The Supreme Court Cares about Equitable Apportionment, But Just Not as it Applies to the MSP

Medicare Set-Aside Blog on November 16, 2012
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As the MSP industry continues to morn the loss of hope for a Supreme Court decision in US v. Hadden that would have settled the matter of equitable apportionment in Medicare Secondary Payer claims once and for all, we can watch with envy on November 27th as the high court hears oral arguments in a case that will decide basically the exact same issue for recipients of ERISA-governed employer health-benefit plans. I will spin the tale and let you decide how this situation is different from what we encounter under the MSP.

Mr. McCutchen was injured when his car was stuck by a car full of teenagers, one of which died and two others were left with traumatic brain injuries. Given that there was not enough insurance to go around, the insurer covering the driver paid Mr. McCutchen $10,000 and his UIM coverage paid $100,000. All $66,866 of medical treatment received was covered by US Air’s self-funded, employee health benefit plan and, per the express provisions in the Summary Plan Description, Mr. McCutchen was “required to reimburse the Plan for amounts paid for claims out of any monies recovered from a third party, including, but not limited to, [his] own insurance company.”

The plan is silent with regard to reductions for procurement costs, unlike with the MSP, so we do have an advantage to some degree. US Air demanded full reimbursement, yet Plaintiff’s attorney held only $41,500 in escrow after accounting for his fee. US Air finally sued seeking a constructive trust or equable lien on the monies in escrow as well as the remaining $25,366 personally from McCutchen. District court ruled in favor of US Air and the Third Circuit reversed using ERISA §502(a)(3) which it believes allows it to use its discretion to limit relief to what is appropriate under traditional equitable principles. So the issue on appeal to the Supreme Court is what is “appropriate equitable relief?” Did the court have the right to essentially rewrite the plan?

While the similar provisions under the MSP are statutory and regulatory as opposed to being contractual, the issue on appeal is simply do principles of equity apply to these insurance settlement situations. Just like Medicare, US Air also has subrogation rights and instead of pursuing recovery personally, elected to simply ride the coattails of the settlements pursued and paid for by the plaintiff. Policy limits were paid out in exchange for release from all claims, not just medical so unless US Air has a propensity to sue judgment-proof adolescent tortfeasors personally, equity would dictate that a pro rata share of the available insurance would be appropriate. Yet due to a broadly written contract, it elected to recover within its legal boundaries – just like Medicare does. 

Given that this case primarily stems from a contract dispute, the fact that our MSP issues are based in bad law should make ours the more important cause. If the government is demanding more than its fair share of insurance proceeds, then due process comes into play. If Medicare beneficiaries are treated differently in insurance situations due to their enrollment, then it could be an equal protection issue. Does the inconsistent application of waiver and compromise criteria rise to the level of arbitrary and capricious behavior in volition of the APA? Frankly, the Supreme Court likely turn Hadden down because the correct course of action is to rewrite a poorly cobbled together law. CMS obviously understands only healthcare and neither the MSP statute nor its corresponding regs really embrace the realities of either tort law or liability insurance. Consideration of equity would be the easier/quicker solution, but CMS clearly wants to go down swinging. 

So on November 27th, let’s hope the Supremes hear more than just cries of that’s not fair and how state anti-lien statutes should permit the windfall and, at the very least, give us something in their opinion that would draw applicable parallels to our MSP situations. 

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