Coordination of Benefits
Employee Benefits Series  THOMPSON  July 2011 | VOL. 19, No.3

Legal Brief
We are familiar with cases holding that state laws limiting reimbursement to self-funded ERISA health plans from tort settlements or judgments through the madewhole, common-fund and collateral source rules are preempted by ERISA. However, we are not familiar with cases where there is a conflict between the right of a self-funded ERISA health plan to recover the benefits it paid under its plan provisions and the right of a hospital to recover its unpaid costs through a state statutory lien. We now have a case that discusses and resolves that conflict. The case is Osterman v. Smith, 2011 WL 1343056 (C.D. Ill., March 17, 2011).The Facts
Lisa Osterman was seriously injured in an auto accident. She was covered under her father’s self-funded ERISA health plan, and was treated in Blessing Hospital in Quincy, Ill. Her medical expenses were slightly more than $432,000. Her father’s health plan paid either about $222,500 or about $240,000 (the different amounts appear in the opinion at different places). The court’s opinion does not indicate how much of that amount was paid to Blessing Hospital, but the hospital was seeking only about $84,000 of unpaid expenses. It’s possible that the rest of the plan benefits were paid to physicians or other medical providers.
The Ostermans filed a claim under the under-insured motorist coverage of their auto insurance policy and received an undisclosed amount from that source. They filed a lawsuit in state court claiming that the liens of both the health plan and Blessing Hospital were invalid. The health plan sought to remove the action to the federal district court to seek reimbursement of benefits it paid from the settlement proceeds paid by the auto insurer. Blessing Hospital, with the Ostermans’ support, moved to remand the case to the state court. The matter was referred to a magistrate.

The Decision
The magistrate ruled that ERISA completely preempts the remedies for individuals who receive benefits under ERISA qualified plans. He concluded that when the Ostermans sought to challenge the plan’s right to subrogation, it put the following issues before the court: their rights to benefits under the plan, their obligations under the plan to reimburse the benefits paid by the plan from tort settlement proceeds, and the plan’s own subrogation provisions. He concluded ERISA preempted state laws regarding those issues.
He then concluded that the only federal question was whether the plan’s subrogation lien rights extend to the under-insured motorist proceeds. Since the plan and the plan administrator and its agents were the only entities required to consent to the removal of the action from state to federal court, he recommended that Blessing Hospital’s motion to remand should be denied.

Implications
The opinion appears to correctly analyze the applicable law. Since the under-insured motorist coverage of the Ostermans’ auto insurance coverage is involved, the amount payable by the auto insurer may be small relative to the hospital expenses she incurred. If so, the entire settlement amount likely will be applied to partially reimburse the health plan. That would mean that the Blessing Hospital, the Ostermans and their attorneys probably won’t receive anything as a result of the tort settlement.

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This entry was posted by cmonfils on Monday, September 19th, 2011 at 12:40 pm and is filed under ERISA, Self-Funding. 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.