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HEALTH PLANS AND PLAN PARTICIPANTS AFFECTED BY U.S. SUPREME COURT RULING

| Oct 10, 2013 | Firm News |



The U.S. Supreme Court handed down a decision in April, 2013, that reinforces the importance of expressly addressing the allocation of the costs of recovery for a third party injury suffered during the course of employment. In U.S. Airways, Inc. Employee Benefits Plan v. McCutcheon, the court ruled that when a company health planadministrator seeks reimbursement of benefits paid under Sec. 502(a)(3) of ERISA, based on the equitable lien created in that statute, the terms of the plan take priority over general unjust enrichment principles, or specific doctrines reflecting those principles. The Supreme Court also held, though, that where a plan is silent on allocation of costs for a lawsuit, those costs should appropriately be shared under the “common fund” doctrine. McCutcheon worked for US Airways and suffered injuries while on the job in a car accident caused by a third party. He sought and received reimbursement of $66,866 in medical expenses incurred because of injuries sustained. He subsequently filed a lawsuit against the third party and recovered $110,000, which was reduced to $66,000 after payment of the lawyer’s contingency fee. The US Airways health insurance plan included provisions whereby the company could seek reimbursement of medical benefits paid if a plan participant received compensation in a third party lawsuit. Accordingly, the administrator requested repayment of the full amount of $66,866. When McCutcheon refused to pay that amount, the plan administrator filed a lawsuit under Sec. 502(a)(3) of ERISA. McCutcheon argued in his defense that:

  • US Airway’s right to reimbursement only kicked in if McCutcheon received more compensation in the lawsuit than US Airways paid out in benefits
  • Even though the total amount recovered—$110,000—exceeded the amount paid out by US Airways, the actual amount received by McCutcheon was only $66,000.

McCutcheon alleged that US Airways was obligated to contribute its fair share of the cost of recovering the funds, so any reimbursement should be reduced by the applicable attorney fee. The trial court rejected both of McCutcheon’s arguments, but the U.S. Court of Appeals for the Third Circuit vacated the trial court ruling. The appellate court concluded that allowing US Airways to recover the full $66,866 would mean that McCutcheon would have to come up with money out of his own pocket to pay for some of his medical expenses, a finding that would unjustly enrich the US Airways health plan. The U.S. Supreme Court vacated the Court of Appeals ruling and sent the matter back to the District Court for trial.

THE IMPACT OF THE RULING

The Supreme Court’s ruling has import for both plan administrators and plan participants. In light of the ruling, employers need to review group health plans to evaluate language governing reimbursement, subrogation and allocation of costs. Likewise, employees/plan participants need to familiarize themselves with the provisions of group health plan documents, so that they are aware of any potential liens that may be placed on compensation obtained in a third party lawsuit.

Contact CraigAnninBaxter Law

At CraigAnninBaxter Law, Haddonfield NJ Health Law Attorneys provide comprehensive counsel to employers regarding enforcement of agreements in company health plans. We also represent employees who have suffered any type of work-related injury. To discuss your concerns and learn your options, contact us online or call our office at 856-795-2220.