ERISA: The Dark Side of Your Employee Health Plan

What in the world is an ERISA?

ERISA is the Employee Retirement Income Security Act of 1974.  You can probably imagine why we like to use the acronym.  

What does ERISA do?

As you probably know, for some time now employers have taken measures to entice the best employees to their companies by offering competitive benefits packages.  These benefits packages can include bonuses, 401k plans, and comprehensive medical coverage, which often even includes dental and vision benefits.  These employee health plans have become quite common, and the odds are good that you're either (i) a "participant" in an employee health plan or (ii) a "beneficiary" in a plan, in which your spouse or parent is a participant.

These employee health plans are great, right?  Your husband gets the flu, or your kid needs glasses, or you hurt yourself cleaning out the gutters while your husband is sick (with the flu).  You go to the doctor, get whatever treatment you need, and the Plan takes care of everything.  What could possibly go wrong?

Well, problems can -- and do -- arise when a Plan participant or beneficiary is injured by the negligence of someone else.  Let's look at the classic example;  you're tooling along on 540, minding your own business, when Joe in the next lane realizes that he's about to miss his exit.  Since checking one's blind spots has become terribly passé in today's society, he makes the unfortunate decision to forego the experience.  As a result, Joe's car goes flying into yours, you end up sandwiched between his 2005 Jetta and the guardrail, and you suffer whiplash and a sprained left elbow.  

The entire experience is exhausting and horrible.  It takes you six months, one ambulance ride, two trips to the ER, one surgery and forty sessions with the physical therapist by the time you're done treating.  The Plan pays for all of your medical bills, but there are other things that it doesn't pay for.  For instance, you've missed time from work.  You've used at least four tanks of gas getting to and from your PT sessions, and you've undergone a tremendous amount of physical pain and emotional suffering over the course of your injury and recovery.  

Under North Carolina law, you're entitled to recover all of the expenses you've incurred as a result of Joe's negligence; medical bills, lost wages, costs and expenses, pain and suffering, and so on.  The Plan has your bills covered, but in order to get compensated for everything else, you'll have to open a claim with Joe's auto insurance.  You might hire a lawyer, there will be some back-and-forth with the insurance company, and then hopefully you'll get offered a reasonable settlement without having to file a lawsuit.  The insurance company sends the check, you pay your lawyer if you hired one, and you get the rest of the cash, right?

Unfortunately, if you're a participant or beneficiary in an employee health plan, the fun might be just getting started.  That's because when you get a settlement or judgment arising out of a negligent injury, the Employee Retirement Income and Security Act (or "ERISA") enables Plans to contractually give themselves the right to recover each and every expense they've paid on your behalf.  Given this option, predictably, most Plans include provisions that give them the right to do so.  The basic result of this is that under ERISA, plans can often take your entire settlement amount; and if they don't get it, they can sue you to recover what they're owed.

This is obviously bad news for folks who have been injured (and their attorneys), and the practical result is that many people are discouraged from pursuing their claim in the first place; even if the claim is viable.  The good news is that there are measures you can take to minimize - or even eliminate - the amount that the Plan can claim from your settlement.  

But it wouldn't be any fun for us to go over all of that in one article.  Stay tuned for Part 2!