Plan sponsors, particularly those that sponsor self-funded health plans, should review plan document provisions in light of the recent decision of the Supreme Court of the United States in US Airways, Inc. v. McCutchen. In McCutchen, the Court may have reopened the door to some defenses commonly asserted by participants in cases involving subrogation rights under health plans. Subrogation rights allow a plan to “step into the shoes” of the participant to obtain a recovery of the plan expenses from a third party who caused an injury to the participant.
The following highlights the key points in the opinion:
The Court held that equitable rules will not override the clear terms of a plan. If the plan clearly disallows the use of a particular defense, then such defense should not be permitted.
Equitable doctrines including “double recovery” and “common fund” should not be applied where express plan terms provide for the contrary. The double recovery doctrine is used to limit a plan’s recovery to the portion of the settlement expressly designated for medical expenses, which may not be sufficient reimbursement for amounts the plan actually covers. Similarly, the common fund doctrine is used to reduce the amount reimbursed to a plan by a share of the attorney’s fees incurred in obtaining the third-party settlement.
The Court found that the plan’s provision for “first claim on the whole third-party recovery” was expressly contrary to, and precluded application of, the double recovery doctrine. However, the Court found that the plan was not clear as to the allocation of attorney’s fees and hence applied the common fund doctrine, reducing the plan’s recovery accordingly.
The decision provides helpful clarification with respect to subrogation rights and emphasizes the importance of precise plan language in subrogation provisions. In light of McCutchen, plan sponsors of self-funded health plans should review existing plan terms to ensure that they explicitly address equitable defenses such as the common fund and double recovery doctrines. Plan sponsors of insured plans may also want to review how their plans pursue subrogation rights because subrogation recovery can help the plan’s claims experience.