The race is on for ERISA health plans!
Speedy action is critical for a group health plan that wants to recover the cost of benefits it paid for a covered individual injured in an accident caused by a third party. According to the U.S. Supreme Court’s 8-1 decision in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, a covered individual who receives court-awarded damages or a settlement can defeat the plan’s right to reimbursement by spending the money before the plan formally makes its claim.
The situation in Montanile is a familiar one for self-insured group health plans. Mr. Montanile was injured in an auto accident caused by a drunk driver. His self-insured ERISA group health plan paid $121,000 for his medical care as result of the accident. Mr. Montanile’s attorneys received a $500,000 settlement on his behalf, of which $240,000 remained after his attorneys were paid. The group health plan, relying on language in the summary plan description providing that the plan had the right to be reimbursed from the settlement proceeds, requested reimbursement from Mr. Montanile of the $121,000 in benefits paid by the plan. However, when the plan and Mr. Montanile’s attorneys could not reach an agreement to settle the plan’s claim, Mr. Montanile’s attorneys told the plan that the $240,000 would be released to Mr. Montanile if the plan did not object within 14 days. The plan did not file an objection in that 14-day period, so the $240,000 was paid to Mr. Montanile. By the time the plan sued Mr. Montanile six months later, Mr. Montanile had spent most of the $240,000.
The plan won at the district court and the Court of Appeals, which both held that the plan had an equitable lien against the $240,000. Because Mr. Montanile had spent the money subject to the plan’s lien, both courts determined the plan could recover the $121,000 from Mr. Montanile’s other assets.
The Supreme Court recognized that the plan language did grant the plan an equitable lien against the $240,000; however, according to the Supreme Court, that lien existed only as long as the $240,000 remained a separate, identifiable pool of money. Once the $240,000 was spent on “untraceable” items (such as food or travel) and not on “traceable” items (such as a car or real estate), the lien was eliminated. Any attempt by the plan to recover the $121,000 from Mr. Montanile’s general assets was a legal remedy, which the plan could not assert under ERISA.
In dismissing the plan’s various arguments, the Supreme Court noted that, in this situation, the plan had notice of its opportunity to file a claim before the $240,000 was released to Mr. Montanile, which would have preserved the plan’s lien on the identifiable pool of money, but did not do so. Had the plan taken action before the money was released to Mr. Montanile, the plan’s right to recover the $121,000 could have been preserved.
Based on the Montanile decision, an employer with a self-insured health plan should review procedures its third-party administrator has in place to identify claims paid as the result of accidents that could lead to third-party recoveries, and related procedures to keep track of litigation or settlement discussions initiated by covered individuals as a result of those accidents. The plan’s summary plan description should be reviewed to verify it has appropriate language in place obligating the covered individual to advise the plan of any litigation or settlement discussions in which the covered individual participates, and imposing an equitable lien in favor of the plan on any damages or settlement proceeds received by or on behalf of the covered individual. Finally, any time the plan finds out about a covered individual engaging in this type of litigation or settlement discussions, the plan should immediately file a claim against damages or other proceeds that the covered individual may receive, so that the plan’s claim will exist before the individual has the chance to spend the money and defeat the plan’s lien.