Recent Supreme Court Decision Results in Changes Concerning Right to Reimbursement
Plan Review Recommended for Employers with Self-Insured Medical Plans
By: James D. Silverman, Esq.
As a result of a U. S. Supreme Court decision made on April 16, 2013 (U.S. Airways, Inc. v. McCutchen) employers that sponsor self-insured medical plans should conduct a review of their health plan documents and summary plan descriptions (“SPDs”) and possibly amend them.
The decision dealt with a right to reimbursement. Consider the following case:
- Employer has a self-insured medical plan;
- Employee is in a car accident;
- Employer pays $65,000 for the employee’s medical expenses;
- Employee recovers $100,000 from a third party (such as an insurance company)
Is the company entitled to recover its $65,000 from the employee? The answer is “Yes” only if the plan has a properly drafted right to reimbursement.
Continuing this scenario, next, suppose that the employee is required to pay 40% of his recovery to his attorneys and keeps only $60,000. Is the employer entitled to $65,000, $60,000, or $39,000 ($65,000- 65% of the $40,000 in legal fees)?
The Supreme Court held that the plan document governs, rather than various equitable principles. If the plan document isn’t clear, however, then equitable principles, such as the common-fund doctrine, do apply. Under the common-fund doctrine, the employer would pay a share of the legal fees proportional to its recovery.
The bottom line is that self-insured plans are complex and employers should review health plan documents and SPDs in order to make certain that the documents are clear as to the employer’s right to reimbursement should a plan participant recover money from a third party.
James D. Silverman practices in Leech Tishman’s Taxation and Employment Practice Groups. He can be reached at 412.586.0711 or firstname.lastname@example.org. Please feel free to contact Jim with any questions regarding self-insured medical plans.
Leech Tishman is a firm dedicated to providing full-service commercial legal services to individuals, businesses, and institutions. We combine a deep understanding of our clients and their businesses with skilled legal counsel to find solutions. We offer legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employment, energy, environmental, safety & toxic torts, estates & trusts, government relations, insurance coverage & corporate risk mitigation, litigation, real estate, and taxation. For more information call 412.261.1600 or visit www.leechtishman.com.