The U.S. Supreme Court has ruled that the clear terms of an employer's group health plan override an employee's equitable defenses in determining the plan's right to recover amounts from a third party. This decision points out the importance of careful plan drafting in securing a plan's rights to recovery.

In US Airways v. McCutchen, an employer's self-funded health plan paid benefits for medical expenses incurred by an employee as the result of an automobile accident. When the employee recovered amounts from the other driver and from his own insurance company, the employer sought reimbursement for the full amount of benefits it had paid.

The employee argued that no reimbursement should be allowed because the third-party payments to the employee did not compensate him for the total amount of his damages. He also argued that the employer should be required to share in the attorneys’ fees and other legal costs that the employee incurred in making the recovery.

The Court decided that these defenses were subject to the terms of the plan. Because the plan's provisions applied to any money recovered from a third party, the plan had a right to be reimbursed for the benefits it had paid, whether or not the employee had been fully compensated. Because the plan did not address the subject of the employee's legal costs on recovery, however, the plan was required to share in those costs.

In light of this decision, employers should look carefully at the subrogation and third-party reimbursement provisions in their health, disability, and other employee benefit plans, particularly if the plans are self-funded.

If you have questions about the decision or its implications for your health plan, please contact Edward I. Leeds at 215.864.8419 or leeds@ballardspahr.com.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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