For attorneys seeking to resolve an ERISA lien, the funding status of an ERISA plan will have a pivotal impact on lien negotiations. ERISA plans will generally be self-funded ERISA plans or will offer benefits through a purchase of insurance. Whether the plan benefits from federal preemption of state antisubrogation laws will depend in large part on the plan’s funding status.
The complexities of ERISA remain a mystery to many personal injury attorneys, but understanding how funding status impacts an ERISA plan’s subrogation rights will be a major benefit when seeking a reduction of an ERISA lien.
A Primer on ERISA Plans
Enacted in 1974, ERISA serves a key role in regulating employee benefit plans in the United States. It is a far-reaching federal statute that touches upon most employee benefits plans. In essence, it sets forth the rights and responsibilities of plan participants and plan administrators.
For personal injury attorneys facing an ERISA subrogation or reimbursement interest, there are some key factors to investigate.
Chief among these is the funding status of the employee benefit plan. The way the plan is funded will dictate to what extent state law may apply to constrain the plan’s reimbursement interest.
Self-Funded ERISA Plans
Diving deeper into ERISA plans, we find two primary types: self-funded and insured.
An employer entirely finances a self-funded ERISA plan through contributions. Instead of purchasing a group insurance policy, the employer takes on the direct financial responsibility for covering employees’ claims. Typically, a dedicated account holds the funds set aside for these claims, ensuring the availability of resources when needed.
The main characteristics of a self-funded ERISA plan include:
- Solely funded by employer contributions.
- The employer assumes direct financial responsibility.
- The plan pays claims directly from a dedicated account.
Insured ERISA Plans
In contrast, insured benefit plans operate by purchasing group insurance for the plan participants. Under this arrangement, the employer buys an insurance policy from an insurer. This insurance company then assumes the financial risk and responsibility for paying claims.
Key features of insured ERISA plans are:
- Benefits are provided through group insurance.
- Financial risk shouldered by the insurance company.
- An insurance company pays claims on behalf of the employer.
The Legal Distinctions and Their Impact
The distinctions between self-funded and insured ERISA plans may have profound legal implications, especially concerning state laws regulating insurance.
Federal law, specifically ERISA, primarily governs self-funded plans, and exempts them from most state insurance regulations. However, insured plans may be subject to both federal ERISA regulations and state insurance laws.
Three pivotal ERISA provisions guide the relationship between these plans and state law:
- The Preemption Clause: This clause preempts state laws relating to any ERISA-covered employee benefit plan. ERISA 514(a), 29 USC 1144(a).
- The Savings Clause: Certain state laws, especially those regulating insurance, banking, or securities, are “saved” from preemption by this clause. ERISA 514(b)(2)(A), 29 USC 1144(b)(2)(A).
- The Deemer Clause: This clause ensures that no self-funded ERISA plan is deemed an insurance company. ERISA 514(b)(2)(B), 29 USC 1144(b)(2)(B).
F.M.C. Corp. v. Holliday, 498 U.S. 52, 57 (1990).
Therefore, an entirely self-funded ERISA plan will benefit from complete ERISA preemption. If the plan only offers benefits through a purchase of insurance, then the plan would be subject to state law regarding subrogation and insurance. If insurance partially funds the plan along with self-funding, the type of insurance policy involved determines the applicable law.
How to Determine the Funding Status of an ERISA Plan
To discern the funding arrangement of an ERISA plan, look to the plan’s latest Form 5500, available on the Department of Labor’s online database.
If the sole boxes checked are “Trust” or “General assets of the sponsor”, the plan is entirely self-funded. Conversely, if only the “Insurance” boxes are marked, the plan is fully insured. Mixed plans, with combinations checked, require a deeper dive into the Schedules for clarity.
What if the ERISA Plan is partially self-funded and partially insured?
When an ERISA plan is both self-funded and insured, the type of insurance in play determines the extent of ERISA preemption. Generally, a plan remains self-funded and subject to ERISA preemption if the insurance benefit is either separate from the health benefit or is a stop-loss policy.
For instance, if a plan offers ancillary benefits like life insurance or prescription discounts through insurance, the plan remains predominantly self-funded. These separate benefits do not affect the funding status of the health coverage.
Further, the plan will still be considered self-funded if it purchases a stop-loss policy for healthcare coverage.
Practical Implications for Personal Injury Lawyers
Knowing the funding status of an ERISA plan is critical to negotiating a health insurance lien.
First, if insurance funds the plan, a personal injury attorney should aim to apply any state anti-subrogation laws to reduce or constrain the plan’s subrogation interest.
Second, if the plan is self-funded, a personal injury attorney can still question whether the plan is fully self-funded. In addition, an attorney can reference anti-subrogation laws as persuasive as to how the plan sponsor should administer the plan.
In conclusion, neglecting to investigate or mention funding status in a negotiation can significantly disadvantage a plaintiff when seeking to constrain a plan’s reimbursement interest. By having a working knowledge of this key issue, personal injury attorneys can ensure they are taking meaningful steps to preserve settlement proceeds for their clients.