Career, Health/Life, Personal Finance

Knowhow: what you need to know about ERISA liens

ERISA

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This guide outlines what ERISA liens are, what ERIS does and doesn’t cover, and case study ERISA examples.

Individuals involved in a personal injury case need to understand ERISA liens, as they can impact the settlement. While healthcare-related liens play a role in almost every personal injury suit, an ERISA health insurance lien remains among the most difficult to handle. How will this loan affect a victim’s settlement? What do men and women need to know when it comes to this type of lien? 

What is ERISA?

ERISA

Enacted in 1974, the Employee Retirement Income Security Act (ERISA) establishes the minimum standards for qualified retirement and health plans in private industry. It does so to protect the assets of workers who pay into these plans while ensuring the plan fiduciaries don’t misuse the assets.

Under this act, a plan must share information about the features and funding of the plan with workers. It outlines the fiduciary responsibilities of the plan managers and calls for every plan to put forth a grievance and appeals process participants may use to obtain benefits. ERISA allows plan participants to sue for their benefits or when they believe there has been a breach of fiduciary duty. What do participants need to know about ERISA liens if they are involved in a personal injury suit?

Over the years, federal authorities have amended ERISA. For example, one amendment allows workers to continue health coverage for themselves and their families for a period after certain events, and the COBRA amendment is only one of many. The Health Insurance Portability and Accountability Act also modified the Employee Retirement Security Act to ensure workers cannot be discriminated against when it comes to their health insurance using factors that relate to their personal health.  However, these serve as only two of several amendments. 

What Doesn’t ERISA Cover?

ERISA only applies to privately held plans, not those that a government entity establishes or maintains or churches and retirement plans established solely for the purpose of complying with various unemployment, disability, and compensation laws. Furthermore, plans maintained internationally to benefit nonresident aliens and unfunded excess benefit plans aren’t covered under ERISA. 

How an ERISA Plan Differs From Traditional Health Insurance

ERISA health insurance plans fall into one of two categories. They may serve as a fully insured health plan or a self-funded employer plan. Either type of plan pays the enrollee’s medical expenses with no co-pay required. Employers often work with healthcare providers to receive services at a discount. If an employee has any questions regarding whether they have an ERISA plan, the human resources department of their employer can provide more information. 

Personal Injury Claims and ERISA Liens

An ERISA health insurance plan may provide a lien in a personal injury case. This presents a problem due to preemption principles. Any time there is a conflict between state and federal law, federal law comes out on top, as a result of the United States Constitution’s Supremacy Clause.

ERISA Liens

When a person is injured due to the negligence of another party, the victim’s health benefits plan may cover their medical expenses. If the victim pursues compensation from the responsible party, they often find they must repay any money spent by the plan on healthcare from the settlement they receive. This money must be paid back dollar for dollar.  A person may wish to know how this will affect their overall claim, and an attorney can help in gathering this information. 

Understanding ERISA Liens

First, the person must understand what an ERISA lien is, and the attorney provides the necessary explanation. They receive the healthcare coverage contract to ensure the plan qualifies as an ERISA governed plan. When reviewing the plan, the attorney looks to see if the plan is an insurance plan or is self-funded by the victim’s employer. Next, they determine whether the employer or insurer retains the right to obtain reimbursement from a third-party settlement. If so, the attorney reviews the paperwork to see if a specific recovery source is identified. Finally, they look to see if the make-whole or common fund doctrines have been waived. 

Next, the lawyer works with the victim to determine the plan’s claim for reimbursement. They look to see if the victim has a right to the claim and what settlement funds can be fought for. Certain factors may limit the recovery. After this is complete, the lawyer evaluates the reasonableness of any medical charges and reviews co-payments to ensure they are not included in the lien claim. Furthermore, they deduct any medical bills not paid by the ERISA plan. 

Equitable defenses often limit the lien claim. For example, if a victim is found at fault for some of the damages, known as comparative fault, the attorney negotiates down the claim. They do the same when the victim won’t be fully compensated for any injuries or damages, as the defendant will not be made whole. The common fund doctrine likewise comes into play at this time. The litigant may recover attorney fees from any fund that has been established, increased, or protected by them, which helps as the lien could decrease by the attorney fee percentage. 

Airways v. McCutchen

Today, more people run into ERISA liens when they win a personal injury case. US Airways, Inc. V. McCutchen made its way to the United States Supreme Court and impacted the way these liens will be handled. An ERISA plan has the right to recover benefits it previously paid when a victim wins a legal suit. The same holds when they overpaid LTD benefits. However, in order to recoup the benefits, the plan must contain those provisions. Therefore, the court found that US Airways could only make a claim against the true recovery after any legal fees were subtracted. 

Conclusion

Work with an attorney to protect the compensation you obtain. An ERISA lien could significantly affect the settlement dollars received, and no victim wants that. In fact, McCutchen actually owed money to US Airways after the attorney took their fee and US Airways received the funds it had paid for medical bills. He ended up worse off than before he filed the suit. Fortunately, the court made the airline pay its share of attorney fees to prevent this from happening. However, health insurers and employers now know how to word their contracts to ensure they are reimbursed. For this reason, an attorney is essential to ensure every victim gets the compensation they deserve.