Mart Stores Inc.
Two years ago, the retail giant's health plan sued the Shanks for the $470,000 it had spent on her medical care. A federal judge ruled last year in Wal-Mart's favor, backed by an appeals-court decision in August. Now, her family has to rely on Medicaid and Mrs. Shank's social-security payments to keep up her round-the-clock care.
As Roy points out, and some out there may be shocked to hear this, but this inequitable, horrendous outcome is considered appropriate, equitable relief for the Wal-Mart plan under ERISA and the states are helpless to do anything about it. Two reasons why:
1. The Scope of Equitable Relief under ERISA Section 502(a)(3): This provision provides participants, beneficiaries, and fiduciaries with the ability to sue for appropriate, equitable relief for violations of ERISA. Here, Wal-Mart's health plan is suing the Shanks (non-fiduciaries) under a reimbursement clause for the money the Shanks received from a third-party tortfeasor. Since 1993 and the Mertens case, the Supreme Court has looked to the "time of the divided bench" to define what equity means rather than what was available under the common law of trusts (which Congress intended ERISA to incorporate to make it a full remedial statue). As a result of this strict, literalist construction, the Wal-Mart plan had a claim for an equitable lien based on an agreement because the money in question was specifically identifiable, in the possession of the Shanks, and under the reimbursement clause, belonged rightfully to the plan. So "equity" in this bizarre world is served by the Shanks entire settlement fund being wiped out by the insurer.
2. State Law Preemption: States are impotent to change this state of affairs. In FMC Corp. v. Holliday, the Supreme Court found that a Pennsylvania anti-subrogation law was preempted by ERISA. The analysis is somewhat complicated under the Savings and Deemer clauses of ERISA, but suffice to say that state insurance regulation of self-insured plans, like Wal-Mart's, is no longer possible.
Finally, and not that it matters that much, but this is really a reimbursement clause case, not a suborgation case. Subrogation cases allow the insurance company of an employer to put themselves in the shoes of the insured and sue the third-party tortfeasor for the medical expenses the plan has paid out. When a company like Wal-Mart is self-insured, they place reimbursement clauses in their plans which require participants and their beneficiaries to pay back the plan for money they received from a third-party tortfeasor. The difference is that the self-insured employer does not have a claim unless the insured decides to sue, but once the insured does, the plan has the right to full reimbursement, regardless of whether the employee beneficiary takes home at the end of day more or less than what the plan demands.
In short, a truly horrible situation under ERISA, and not that far-fetched when one comes to understand the manner in which the scope of equitable relief under ERISA and ERISA preemption work together to create what I call the "Grand Irony of ERISA": that employers now use ERISA as a shield against employees; the same employees whose benefits ERISA was supposed to protect.
A Kafka-esque scheme is very there was one and yet another publicity black eye for Wal-Mart.
Finally, kudos to Roger Baron (South Dakota) for being quoted in the Wall Street Journal article.