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3077Health Insurance Subrogation - ERISA

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  • insurancelawyer
    Aug 7, 2014
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      2d Circuit Upholds NY Law Barring Health Insurer Subro

      The U.S. Court of Appeals for the Second Circuit unanimously reversed a trial judge and held that the Employee Retirement Income Security Act of 1974 (ERISA) does not preempt New York's recently-enacted statute that bars health insurer subrogation against personal injury recoveries. As a result, employer-sponsored health plans are blocked by the state law from recovering medical benefits from settlement funds.

      Wurtz v. Rawlings Co., 13-1695-cv, is a class action initiated in 2012 by personal injury plaintiffs who were covered by ERISA insured health plans.

      The plaintiffs sued three companies—the Rawlings Co., Oxford Health Plans and UnitedHealth Group—contending that New York General Obligations Law §5-335 trumped ERISA reimbursement rights. 

      G.O.L. §5-335 provides that a personal injury settlement "does not include compensation for the cost of health care services" or other losses that "are obligated to be paid or reimbursed" by an insurer. It also states that the benefit provider has no "right of subrogation or reimbursement against" the settling plaintiff.

      Health insurers have always argued that ERISA preempts state law and permits companies to seek reimbursement against individuals in New York, despite the shield provided under state law.

      ERISA, which established national standards for the administration of private pension plans and regulates employee benefits, expressly preempts any state law related to "any employee benefit plan." But it excludes those statutes that "regulate insurance."

      Under U.S. Supreme Court precedent, laws "regulate insurance" under the clause if they are "specifically directed" toward "entities engaged in insurance" and "substantially affect the risk pooling arrangement between the insurer and the insured" (Kentucky Association of Health Plans v. Miller, 538 U.S. 329, 2003).

      Last year, Eastern District Judge Joseph Bianco found that ERISA controlled and that §5-335 was not "saved" from preemption.

      Bianco held that §5-335 is not specifically directed at insurance since it regulates not only insurers, but all benefit providers, such as self-funded employer plans. He also held that the state law did not substantially affect the risk pooling arrangement, because it applied only to a subset of providers who had no statutory right of reimbursement and had not intervened in the settled action.

      The District Court ruling severely restricted the scope of §5-335, apparently limiting it to individually purchased insurance policies and a handful of state-based plans. Wurtz has been cited nationwide to challenge statutes similar to New York's, especially since the circuits were divided on a related preemption issue.

      The Second Circuit parted with the Third, Fourth and Fifth Circuits and sided with the Ninth in holding that §5-335 is not preempted by ERISA.

      The Second Circuit said §5-335 is clearly aimed at the insurance industry, and therefore meets the "specifically directed" test. Additionally, the judges rejected Bianco's analysis on the question of whether the statute "substantially affects" the risk pooling arrangement.

      "The test is not whether the law substantially affects the whole insurance market—the test is whether the law substantially affects how risk is shared when it applies," Walker wrote. "For example, even though only a subset of insured suffer mental illness, the Supreme Court has held that a law requiring minimum mental health care benefits regulates insurance and is thus saved from preemption."

      Comment:  Health insurers not only seek to subrogate against the settlements by personal injury plaintiffs -- they also try to subrogate against claimants' No-Fault benefits.  That, too, is prohibited, but for different reasons.

      Larry Rogak