Seven Questions to Ask When Evaluating a Health Plan's Subrogation Provision

By Thomas H. Lawrence, Esq.

When one moves beyond the ability to enforce the subrogation/reimbursement provision in an ERISA-covered health plan under ERISA §502(a)(3), the dispute over whether a health plan may recover from a covered person--and, if so, how much--almost always turns on how well the plan's subrogation/reimbursement provision is written. Here are seven things to look for when evaluating whether your provision will entitle you to make a 100% recovery:

Scope of Obligation. Does the provision require that all covered persons (participants and dependents) reimburse the plan or does the provision limit the recovery rights to recoveries made by participants? If the provision does not require recovery from all covered persons, then you might be limited to recovering from the participant.

Sources of Recovery. Does the provision require reimbursement from any source, including recoveries from under-insured/uninsured motorist coverage or does the provision limit the plan's rights to liability coverage? Again, if the provision does not specifically allow for recovery from under-insured/uninsured motorist coverage--or, at the very least, allow for recovery from “any” third party--then you might be limited to recovering from liability insurance.

Priority of Payment. Does the provision specifically disclaim application of the Make Whole Rule, establish priority of payment, or is the provision silent on these issues? (It is important to note that the federal circuits differ widely on whether priority language is required). If you are in a circuit that requires a specific disclaimer, then the court may apply the federal common law Make Whole Rule and only allow you to recover if the covered person is “made whole,” which is often difficult for a plan to establish.

Attorney's Fees and Cost. Does the provision disclaim the Common Fund Doctrine or is the provision silent on this issue? (Like the Make Whole Rule, the circuits differ on whether such a disclaimer is required). Again, if you are in a circuit that requires a specific attorney's fee disclaimer, then the court will likely incorporate federal common law to reduce the plan's recovery by one-third.

Allocations. Does the provision state that any recovery shall be presumed to be recovery of medical expenses or does the provision limit recovery to the extent the covered person's settlement agreement earmarks the recovery as being for medical expenses? If the provision states that the plan may only recover to the extent the settlement agreement earmarks the recovery as being for medical expenses, and the settlement agreement allocates the recovery to pain and suffering, then you may be precluded from recovering.

Cooperation. Does the plan contain a cooperation clause? If not, it may limit the plan's ability to require the covered person to be proactive in helping protect the plan's rights.

Identifying the Res. In Blue Cross Blue Shield v. Carillo, the Eleventh Circuit held that a plan's subrogation provision must identify the fund from which the plan may recover. While Carillo was decided last August and no other circuits have followed it, it is a good idea to ensure that your provision is consistent with Carillo.

If your subrogation/reimbursement provision satisfies these seven areas, then there is a good chance that your plan is entitled to recover 100% of the medical expenses paid in subrogation/reimbursement matters. Whether you decide to demand 100%, of course, will require you to consider additional factors, including the amount of the recovery, whether future treatment will be required, etc.