Personal injury lawyers are often confronted by health insurance subrogation liens. These are liens placed by third party administrators on behalf of the group health companies who have a right to reimbursement under the Employees Retirement Insurance and Securities Act. [E.R.I.S.A.] 29 U.S.C. §1132. Under ERISA, the plans have a right of repayment. The Federal Law in the 9th Circuit is quite defined when it comes to the rules of repayment to the plans. Injury attorneys have always fought the issue of repayment given that they have taken the risk and spent the time to recovery the health insurance’s monies. At a minimum, we feel that a deduction of at least the percentage of attorney fees should be discounted off the total lien amount. Thus, a 30-40% reduction would be fair. This reduction is known as the “common fund doctrine.” The reasoning is simple: we took the risk to the common fund comprised of insurance company payouts, the global case funds and should we should be entitled to the discount of the collection. Without the personal injury firm’s services, health insurance never gets anything. And, this argument becomes even stronger on accident cases with disputed liability.
The other sword used by injury attorneys is the “make whole doctrine.” This usually implies that the client was never made whole by the settlement or verdict because of policy limits issues, or because of liability/causation issues. So, a client may argue they were not made whole by the funds received, and therefore, the subrogation lien should be either discounted or waived. For example, if a client suffered a major injury (e.g. leg amputation) and the policy limits were $100,000.00 from the adverse carrier. Assume the “subro” lien was $40,000 for care rendered. One would argue the $100,000 does not adequately reimburse the victim for his/her loss—not made whole. Another example, is the case of the lumbar back surgery client who has medical of $250,000.00, yet had preexisting issues to the low back (e.g. a slip and fall 2 years ago resulting in a herniated disc at the same L5-S1 surgery site-and was possibly surgical then). Assume we collect only $150,000 for this case. The client is upside down—especially after attorney fees and costs. Certainly, we can interplead the funds, letting the Court decide the appropriate disbursement, but this does not give guidance on the “make whole” doctrine. Here, we would argue the risk of going to trial is too great and we all must compromise to achieve the best resolution. This make or made whole doctrine can be applied in State and Federal cases within the legal framework of the current case law. The Nevada case that follows this is Canfora vs. Coast Hotels and Casinos, 121 Nev. 771, 778 (2005).
When can we use the above doctrines to argue a reduction? Under the 9th Circuit Federal Court guidelines in Barnes vs. I.A.U.D.A. of California Heath & Benefits Plan, 64 F. 3d 1389 (1985), the specific words “made whole doctrine” and “common fund doctrine” in group health policies must be specifically mentioned under the exclusions. Most group health policies have been properly advised to put this language in the policy. Besides—who ever reads page 70 of the health policy? The Courts have ruled that if this language is not in the policy, it will be read into the policy. See Zurich American Insurance Company vs O’Hara, Ross & Pines LLC, 604 F.3d 1232, 2010. When it is not read into the policy the Court may also use the doctrine of equitable reimbursement pursuant to 29 USCS 1132. See Griggs v. E.I. Dupont and Nemour & Co., 385 F.3d 440, 446 n.3 (4th Cir. 2004). Therefore, it is mandatory that a true copy of the policy is obtained and read. Does it mention exclusion of these various items? If so, the lien is likely to be enforced. If not, then we must rely on the case law in interpreting what your client’s right are. When evaluating the made whole doctrine, “ the Nevada case Canfora includes what standards the Court will look at. In Canfora, the Court ruled that a burn victim was not entitled to subro-lien reduction when he obtained a settlement of $7M. There the Court reasoned he was made whole by the settlement. Thus, the court considers the injuries and the amount when deciding made whether one is made whole.
Medicare Liens have now become a Hotpoint with insurance carriers and attorneys given the strict recovery rules. Medicare is not to be ignored-ever. With recent laws requiring fines to attorneys and insurance companies, we are finding Medicare is often a named beneficiary on the settlement check or that lien is issued a separate check altogether. The irony with Medicare is that they will take an automatic reduction in their liens—quite different form the private arena. And, both ERISA and MEDICARE are Federal guidelines! Medicare will reduce the 1.) litigation costs, and 2.) the attorney’s fees from the lien. These are simple, but can take six months to deal with. Often a holdback of the full amount of the Medicare lien is required—then, once the discount is applied, and lien is confirmed, final accounting can be applied. Medicare liens are also sometime erroneous given they may contain bills for treatment unrelated to the case. Diabetes or cancer treatments are obvious non-motor vehicle treatment. These items needs to be circled—yes circled on the Medicare lists so the Medicare office can properly rule them out. (MSRPC.)
(MSA) Medicare Set Asides
Clients are only Medicare eligible if they are over 65 or qualify under a disability. In the personal injury world, if our clients are tragically injured, we are often dealing with Medicare if our clients are receiving funds at the time of settlement. An MSA account is a protective measure that provides a hold back of funds to satisfy Medicare’s ongoing lien. There are firms that specialize in MSA accounts and should be contacted for the protection of all parties. The medical bills and records are analyzed and computed such that a “reasonable figure” is held back. This figure is used often with the purchase of an annuity whereby the annuity will provide a future stream of income to offset the Medicare lien.
Blocked Trust Account vs. Special Needs Trust (SNT)
Nevada Law requires any funds be kept on behalf of minors in a “blocked financial investment” which “means a savings account established in a depository institution in this state, a certificate of deposit, a United States savings bond, a fixed or variable annuity contract, or another reliable investment that is approved by the court.” SEE NRS 41.200 (8). Thus, if you are doing a petition in State Court, the blocked trust account is the only remedy under statute. Judges have used their discretion in allowing for annuities in the financial planning of minors as it is often a better way of providing future income from a tax standpoint as well as protection from the 18 year old who has not financially matured. Given the bank failures of late, it seems to also be a bit safer than the blocked trust accounts! Blocked trust accounts are simple, but do not allow for financial flexibility.
Special needs trusts are just that: special need’s trust. When an accident victim has a special need for education, therapy, medical treatment, or other need that results from the underlying injury the trust is there for them. Special needs trust often require an administrator to “approve” what items it can pay on. This simplifies the accounting for the practicing lawyer and the legal system. There is an administrative fee, more legal fees in setting up the trust, and an