What is Subrogation?
Subrogation is where a service provider, known as a subrogation carrier steps into the shoes of an original party to recover any/all legal rights, remedies and recoveries, such as medical costs that were originally paid by another party, such as a benefits plan. Another way to ask the question is “what is subrogation in health insurance?” We’ll answer these questions here, so prepare to learn all about subrogation and the way is effects the Plans and the people involved.
ERISA Health Insurance Plan Subrogation
Here’s an example: John is victim of an accident, a car driven by Paul crashed into him while he was driving. John sustains injures from the accident. John goes to the hospital and provides his health insurance card during the check in process. John’s health insurance covers the costs of John’s treatment. But wait, John’s health insurance isn’t rightfully responsible for those fees because Paul was at fault for the accident and since the accident. So how is this sorted out? Well, that’s where subrogation steps in to make sense these situations by getting money back from any potential third party when the right arises.
Why is Subrogation Important?
Subrogation is important to avoid messy hearings, trials and expensive litigation whenever possible, while still securing the top dollar return your company’s health plan is entitled to. Subrogation teams work from the day the accident is reported to help make this possible. ERISA health insurance plan subrogation helps to keep your plan stable, operating smoothly, and cost-effectively.
How Does Subrogation Work?
John’s health plan has a subrogation provider, they may argue an ERISA-covered Employee Benefit Plan has a Federal right to reimbursement, due to the preemption laws and structure of the Health Plan.
A subrogation service provider (also referred to as a subrogation vendor) assumes the rights and remedies of their client, John’s health plan, to pursue every avenue of reimbursement. Specialized demand letters, securing liens on third party insurers, leading negotiations against attorneys, and other methods may be used in order to secure portions of a potential settlement.
Dedicated health plan subrogation providers are experts specialize in maximizing these returns for their clients, the health plan.
How Does Health Plan Subrogation Manage Costs?
Subrogation is a proven method to manage ERISA health insurance plan costs. It allows the liability associated with the payment of medical costs to be shifted to the appropriate party. An effective subrogation vendor can save your plan from paying out when a responsible party is present. This helps health plans to maintain cost-effective premiums. The benefit recovery process of a health plan is called subrogation. And the groups executing this process are called subrogation vendors
Health plans and insurers often pay unnecessarily medical expenses when a 3rd party is responsible. Whether the claimant is injured in an accident or while under hospital care, this is a case for subrogation. Currently subrogation tends to be underused in the health plan space. With the growth of the industry, there is ever expanding opportunity for your health plan to benefit. Similar to the industries where subrogation traditionally takes place, such as auto insurance, workers comp, and property insurance. Now subrogation is a standard.
Unfortunately, ERISA self-funded health insurance plans are often lacking the expertise and resources needed to properly identify and pursue recovery opportunities. Especially in high value, complex claims. Examples often involve harm caused as part of the treatment which resulted from an accident. Including, side effects of prescription medication, faulty DME, infection and other technically complicated scenarios.
The compounding effect of these costs can be significant. Especially for plan over 20,000 FTE in size, in terms of a the plan’s claims and underwriting profile. Adverse impacts to the utilization of a plan will affect the cost of the plan, the design of the plan, and the benefits available to participants. Lasting far into the future.
Healthcare Trends, Now and Then
Healthcare cost were only $27.2 billion in 1960 making up a mere 5% of the total U.S. GDP. As of 2017, healthcare costs grew by 128x to $3.5 trillion. Making healthcare among the largest industries in the U.S. equal to nearly 20% of the U.S. GDP today.
In turn, health plan premiums in the United States mirrored this growth. The ramping of cost effect premiums, benefits, jobs and earnings for both the employers and the employees.
Health Plan Subrogation, ERISA Self-funded Health Insurance Plan
Today it is common for a health plan to include a right of subrogation clause. This allows the plan to recover healthcare benefits given to a plan member if the employee has received a third-party, personal injury recovery.
When the plan member is injured as a result of a responsible third party, benefits will not be paid, except if the member agrees to pay the health plan back for any recovery in writing. Provisions such as these are built upon the rights afforded by ERISA. As are the health benefit plans provided by employers and unions.
The Employee Retirement Income Security Act is the federal statute which regulates all employee benefits plans. It includes self funded plans that provide medical benefits to employees. 29 U.S.C. § 1002(1) and (3).
ERISA preempts state laws, with certain exceptions, in relation to employee benefits plans.
Health Plan Subrogation vs. Fully-Insured Plans
Insurance company funded health plans can be governed by state laws designed to regulate the industry. In contrast, when a health plan is funded by insurance purchased by the employer or a union, it is treated as any other group health insurer.
These differences determine whether a subrogation claim is enforceable. A self-funded plan has more flexibility whereas plans funded by insurance companies are routinely subjected to laws which may limit an insurer’s right to subrogation, or may limit or eliminate the insurer’s recovery opportunity. This includes the made-whole doctrine, a common fund doctrine, and anti-subrogation statutes.
Even though non-ERISA health plans do not receive the specific coverage provided by ERISA preemption and are subject to state laws, there remains significant recovery opportunities for an insurer or fully-insured payer who provides health care benefits to plans and participants in several jurisdictions.
Both fully-insured and self-funded health plans have significant opportunities to improve give the unique legal landscape and rapid growth of the healthcare space. Vengroff Williams is a health plan subrogation thought leader, we are here to answers your ERISA, subro, and plan related questions. Contact us today.