The Supreme Court ruled 5-4 this week that James McCutchen, a U.S. Airways, Inc., employee does not have to pay his health plan back all of the money he recovered following a car accident.
The case raised the issue of whether a benefit plan administrator is entitled to full reimbursement for payments made to a plan participant injured in an accident where the participant sues and recovers damages from a third party.
According to the decision, the health plan has a right to be reimbursed, but McCutchen should be able to charge his health plan for part of his lawyers’ fees.
“The Court basically said two things: the plan is a contract between the employer-plan sponsor and the employees and, pursuant to that contract, if the plan says ‘we’re going to recover, dollar for dollar, what we paid you as soon as you recover, regardless of the circumstances,’ that should be enforced,” says Myron Rumeld, a lawyer with Proskauer. “That’s the broad proposition the employer community is taking from the case.”
Secondly, and more specific to this particular case, “the majority of the justices said ‘look, in this case, we don’t find the plan language so clear as to whether it was intended to mean a recovery before taking into account the attorneys’ fees that were spent, or after,’” says Rumeld. “… in this particular case [the justices said] ‘we’re going to limit the reimbursements to take into account the fact the plan should pay a share of the attorneys’ fees that were spent to generate the recovery. That’s called the common fund doctrine.”
Rumeld believes the decision is favorable for plan sponsors for two reasons. “The simple reason is it creates more certainty. It tells employers that if you draft your plans a certain way and you make them clear enough, you don’t have to worry you won’t get your own terms enforced … there’s certainty in knowledge. You can draft the plan document and know it’s going to be enforced,” he says. “It also means that if you want to have the ability to recover dollar for dollar what you paid, you’re going to have the ability to do that if you draft it into the plan language.”
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