With medical costs increasing each year, human resource specialists are caught in a never-ending battle to keep costs down while providing competitive benefits to company employees.  One way to contain company costs is to enforce a health or disability plan's subrogation rights.  A subrogation clause gives the plan the right to recover benefits from a claimant if the claimant is later paid by another source.  The following steps can ensure the enforceability of the plan's subrogation rights.

  • Subrogation clauses should allow a full recovery and not exclude expenses incurred by the claimant, such as attorney fees.  Of course, the plan sponsor may later voluntarily waive a portion of the recovery in consideration of incurred attorney fees.
  • Because some courts have developed a default "make whole doctrine" in which the plan's right to subrogation of any proceeds a claimant recovers against a third party is limited to the extent that the recovered funds exceed the claimant's actual damages, each plan's subrogation clause should specifically state that subrogation applies without regard to the make whole doctrine.
  • Before paying benefits, require a claimant to sign a separate subrogation agreement affirmatively recognizing the plan's subrogation rights and agreeing to notify the plan of all recoveries or potential recoveries.
  • If the claimant is potentially covered by another insurance policy, send a letter to the insurance company explaining the plan's subrogation rights.  Similarly, if the plan sponsor becomes aware that the claimant has brought a lawsuit with respect to his or her injuries, send letters to both the plaintiff's and defendant's attorneys informing them of the plan's subrogation rights.  All letters should demand that the plan be paid before the claimant.
  • For companies that have outsourced the enforcement of subrogation rights, contact the third-party administrator at least annually to check on the administrator's procedures for enforcing those rights.

For further information visit Waller's ERISA Exchange blog

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.