ERISA, FEHBA, Medicare (CMS) and Personal Injury claims

Whether you are a plaintiff or defendant with regard to a personal injury claim, it is important to determine whether there are any issues with respect to ERISA, FEHBA and Medicare.

Employee Retirement Income Security Act of 1974 (ERISA)is federal law which establishes minimum standards for pension plans in private industry and includes extensive rules with regard to federal income tax effects of transactions associated with employee benefit plans. Congress established this law with the intent to protect the interests of participants in employee benefits plans and their beneficiaries by requiring financial disclosure to them, establishing fiduciary duties with respect to the plans and allowing access to federal courts to obtain remedies. ERISA addresses pension plans in detail but also effects health care plans. Thus, ERISA applies to all employee welfare benefit plans offered by private sector employers or unions whether offered through insurance or a self-funded arrangement. ERISA’s preemption clause states that ERISA “shall supersede any and all state laws insofar as they relate to any employee benefit plan” which would include a health care plan.

Under an ERISA plan such as a self-funded health and welfare fund, i.e. union health insurance, a plaintiff can recover benefits due under the terms of the plan, enforce rights under the plan and receive a clarification of rights to future benefits under a plan. These health care plans outline when a participant must repay them. These plans typically include language such as when “you or your Dependent achieve any recovery whatsoever, through a legal action or settlement in connection with any sickness or injury alleged to have been caused by a third-party, regardless of whether or not some or all of the amount recovered was specifically for medicalor dental expenses for which Plan benefits were paid.” Moreover, it is not uncommon for the ERISA plan fiduciaries to require a beneficiary to sign additional documents before making any payment to a health care provider with respect to medical care for alleged injuries from a personal injury claim. These additional documents typically contain language which includes “I understand that the Fund must be reimbursed for medical benefits or for any benefits paid as a result of an injury or illness if any recovery is made for that injury or illness.” For example, a plaintiff in a state claim may have health insurance through a self-funded health and welfare fund.

If the health and welfare fund were to make payments to medical providers on behalf of the plan participant with respect to a personal injury claim, the health and welfare fund would be entitled to obtain reimbursement for all funds which were paid out to the medical providers. If the Fund was not reimbursed all the benefits that they paid on the claim, the fund would have the right to file a federal lawsuit seeking reimbursement of the funds they paid out on behalf of the plan participant. In practice, the fund would sue the former state claim plaintiff who is actually a plan participant. If this happens, the former plaintiff now turned defendant will most likely call their former attorney and sue them as well as the insurer, who insured the defendant in the state law claim, as third-party defendants in the ERISA case. A judgment in favor of the fund would require the former state law plaintiff to reimburse all funds their healthcare plan paid on their behalf as well as any other damages allowed under federal statute for ERISA claims such as attorney fees, interest and costs. It could be easy to overlook a potential ERISA claim; especially, if the plaintiff in the state claim is a dependent under an ERISA plan.

The Federal Employees Health Benefits Act (“FEHBA”)established a program to provide federal employees, federal retirees and their eligible family members with subsidized health care benefits. FEHBA has a broad preemption clause which is similar to the preemption clause in ERISA. Since the clauses are similar and because there is limited federal case law with respect to FEHBA, courts generally refer to decisions regarding ERISA’s preemption clause for guidance. A majority of federal courts have concluded the FEHBA preempts state law claims just like ERISA. Again, it is important to determine whether the plaintiff in the state claim is a direct beneficiary or dependent under a FEHBA plan in order to protect the FEHBA lien to avoid any further litigation to enforce the lien in federal court.

The Centers for Medicare and Medicaid Services (“CMS”) handles Medicare claims. With respect to workers compensation claims, CMS has established guidelines, such as being a current Medicare beneficiary, as to when CMS interests must be taken into account before the claim can be settled. If the plaintiff meets the threshold criteria for reporting to Medicare, the parties would be required to submit a proposal to CMS outlining various issues including the plaintiff’s injuries, their treatment, current physical condition and any expected future treatment arising from their injuries including prescription medication. CMS will review the proposal and make a determination as to what if any funds need to be placed in a Medicare Set-Aside trust to pay for future medical treatment related to the alleged accident. Besides being a current Medicare beneficiary, CMS has established other thresholds which require one to take into account Medicare’s interests before a workers compensation claim is settled.

If one fails to take into account Medicare’s interest, Medicare can deny medical benefits to the injured party for their injuries at any time in the future once they become a Medicare beneficiary. If one fails to take into account CMS’s interests with respect to their thresholds then CMS is authorized to file a lawsuit against “any entity” including a beneficiary, provider, supplier, physician, attorney, state agency or private insurer that has received any portion of a third party payment directly or indirectly if those third party funds should have been paid for injury related medical expenses. Moreover, any plaintiff attorney who fails to properly recognize Medicare’s interests can be liable for double damages. With regard to liability claims, liability insurance, including self insurance, no fault insurance and workers compensation insurance must register electronically with CMS by September 30, 2009. As of January 1, 2010 claims must be tracked by the insurers to determine whether injured parties are Medicare beneficiaries. All parties have to report these claims to CMS as of April 1, 2010.

Dating back to January 1, 2010, if a liability insurer obtained a lump sum settlement with a Medicare beneficiary for $5,000 or more, Medicare must be notified so that they are allowed to determine whether a Medicare Set-Aside trust must be established for the plaintiff with respect to future medical treatment for any of the injuries allegedly related to the liability claim. At this time, CMS has no plans for a formal set-aside process with respect to liability claims but it will review and approve Medicare Set-Aside trust accounts for liability claims. For every day that CMS is not notified, there is a $1,000 per day penalty for insurance carriers who fail to report settlements to Medicare within 60 days of payment. It is important to note that CMS is constantly issuing memorandums updating their policies and procedures with respect to Medicare Set-Aside trusts; thus, Medicare could ultimately issue a formal set of procedures for Medicare Set-Aside trusts for liability claims.

In conclusion, it is extremely important to determine whether there is an ERISA, FEHBA or Medicare issue with respect to a personal injury claim.