by Ron E. Peck, Esq.

Offset: Denying future claims to reimburse the Plan for claims it has paid prior to third party settlement.  It is a form of lien reimbursement.

Denial of Future Medical Claims: Denying future claims because they were caused by, and are the responsibility of a third party with whom the insured has settled or will settle, and thus for which the insured has removed liability from the third party and shifted responsibility onto him or herself.

Confusion regarding how a benefit plan and its administrator handle future claims resulting from an incident for which another party is or may become responsible is widespread.  The greatest mistakes administrators make is confusing “offset” with “future credits” and other future claims, as well as confusing subrogation with exclusions.

If the Plan settles with a responsible third party directly, rather than rely upon the Plan Member for reimbursement, it cannot offset or deny future claims.  In other words, the Plan can only recover for the claims it has paid, and whatever additional settlement funds it negotiates for.  In Davis v. Nepco Employees Mut. Benefit Assn’n,51 F. 3d 752 (7th Cir.1995), the Court of Appeals (7th Cir) held that when the plan member and insurer settled separately with the tortfeasor, and executed releases for future medical expenses, the insurer once again becomes responsible for future medical expenses.  So, a Plan that chooses to settle with a responsible third party directly is advised to take potential future claims into consideration when calculating a fair settlement amount.

A “lien” only entitles a Plan to recover claims it has already paid.  A lien, by its definition, cannot include future claims.  Rights of subrogation and rights to pursue reimbursement of a lien conclude when the parties involved settle with the responsible third party. Shell v. Amalgamated Cotton Garment, 43 F.3d 364 (8th Cir.1994). 

If a Plan wants to deny claims not yet paid, it cannot do so by asserting “subrogation” rights.  It can only do so by excluding, explicitly in the Plan Document, all claims arising from a third party’s negligence.  If a Plan excludes claims caused by a liable third party, or for which a third party is responsible, the Plan may deny future expenses caused by the third party; Qualls v. BlueCross of Cal., Inc., 22 F.3d839 (9th Cir.1994). 

The Plan should include language that it may – but is not required – to pay claims for which a third party is responsible.  Furthermore, the language can state that if the patient settles with the liable third party prior to the Plan actually paying a claim(s), the Plan can deny the claims or seek reimbursement directly from providers it has paid.  

The bottom line is that future medical expenses resulting from third party negligence is an exclusion issue – not a subrogation issue – and it must be put in writing; Sargeant v. International Union of Operating Engineers, Local 478, 746 F. Supp.241 (D.C. Conn. 1990).  Otherwise, the only “future meds” a Plan can exclude are those that are excluded in exchange for claims the Plan is due – which it paid prior to settlement with the responsible third party (offset).  A Plan’s right to suspend benefit payments when the beneficiary makes a recovery is determined solely by the language of the particular Summary Plan Description involved.

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This entry was posted by Adam V. Russo on Tuesday, September 23rd, 2008 at 10:29 am and is filed under Claims Procedures, Claims Review, Offset. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.