High Court Decision Could Cost Health Plans Billions

By Joanne Deschenaux Jan 25, 2016
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The U.S. Supreme Court, on Jan. 20, held that a man injured by a drunk driver, who spent the money received in a settlement from that driver, may not be required to reimburse his health plan administrator for medical expenses the plan paid him. (Montanile v. Bd. of Trs. of Nat’l Elevator Industry Health Benefit Plan, U.S., No. 14-723).

In an 8-1 opinion, written by Justice Clarence Thomas, the high court ruled that when a participant in a health insurance plan covered by the Employee Retirement Income Security Act (ERISA) spends the funds recovered from a third-party settlement and the current location of those funds cannot be identified, the plan fiduciary may not bring suit for reimbursement from the plan participant’s other assets.

“The decision could cost medical benefit plans billions in lost recoveries. Those losses could then cause an increase in employee health insurance premiums, given the way that health insurance plans are underwritten,” Doug Haloftis, an attorney in Barnes & Thornburg’s Dallas office, told SHRM Online. “A significant reduction in reimbursement recoveries could, in fact, cost employees their health insurance: Each one percent increase in plans’ costs results in a potential loss of insurance coverage for about 315,000 individuals,” he added.

Appellate Decision Reversed

The high court was reviewing a decision of the 11th U.S. Circuit Court of Appeals that determined that Robert Montanile must pay back more than $120,000 to the Board of Trustees of the National Elevator Industry Health Benefit Plan after a 2008 accident in Florida. Montanile had reached a six-figure settlement with the driver at fault in the accident but had spent much of the settlement money on legal fees and on caring for himself and his daughter. The appeals court ruled that the summary plan documents gave the health plan a first-priority claim to the settlement payment and that the plan could therefore recover the money paid out, even if Montanile had already spent it on everyday living expenses.

In reversing the court of appeals, the justices said that the health plan in question would have sought a valid remedy had it “immediately sued” when the participant first came into possession of the settlement fund. Because the plan waited until after the participant had spent part of his settlement, the court held that the plan's ability to seek reimbursement was limited or possibly extinguished.

Justice Ruth Bader Ginsburg dissented from the majority opinion, calling its conclusions “bizarre.” She said that the majority opinion allows workers to avoid paying back their health plans by “rapidly” spending the settlements they receive from third parties on “nontraceable items.”

Plans Encouraged to Act Quickly

“It always made sense as a practical matter for plan administrators to be diligent in seeking reimbursement of expenses paid—if you don’t get the money, it might get spent,” said Robert Rachal, an attorney in Proskauer’s New Orleans office. But now, he added, “as a legal matter, you’ve got to get the money quickly or you won’t have a claim.”

In addition, the majority opinion does not distinguish between health insurance plans such as the one involved in the lawsuit and other types of ERISA-governed plans, such as those providing pension and disability benefits. This issue, which, according to Rachal, was debated at the oral argument in the case, may have to be sorted out by the lower courts and may lead to an increase in litigation. “This could apply to other plans, such as a pension plan that overpays,” Haloftis said.

Language of ERISA at Center of Dispute

Central to the case is a provision of ERISA that allows parties to sue for “appropriate equitable relief.” Courts have previously interpreted this provision to mean that plans cannot recover from an injured participant's legal settlement with an at-fault driver if the participant already has spent the money in question.

Under this interpretation, the one adopted by the high court here, a health plan can only seek an equitable lien on money that the plan participant still possesses—otherwise, the plan would be seeking money damages not allowed under ERISA.

In light of this decision, some plans are considering not offering coverage for medical expenses resulting from accidents caused by third parties, Haloftis said.

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.

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