The U.S. Supreme Court has held that a self-insured health plan may not exercise reimbursement rights against a plan participant after settlement proceeds recovered by the participant from a third party have been spent or otherwise “dissipated.”
In the case, the plan paid $120,000 toward medical expenses incurred by the participant after he was injured by a drunk driver. The participant later recovered a $500,000 settlement from the drunk driver. The plan was entitled to seek reimbursement of $120,000 from the settlement, but it did not take adequate steps to enforce its rights. By the time the plan brought suit to enforce its right to reimbursement, the settlement proceeds had been paid to the participant and were gone. The plan attempted to recover the $120,000 from the participant, but the court held that the equitable remedies available under ERISA did not include a right to obtain payment from the participant after the settlement dollars were no longer in an identifiable fund.
The take-away? A self-insured health plan with a right to subrogation or reimbursement must assert its claim while the proceeds of a judgment or settlement are still in an identifiable fund, such as the trust account of the lawyer representing the participant in the personal-injury action. Otherwise, there may be nothing left from which to seek recovery.
A copy of the court's opinion is available here.