Saturday, December 8, 2012

Justice Scalia: "Because we have an agreement which says that the insurance company gets all the money."  

(Read: "Where's the money, Lebowski?")  

Photo by jvl-/
On November 27, 2012, the United States Supreme Court heard the case of US Airways, Inc. v. McCutchen.  By "heard," I mean that the attorneys for the parties argued their positions to the Supreme Court.  This case is very important, and the Court's decision will have a great impact on personal injury cases involving health insurance plans.  Here's how.

First, what is subrogation?  If you don't know, don't feel alone, some of the Justices asked the attorneys arguing the case the same question. Subrogation is a general term for a right of reimbursement.  Subrogation is a doctrine that courts use to allocate responsibility for payment according to who should bear the cost.  In the insurance world, subrogation occurs when an insurance company makes a payment that someone else is obligated to pay, and then tries to recover its payments.  Separately, a right of reimbursement is a right to be reimbursed for payments made, from specific funds.  In personal injury cases, the fund is the settlement that the injured person recovered from the at-fault party.

Health insurance companies often insert language into the insurance plan with the intent of creating a right of reimbursement.  These insurance companies want to be reimbursed for the medical benefits that they pay from funds obtained from third parties (i.e. the at-fault driver's auto policy, or the injured person's auto policy).  This is particularly true of what are called ERISA plans. ERISA is a federal statute that governs certain employer maintained health plans.  ERISA is complicated and lengthy, and it is often the subject of Supreme Court review.  It was again in McCutchen.  The issue in McCutchen was whether a court has authority to deny an ERISA plan full reimbursement for benefits, even though the plan language provides for full reimbursement.  To put a fine point on the issue, the following is a simplified version of a factual scenario that could give rise to this issue: (1) X has health insurance through his employer's plan; (2) the plan is an ERISA plan; (3) Y drives negligently and injures X; (4) X's health insurance plan pays for some of his accident related medical treatment; (5) X obtains a settlement from Y; and (6) X's health insurance company demands its payments made, from X's settlement.

In reading this, you might be surprised to learn that such a thing is even possible.  That is, that your health insurance plan may go years collecting premiums, and then, in the event that it is obligated to pay for your medical care, recover its payments made from you.  After all, you hired a personal injury attorney, you took on the risk of obtaining a recovery from the negligent driver, you took on the cost of obtaining a recovery, and while your case was progressing, the plan sat back, collected more premiums, and took no action to make its recovery.  Then, at the end it demanded a recovery without having shared in the risk or cost that you took on in obtaining the recovery.  What's worse, the plan's recovery might deprive you of full compensation, depending on how your case turned out.  In McCutchen, it was particularly ugly as due to the limited insurance funds available, and after attorney fees, McCutchen recovered less in settlement than the demand from his health insurance policy for reimbursement.

Courts have found this result unfair, and in Washington, courts have tools to resolve the unfairness.  For example, courts in Washington rule that because the insurance company is obtaining the benefit of the injured person obtaining a recovery (i.e. reimbursement), the insurance company is required to share in the cost of obtaining the recovery, including in the injured person's attorney fees and costs.  Only fair, right?  Unfortunately, ERISA jumps in and preempts (displaces) state law, meaning that an ERISA plan can avoid state laws, like the Washington cost and fee sharing law.  If successful, the ERISA plan can then recover its payments made without sharing in the cost of recovering them.  So again, the question in McCutchen is whether the court has authority to refuse to order full reimbursement to the ERISA plan, and require the ERISA plan to share in the costs of recovery.

Why does this matter?  It all goes back to how many hands are going to reach into your settlement, and what are they allowed to take.  If the Supreme Court in McCutchen rules that courts have no authority to apply longstanding doctrines designed to produce fair results, then ERISA plans win, they obtain full dollar for dollar reimbursement, and they can deprive injured people of their settlements.  If McCutchen wins, then individuals win, they get to keep their settlements, and all the insurance companies get is the premiums that you pay every month...wait, what's wrong with that?

P.S.  The quote at the top is Justice Scalia's explanation for why the plan should get what it wants, i.e. full reimbursement.

1 comment:

  1. Hey! I will be looking forward to visit your page again and for your other posts as well. Thank you for sharing your thoughts about personal injury lawyers in your area. I am glad to stop by your site and know more about personal injury lawyers. Keep it up! This is a good read.
    Lawyers can concentrate their practices to certain areas of law, which is typically true of personal injury lawyers. By limiting the range of cases they handle, personal injury lawyers are able to acquire specialized knowledge and experience. However, to be certified as a specialist in personal injury, a lawyer must complete a specialty certification program accredited by the American Bar Association (ABA).The individual states regulate the lawyers in their respective states and promulgate rules of professional responsibility. These rules are subject to the United States Constitution.
    Personal injury is described as any harm that a person experiences, including both bodily injury and invasion of a personal right that causes mental suffering, as a result of another person’s negligence. If you in some way were also negligent, this is called contributory negligence and reduces the liability of the other person. Negligence is defined as a violation of a standard of care that any ordinary person would take to ensure other’s safety. A Massachusetts personal injury lawyer can file a claim for any kind of bodily injury, disease or death.

    personal injury lawyers massachusetts