Self-funded ERISA Plans vs Insured Plans
and how it affects your personal injury case
An "insured plan" is a plan that the employer pays a premium to an insurance company. When a person seeks medical treatment, the insurance company pays the bill. Just like how you pay premiums to “GEICO” and if something goes wrong, GEICO pays the bill.
A "self-funded plan" is where the employer does not pay premiums to an insurance company. When a person seeks medical treatment, the employer pays the bill. This would be like if you had a bunch of money and you thought, why pay “GEICO” for auto insurance each month when I can afford to pay the other person if I ever cause an accident.
Now, most self-funded plans are administered (which is different than insured) by “Kaiser”, Blue Shield”, “Aetna” etc. so at first glance you cannot tell if it is self-funded or an insured plan.
Self-funded Plan and Personal Injury Cases
When you receive your money (settlement, judgment etc.). insurance plans or self-funded plans typically have a right of reimbursement for medical payments made on your behalf, due to the fault of a third party. This is because they would not have had to make those payments but for the third party injuring you.
State law (CA here) would apply to “insured plans” and federal law applies to “self-funded plans.” This difference matters big time. Our CA state law allows ways to reduce and/or limit, the amount that the insured plans can recover from your settlement.
However, the federal law does not give many ways to reduce/limit the recovery of self-funded plans. Now there may be ways of doing so, but the plans usually provide language to circumvent any chance of doing so.
If you have a self-funded ERISA plan, it is important to know this as soon as possible, since it can drastically affect the money you may receive. For example, if you got into an auto accident and your self-funded plan paid $15,000.00 in medical bills for you and your settlement is $15,000.00, you end up with nothing!
All that hard work you or your attorney did on your case only helped reimburse your self-funded plan and you get nothing. Now if you realize you have a self-funded plan early on, you can see if your plan will reduce the bill prior to settlement and if they say no, you can then say well good luck on recovering anything! This might get them to negotiate their stance.
Please note: if your medicals bills are less than your settlement, you should be walking away with some money either way.