The sponsor of a self-funded health plan cannot escape its responsibility to ensure that only fully eligible people are enrolled. Illustrating this maxim is a self-funded plan’s sad quest to recover gigantic sums from health providers for services it paid on behalf of a non-beneficiary. The plan paid more than $1 million in claims for a dependent whose enrollment was never fully processed and the court found that the plan could not recoup those payments from providers for a mistake that it made.
The plan must be kicking itself because it went and approved claims and paid expenses despite the fact that the dependent’s enrollment was not processed completely.
On Sept. 2, a federal appeals court lined up with two lower court rulings in deciding that a hospital and a physician practice were not liable under ERISA to return money to a plan that mistakenly paid claims for a plan member’s ineligible daughter.
The 7th U.S. Circuit Court of Appeals said because the child was never enrolled in the plan, the plan’s suit to enforce ERISA rights or duties could not work, in Kolbe & Kolbe Health and Welfare Ben. Plan v. Medical College of Wisconsin.
A Kolbe employee included his child under his health plan in August 2007. The Kolbe plan asked for — but never received — information the plan required to determine whether the child would be an eligible dependent (namely, whether the child resided with the employee, depended on him for more than half of her support and maintenance, and whether she could be claimed as a tax exemption on the employee’s federal income tax return).
In spite of this, over the next 10 months, the plan paid more than $1.67 million for the child’s care.
(One might infer that the plan submitted the charges to its stop-loss insurer, but could not show the child met its own eligibility tests, leading the S-L insurer to reject the charge.)
The plan demanded that the providers return all payments. Not surprisingly, they refused. The plan sued the providers in April 2009.
The Kolbe plan tried to invoke clauses in its provider agreements saying it had rights to recover overpayments and sums paid in error and sought equitable relief under ERISA.
The ERISA arguments failed for a host of reasons, including (1) remedies were unavailable under ERISA;
(2) assignment of benefits from plan member to providers did not create ERISA-style fiduciary duties for the providers; and (3) overpayments were not at issue because the plan paid claims before the child was enrolled.
No matter how well this plan argues, it all comes back to this: If these payments were to cover a non-member who never enrolled, how can ERISA remedies, rights or duties be available?
A state-law breach of contract charge still hangs by a thread.