Inconsistent SPD and Plan Documents Can Affect Reimbursement Rights
If the summary plan description (SPD) omits important provisions, such as subrogation and reimbursement, that are included in another document, the plan may not be able to compel beneficiaries to follow those provisions. In one such case, a federal judge shot down a plan’s denial after a participant refused to sign a subrogation agreement. The plan tried to impel him to sign the agreement before he had been treated for his injuries, but the SPD was silent on the issue of executing the agreement before submitting a claim. The plan document had the requirement that members must “execute and deliver such instruments and take such actions as the Plan may require to protect the Plan’s rights.” The court rejected plan arguments that inclusion of such language in the plan document complied with ERISA.
Complex Documents Can Affect A Plan’s Right to Reimbursement
In recent years, plan documents have become very complex. That’s because many welfare benefit plans provide multiple programs such as group-term life insurance, short- and long-term disability benefits, medical, prescription drug, dental vision and other health care programs, and more.
One of two things happens. Either plans summarize all programs and alternatives in a huge single summary plan description (SPD) that can run to hundreds of pages. Or more commonly, plans use a so-called “wrap” document establishing basic provisions applicable to all plans and incorporating booklets prepared by insurers, TPAs or HMOs.
Complexity can worsen when medical programs change their benefit structures, which they do on a frequent basis - often annually, especially for deductibles, coinsurance or copayments.
Generally, if drafting is kept up-to-date and is done carefully, nothing will go wrong. But what happens if the SPD omits important provisions, such as subrogation and reimbursement that are included in another document?
What happens when the wrap document does not state which document to refer to when the plan seeks to recover settlements or judgments due to injuries caused by third parties? Also, what happens if the specifics of provisions vary from year to year? Two recent cases came to different conclusions on the impact of such modifications on the rights of plans to recover benefits paid from tort settlements and judgments. They are Administrative Committee for the Wal-Mart Stores, Inc. Associates Health and Welfare Plan v. Salazar, 2007 WL 2409513 ( D. Ariz., Aug. 20, 2007); and Burgett v. MEBA Medical and Benefits Plan, 2007 WL 2815745 (E.D. Tex., Sept. 25, 2007).
The Facts of the Salazar Case
Alice Salazar was seriously injured in an auto accident and incurred more than $161,000 in medical expenses, of which the Wal-Mart plan paid more than $63,000. It also appeared that she would also need future medical care related to her injuries estimated at $40,000 to $50,000. Subsequently, Salazar settled her tort claim against the other driver for $250,000, the maximum liability of the insurer Wal-Mart claimed reimbursement of the benefits it paid based on subrogation and reimbursement provisions. Although it appears that Wal-Mart offered to settle its claim for $31,000 (something we hadn’t seen before in a case involving Wal-Mart), Salazar refused to reimburse Wal-Mart. The amount claimed by Wal-Mart was held in a separate account pending the outcome of Wal-Mart’s claim, and both parties moved for summary judgment.
The Decision
The court extensively reviewed the history of the relevant wrap documents over the period related to the claim, but it found that at all times, the SPD had adequate provisions to entitle the Wal-Mart plan to recover the amount it had paid on account of the accident.
Salazar tried to assert that she was not made whole by the settlement, but the court ruled that since she accepted the settlement amount, she could not make the assertion. Other arguments made on her behalf were also rejected by the court, and it ruled in favor of the Wal-Mart plan.
The Facts of the Burgett Case
Magan Burgett was a covered dependent under the MEBA plan when she was seriously injured in an auto accident, and as a result incurred medical bills of about $89,500. Her father refused to sign a reimbursement agreement, and so the plan refused to pay any benefits. Burgett sued to compel the plan to pay its benefits.
The plan document, titled “Plan Rules and Regulations,” had a subrogation and reimbursement provision that provided, among other things, that a covered person had to “execute and deliver such instruments and take such actions as the Plan may require to protect the Plan’s rights.” The SPD also had a subrogation and reimbursement provision generally consistent with the provision in the plan document, but which omitted the quoted requirement and said nothing else about the need for a reimbursement provision. It did, however, provide a cross-reference to the plan document, saying:
The reimbursement and subrogation provision is described here and in Article XVII-A of the Plan rules and Regulations. If you or your dependent has an injury or illness that someone else may be responsible for, you or your dependent and any attorney representing you or your dependent should read this Section and Article VXII-A carefully.
The Decision
The court ruled that under ERISA’s requirements, “the SPD must set forth all circumstances which may result in disqualification, ineligibility, denial or loss of benefits.” It found that SPD had no requirement that the beneficiaries or participants had to execute a subrogation agreement before having their claim for benefits processed. The court appeared to acknowledge that the plan rules and regulations provision could have been construed to require the execution of such an agreement, but still it held firmly that the SPD did not include that requirement. The court did not address whether the SPD’s provision quoted above incorporated that requirement by reference. Instead, it merely held that in the absence of the provision, the SPD controls, and thus the plan was required to honor the claim even though the plan participant did not execute the required subrogation agreement.
Implications
It is critically important for plan sponsors to be absolutely sure that, if an SPD is supplemented by or wrapped around multiple documents, the package must include every provision that could result in “disqualification, ineligibility, denial or loss of benefits.” A plan can do that by incorporating related documents (such as the booklets provided by insurers, HMOs or TPAs), but when it does so, it must be sure that copies of those documents have been distributed to all covered plan participants.
In addition, large SPDs and wrap SPDs should have detailed and easily accessed tables of contents and alphabetical indexes that are carefully constructed to direct the attention of plan participants to all provisions that could result in denial or loss of benefits. If plan sponsors are not careless and make sure that their wrap documents include all relevant provisions - including appropriate subrogation and reimbursement provisions. - it is more likely that courts will find, as the court did in the Salazar case, that insignificant differences between documents that were in effect when medical services resulting from an accident were provided won’t preclude a plan from recovering benefits paid.
It also should be noted that although the Salazar court cited precedent for its ruling the acceptance of the tort settlement precluded the injured employee from claiming she was not made whole, we had not seen such a ruling in previous cases. It will be interesting to see if such a ruling prevails in other jurisdictions when the applicability of the made-whole doctrine is at issue.