In two separate cases, courts have found that health plans may refuse to pay benefits if participants or their attorneys refuse to sign reimbursement agreements.  Some attorneys refuse to sign such agreements because they believe the plan is not entitled to fulfill reimbursement under applicable law.  However, in many cases, the plan then refuses to pay any further benefits.  The two cases are Cossey v. Associates Health and Welfare Plan, 2008 WL 276282 (E.D. Ark., Jan. 30, 2008) and Metal Technologies v. Ramirez, 2008 WL 153534 (E.D Wis., Jan 11, 2008).  

Cossey was covered by the Wal-Mart plan when she was injured in an auto accident.  Wal-Mart advised her of the SPD provisions requiring her and her attorney to sign a reimbursement agreement but they refused to do so.  Therefore, the plan did not pay any benefits for her medical care.  In reliance on a prior court decision, Southwestern Bell Customcare Health Plan, 83 F.3d 1002 (8^th Cir.,1996), and the district court’s decision original decision in Administrative Committee of the Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan v. Gamboa, the court ruled in Cossey’s favor.  

However, while this case was pending, the 8^th U.S. Circuit Court of Appeals reversed the district court’s ruling in the Gamboa case. The parties then argued about the impact of the appeals court decision in Gamboa and the court reversed itself and held that the plan could indeed refuse to pay benefits in the absence of a signed reimbursement agreement.

The district court reviewed the plan language and concluded that it did indeed permit the plan to withhold benefits in the absence of a reimbursement agreement signed by the plan participant and her attorney. The court concluded that the plan’s interpretation of its provisions permitted it to do just that, that the plan’s interpretation as not arbitrary or capricious, as alleged by Cossey. Further, the court found no evidence that the Wal-Mart plan interpreted its plan’s provisions in an inconsistent manner. In addition, the court held that the provision and the plan administrator’s interpretation of it did not conflict with any substantive or procedural requirements of ERISA.

The Court ruled that by signing the agreement, legal counsel was simply being required to acknowledge the existence of the plan’s reimbursement provisions and being committed to preserve the settlement funds until the claim for reimbursement is resolved. Thus, the court ruled in the plan’s favor.

In Metal Technologies, Inc. v. Ramirez, 2008 WL 153534 (E.D. Wis Jan 11, 2008), Ramirez was injured in a car accident and the Metal Technologies self-insured ERISA plan paid more than $49,000 for her medical treatment.  Ramirez brought an action against the other driver and settled her claim for the other driver’s auto policy limit of $25,000.  When the plan learned of the settlement, it asserted its rights to reimbursement and asked that the proceeds to Ramirez not be dispersed.  $12,000 of the proceeds were held in the law firm’s trust account.  The plan filed suit to recover those proceeds. Meanwhile, Ramirez incurred additional medical expenses of $3,900, which the plan did not pay.

Based on the undisputed facts, the court ruled that since Ramirez received $25,000 as a tor settlement related to the accident, the subrogation clause relieves her of any right to the settlement money until the plan is reimbursed for the benefits provided.  

Both decisions appear to be completely correct as a matter of both law and equity. However, many medical services are provided by health care providers based on the representation by patients that they have health coverage. Hospitals providing inpatient care admit patients and immediately check with insurer to confirm coverage.  Doctors and other health care providers generally rely on identification cards provided by the patients’ health plans. In all instances, the providers rely on the existence of health coverage.

Thus, if a health plan is able to deny benefits because a plan participant refused to honor a reimbursement obligation, as a practical matter it affects subsequent health care providers more than it affects the plan participant.  Of course the provider will seek to collect its fee or charges from the participant, but in most cases, it will be unsuccessful in doing so, especially if the amounts involved are large. This is because most plan participants do not have the financial resources to pay the provider’s bills.

Even though these cases many have unfortunate circumstances for providers, allocating primary responsibility for injuries to a party that negligently or intentionally caused the injuries is not improper even if the allocation can cause other problems.

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This entry was posted by Adam V. Russo on Tuesday, May 27th, 2008 at 1:07 pm and is filed under 8th, Signed Subrogation Agreements. 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.