Company Demands Cost of Medical Bills from Injured Employee

Posted November 29, 2012 in Insurance Law Labor and Employment by

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The U.S. Supreme Court heard arguments this week in a case that could change workers’ ability to hire lawyers to help them bring personal injury suits when their employers have paid for their medical expenses.


Subrogation Blues

James McCutchen, a US Airways employee, was seriously injured in a car accident. He settled a negligence suit with the driver responsible for the accident and collected uninsured motorist coverage from his own insurance – after his employer, US Airways, had paid $66,866 for his medical bills.

With the help of his own lawyer, McCutchen received $10,000 in the negligence settlement, as well as $100,000 from his uninsured motorist coverage. He owed his lawyer 40 percent – a typical contingency fee – which left him with about $66,000, all of which US Airways says he now must now pay the company to compensate it for the cost of his medical care, through a process known legally as “subrogation.”

In a nutshell, this means an insurer (in this case US Airways itself) can try to recoup the expenses it paid out to cover a claim if someone else should have been responsible for at least a portion of those expenses. Because McCutchen’s injuries were caused by a negligent driver, US Airways argued that the driver should be responsible for the cost of McCutchen’s medical care. The driver didn’t have insurance, so McCutchen got a payout from his own insurance company. Wherever the money came from it amounts to compensation for his injuries, and US Airways wants its money back.

US Airways pays for its employees’ health care through what is known as a self-funded plan. This means that the company pays its employees’ medical bills from its own funds, rather than contracting with an outside insurance company. A federal law, the Employee Retirement Income Security Act of 1974 (ERISA) governs how benefits are paid and managed in self-insured plans. And under ERISA, employers are entitled to subrogation of any claims that an employee recovers after the employer has for those expenses. 


Unfair Free-Riding

But McCutchen says that US Airways’ employee benefit plan should have to “take the same proportionate discount . . . that he was required to take when he settled his claim,” explains Professor Brian Wolfman, who teaches at Georgetown University Law Center.

Professor Brian Wolfman

This would be the fair and equitable solution to the problem of US Airways “free-riding” on the efforts of the lawyer McCutchen – not US Airways – hired to pursue his case. “He did not recover the full value of his claim, and neither should U.S. Airways,” points out Wolfman. 

McCutchen is relying on the part of ERISA that says the plan can seek “appropriate equitable relief,” according to Kevin Amer on the SCOTUS Blog.

If the Supremes don’t bite on McCutchen’s first argument, he at least wants US Airways’ benefits plan to help him pay his lawyer. “So, if the Plan obtains, say, 60 percent of the recovery, the Plan should pay 60 percent of the attorney’s fee, which would leave more money for Mr. McCutchen,” Wolfman says. 


Access to Courts at Issue

While the Supreme Court’s decision in the case won’t really affect the way health insurance is offered to employees, it “could have a negative effect on injured people’s access to the courts,” says Wolfman.

“If the Supreme Court decides entirely in favor of US Airways, injured people will find it more difficult to hire competent lawyers in some cases,” he points out.

“I do not know how the Supreme Court will decide the case,” Wolfman says, adding, “I think the fairer result would be one favoring Mr. McCutchen.”


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