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Supreme Court “Dooms” Equitable Defenses to Plan’s Reimbursement Provisions

Posted in Benefits

In a prior blog, I discussed the importance of including unambiguous reimbursement rights in health plan documents in order to manage healthcare costs.  The enforceability of such rights was confirmed by the United States Supreme Court in the recent U.S. Airways v. McCutchen decision.  Although this is not the first time the Court has upheld a health plan’s reimbursement rights, this particular decision marks a significant victory for employers because it eliminates equitable defenses against a plan’s reimbursement rights if such rights are clearly defined in the applicable plan documents.

Unfortunately for U.S. Airways, the summary plan description failed to specify that the plan’s recovery would not be reduced by its share of the attorney fees and other litigation costs incurred in obtaining the recovery from the third party tortfeasor.  As a result, the Court determined that the common fund doctrine could be applied in determining the amount of the plan’s recovery from the participant.

Although the common fund doctrine may ultimately be applied in this case, other employers could avoid the same fate by ensuring that their applicable plan provisions clearly describe the plan’s reimbursement rights and specifically state that the common fund doctrine (and other equitable defenses) would not apply.  Interestingly, the justices in the McCutchen case disagreed as to whether the rights were clearly defined by the plan and further questioned whether it was appropriate to rely on the summary plan description to determine the plan’s rights.

Despite the Court’s recent landmark decision in Cigna Corp. v. Amara, in which it held that statements in a summary plan description could not modify the terms of the plan, employers are best advised to include similar provisions in BOTH the summary plan description and the underlying plan document. As explained in my prior blog, however, these documents may be one in the same with respect to self-insured health plans.  It may also be advisable to specifically communicate the plan’s reimbursement rights to participants, especially if any changes are made to the plan’s provisions.