The Employee Retirement Income Security Act (ERISA) is a federal law that provides the minimum standards for most voluntarily established retirement and health plans for companies to provide protection for individuals in these plans. 29 U.S.C. 1001, et seq. If you receive a personal injury settlement or judgement and an ERISA health plan paid for your medical care, the plan holder has a statutory lien against your settlement. Under federal law, your settlement must be used to satisfy the lien.
ERISA liens have long been one of the biggest sources of frustration for personal injury attorneys. The frustration is shared by clients, who struggle to understand how they are going to lose a substantial chunk of their recovery merely because they had medical insurance as an employment benefit. Insurers, on the other hand, see subrogation provisions as being necessary to balance out the overall insurance premium structure.
The United States Supreme Court has interpreted ERISA subrogation laws very negatively for personal injury victims. In the most tragic scenarios, courts have ruled that ERISA liens take priority over a catastrophically injured plaintiff’s need for lifetime care, consume a special needs trust, and lay claim to an entire settlement. The breadth of legal protection makes ERISA liens incredibly difficult to negotiate. In fact, the work negotiating an ERISA lien is often more complicated than settling the underlying claim itself.
Preemption is the key to why ERISA subrogation is different and more powerful than ordinary insurance subrogation. A lien preempts state law if the health plan is promulgated under ERISA and the plan fully self-funds all medical expenses incurred by its plan participants. Many ERISA plans rely on preemption principles to assert that they are under no obligation to reduce their lien claims, and purport that they are entitled to their entire reimbursement claim regardless of the circumstances of the case.
One exception to preemption is the ERISA “saving clause,” which saves state laws regulating insurance from the realm of federal preemption. On the other hand, the “deemer clause,” provides that a self-funded employee benefit plan is not to be deemed an insurance company. FMC Corp. v. Holliday (1990) 498 U.S. 52 held that the "deemer clause" exempts self-funded ERISA plans from state laws that regulate insurance within the meaning of the saving clause. "State laws that directly regulate insurance are "saved" but do not reach self-funded employee benefit plans because the self-funded plans may not be deemed to be insurance companies, other insurers, or engaged in the business of insurance for purposes of such state laws." Id, at 61. "[I]f a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer's insurance contracts; if the plan is uninsured, the State may not regulate it." Id, at 64. The take away from FMC is that if the plan at issue is self-funded, then only the federal law of ERISA will apply. If the plan is an insured plan, it is subject to state law regulation. This distinction makes determining whether an ERISA plan is self-funded or insured of great importance.
An insured plan is a health plan where the employer has purchased a group insurance policy for its employees from a health insurance carrier. A self-funded ERISA plan is one in which the employer completely funds the plan and pays for employee health care with its own assets. These two types of plans and their liens are treated differently under ERISA, It can also be surprisingly difficult to distinguish an insured plan from a self-funded plan.
ERISA is an extremely complicated law. ERISA's interaction with state law can be even more complicated. South Carolina laws protect settlement awards from certain liens; for example, an insured employee can petition the Department of Insurance to request that they deny enforcement of an insurer’s lien if enforcing the lien would be unfair to the employee. S.C. Code §38-71-190. If this statute applies, an employee can protect their settlement award from insurer’s liens by filing a petition. The same statute also places limits on the amount of an insurer’s lien. An insurer’s reimbursement is limited to the amount of benefits they paid to the employee before the employee received damages through their personal injury claim.
While ERISA preempts most state laws, it does not preempt state laws that regulate insurance companies. The South Carolina statute allowing an employee to petition the Department of Insurance is arguably a statute that regulates insurance, meaning ERISA cannot override it. If you feel that an ERISA lien would leave you with a settlement award that does not compensate you fairly for your injuries, you may be able to avoid the lien depending on what kind of ERISA plan you have.
Whether your plan is insured or self-funded matters because ERISA states that self-funded plans are not considered insurance companies. Therefore, state laws regulating insurance companies do not apply to self-funded plans. This means that ERISA will override the statute discussed above in the case of self-funded plans.
ERISA liens are difficult to negotiate. Success will depend greatly on the plan language and whether the plan is insured or self-funded. It is important to deal with liens early in a cases, in order to structure your settlement in the most advantageous way possible, and to ensure that plans are willing to accept a reduced recovery before finalizing the third party settlement.
Contact Palmetto State Injury Lawyers to receive a free thorough assessment of your case.