Question: I have an ERISA policy that has a $250,000 stop loss. The policy language for the first $250,000 does have subrogation language, but does not exclude made whole or common fund principles, whereas the stop-loss policy does. Is it possible to argue that the self-funded $250,000 portion is governed by one set of subrogation rules even though the stop loss insurance policy has the appropriate made whole and common fund exclusion language. Basically, can I treat these policies differently, since they each have their own subrogation language?
Answer: Yes, you should be treating these policies differently, as they are different agreements between different parties. Stop loss policies are contracts between employer groups and stop loss carriers. Plan members (employees) are not parties to stop loss policies and thus they are arguably not bound by stop loss policies. The plan members are only bound by the actual plan document.
As you know, stop loss scenarios arise when an employer or Plan purchases insurance coverage intended to protect it for higher or catastrophic losses. In the case of a higher loss, a self-funded Plan would pay the entire loss/claims amount but would be reimbursed by the stop loss carrier for any amount above the dollar-level where the stop loss insurance policy took effect (known as the “attachment point”). Notably, the use of “stop-loss” insurance does not change a self-funded plan into an insured plan. Bill Gray Enter., Inc. Emp. Health & Welfare Plan v. Gourley, 248 F.3d 206 (3rd Cir. 2001), American Medical Security, Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997). Courts have held that even with stop loss arrangements, the Plan still has ultimate liability to plan participants. Thus a Plan may make a reimbursement claim for the entirety of benefits paid (including the amount reimbursed by the stop loss carriers). However, the stop loss carrier is not provided with a similar right to recover from a plan participant. The stop loss carrier is not a party to the plan between the employer and employee. Unless the plan language specifically states that the stop loss carrier is assigned a right of reimbursement OR the plan participant specifically agrees in writing to repay the stop loss carrier, the stop loss carrier should not have a right under ERISA or other state law to seek reimbursement from the plan member. Their sole remedy should be to seek repayment from the health plan if and when it receives reimbursement from the plan member’s tort settlement.
In your circumstance, only the health plan should have a right of reimbursement. Even if the health plan did provide for an assignment to the stop loss carrier (and this was expressly communicated to the plan member in the plan document), that right would be no greater than the health plan’s right and thus would be susceptible to the made whole and common fund principles.
In sum, we don’t believe the stop loss policy has a role in the equation because there is no privity of contract with the plan member. In determining reimbursement rights the only applicable policy is the official plan document and its terms. The Supreme Court’s recent decision in US Airways v. McCutchen makes this point abundantly clear.