Mr. Graham, the Shanks’ attorney, says he approached Wal-Mart’s attorneys about negotiating a compromise, but was told the health plan wanted to proceed with the lawsuit. “We’re not contending that Wal-Mart isn’t entitled to a payment. We’re saying they’re entitled to one based on equity,” he says. Since Mrs. Shank wasn’t fully compensated for her damages in the first place, he argues, Wal-Mart should also expect only partial reimbursement. . . .
In August last year, U.S. district judge Lewis Blanton sided with Wal-Mart, ruling that when Mrs. Shank signed on to Wal-Mart’s health plan she was obligated to abide by its terms. . . . The Shanks lost an appeal before a three-judge panel in the 8th Circuit Court of Appeals in August and last month were denied a request for a hearing before the entire court. They plan to appeal to the U.S. Supreme Court, though only a small percentage of cases are chosen to be heard. “Accident Victims Face Grab for Legal Winnings” The Wall Street Journal (January 20, 2007)
Today’s WSJ carries a provocative article about ERISA health plan subrogation. In the featured case, Wal Mart sued an employee that had been injured in a serious accident to recover what it had expended on her medical care. According to the article:
A collision with a semi-trailer truck seven years ago left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank’s care.
Plan Rights Upheld
The Eighth Circuit affirmed a district court holding for the health plan in Administrative Committee of Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan v. Shank, 500 F.3d 834 (August 31, 2007). In that holding the Eighth Circuit concluded that the plan’s suit for recovery of the expended medical payments was both equitable and appropriate.
The holding was not particularly surprising in view of recent U.S. Supreme Court authority. Perhaps the most interesting part of the opinion was the rejection of the argument that Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006) supported a “make whole” interpretation of ERISA Section 502(a)(3). (Section 502(a)(3) of ERISA authorizes a civil action by a plan â€œparticipant, beneficiary, or fiduciary . . . to obtain other appropriate equitable relief . . . to enforce any provisions of this subchapter or the terms of the plan.â€
Ahlborn thus turned on the application of the federal Medicaid statute. ERISA, by contrast, does not limit the Committee’s right to reimbursement.
A Template For Plan Administrators?
The facts of the case are easily derived from a perusal of the article, so little would be gained here by repetition. Suffice it to say, the article does little for the retail giant’s public image, but analysis from that perspective would be redundant at best. More germane to the subject at hand, does the Wal Mart way suggest an approach that is beneficial to plan administrators as a group?
The answer is yes and no. On the positive side, the article demonstrates that ERISA plans can pursue full recovery of medical expenditures. Of course, after Sereboff, we knew that already. The Eighth Circuit case interprets the meaning of “appropriate” equitable relief in a manner that gives little advantage to participants. That outcome was welcomed by plan administrators inasmuch as some had contended the term should be construed to limit plan recovery in cases where the plan participant had not been “made whole” by the personal injury settlement.
Saving Money The Wal Mart Way?
On the other hand, most plan administrators will continue to find advantage in compromising recoveries where possible. Having represented plan administrators in litigation in such matters myself, my experience has been that plan administrators usually try to find a reasonable solution when plan participants are seriously debilitated and recovery funds are limited. The reasons are several, but here are two of the most obvious.
Unlike Wal Mart, most employers have to give some thought to legal costs. True, ERISA authorizes recovery for attorneys’ fees and costs, but the issue remains an important consideration. For example, the featured case in the WSJ article has traveled from the U.S. District Court, to the Eighth Circuit Court of Appeals, and after a petition for rehearing was denied, is now poised for a petition for review by the U.S. Supreme Court.
Also, most employers prefer not to sue their own employees if given a reasonable alternative. Thus, particularly where recovery resources are limited, the cases will be more likely resolved by compromise than by litigation.
And then there are less obvious reasons. For example, though self funded plans must be fully responsible for claims to avail themselves of ERISA’s preemptive force vis a vis state law subrogation restrictions, plan administrators may avail themselves of stop loss insurance. Thus, depending on the risk retention levels, the economics of the transaction as a whole will often result in a diffusion of the risk. While liability cannot be bifurcated, it can be mitigated.
Plan administrators have a fiduciary duty to preserve plan assets and defray expenses where possible. Despite the implication in the WSJ article, the great majority of health plan subrogation cases are resolved without litigation. In some cases, litigation is simply unavoidable where the parties have substantial disagreement as to the adequacy of plan language or applicable law, but these cases are the exception, not the rule. In my experience, most plans conduct ERISA subrogation programs without regular court appearances or unfavorable media coverage.
(Thanks to Professor Roger Baron, University of South Dakota School of Law for calling this article to my attention this morning.)
See also -:: Wal-Mart Takes All In ERISA Reimbursement Dispute With Minor Child Plan Beneficiary ; :: Wal-Mart SPD Deemed To Be â€œThe Formal Plan Documentâ€ But Release Terms Leave Open Issue On Remand ; :: A Health Plan Subrogation Reader ; :: Health Plan Subrogation Provisions: A Revue ; :: Essential Requirements For ERISA Health Plan Subrogation Language ; :: Court Denies Wal-Mart Administrative Committeeâ€™s Motions In Subrogation Controversy