The Importance of Documentation of Group Health Plans: If there was any question about the importance of written documentation for employers sponsoring group health plans, it was settled by the recent Supreme Court decision in U.S. Airways, Inc. v. McCutchen. In that case, McCutchen was injured in an automobile accident and his employer-sponsored health plan paid $66,866 for his medical costs incurred as a result. The plan provided that if the plan pays benefits in connection with an injury and the injured party subsequently recovers damages from a third party, the plan participant was required to reimburse the plan out of any money received. McCutchen sued the third party and eventually obtained a settlement of $110,000 leaving him $66,000. The plan demanded that he pay over the entire amount pursuant to the plan’s reimbursement language.
McCutchen refused to pay, invoking certain equitable doctrines that would have defeated the plan’s claim to the entire recovery. The Supreme Court agreed with the plan’s argument that equitable principles cannot supersede the plain language of the plan. The Court added, however, that to the extent that the words of a plan fail to speak clearly or leave gaps for interpretation, equitable principles are available to assist in the proper interpretation of the document. So saying, the court held that the plan failed to clearly address the application of the “common-fund” rule1. Since this was a long-existing and well-established rule of equity, the Court concluded that parties must have intended for it to apply, in the absence of any unambiguous language that would abrogate it. Accordingly, the Court found that the plan was obligated to assume its fair share of the legal fees incurred to obtain the recovery.
While this case centered on a reimbursement issue, the Court made clear that “the agreement governs” when questions or disputes arise about plan provisions. In other words, the plan document represents a contract between the enrollee and the plan. If the language in that contract is clear and unambiguous (and does not otherwise conflict with ERISA), courts will tend to side with the plan if a claim is made that is contrary or conflicts with the plan’s intent.
This is certainly true with subrogation and reimbursement language, which is often the subject of disputes. Sponsors of self-funded plans should review with their counsel the subrogation, reimbursement, make-whole, common fund, attorney fee and cost provisions in their written documents to ensure that the plan accurately expresses the plan’s intent2.
However, this case is also a great reminder that documentation is important in every aspect of the plan. Thorough, ERISA compliant language describing eligibility, benefit provisions, participants’ rights, etc. can reduce or eliminate misunderstandings that often lead to lawsuits, plan audits or damaged employee relations.
While many employers believe only self-funded plans need to be concerned about documentation, it is just as important to sponsors of fully insured plans. For example, the plan booklet or health certificate issued by an insurance company is not necessarily an ERISA compliant summary plan description (SPD). This booklet or certificate may be missing important ERISA information and disclosures or language regarding the employer’s right to set and change employee contributions, change coverages or terminate the plan entirely. Therefore, all employers should perform a careful review of their plan documentation, ensure consistency between documents, and enlist the assistance of a competent consultant or ERISA attorney when necessary.
Compliancedashboard assists employers with documentation, highlighting required disclosures and frequent problem areas. Dashboard users should simply follow the system prompts and instructions to perform an ongoing review of their plan documentation.
Footnotes
[1] The “common fund” rule provides that a person who recovers money for a person other than himself is entitled to a reasonable fee out of the money recovered.
[2] The Court added a cautionary note: plans that seek to recover every penny they have paid without regard for the interests of the plan participant may effectively discourage any recovery efforts at all, leaving the burden and expense of collection entirely on the plan. McCutchen, for example, might not have pursued the matter if he had realized that he could win the case and walk away with nothing for his efforts.