By: Chris Aguiar, Esq.
Last week, I teased this blog post on Linkedin with vague commentary about effective cost containment not being just about recovering as much money as possible, but also about being knowledgeable and understanding when its best to cut losses. One of the attorneys in our office is currently working on a file where a benefit plan may be ill-advisedly pushing the limits of the law. You see, in subrogation and reimbursement cases, there is a rule called the “Made Whole Rule”. This rule is one of equity that operates to eliminate a plan’s recovery rights when a plan participant does not recover the full amount of their damages (i.e. they weren’t “made whole”). Now, those of us with private self-funded plans that enjoy the benefit of state law preemption can point to our plan terms and the current state of Federal law which holds that clear and unambiguous language that disclaims application of this rule and others like it will control and allow plans to recover regardless of whether the participant was made whole.
This plan, however, is unfortunately governed by state law as it is not a private self-funded benefit plan; preemption does not operate in its favor. The participant had $800,000.00 in medical damages, alone, and received a $1,000,000.00 settlement. Those numbers alone may indicate to some that the participant was, indeed, made whole. However, the damages discussed above are ONLY the medical damages. We have yet to discuss any other damages, including but not limited to: 1) lost wages (present and future) 2) pain and suffering 3) future care, etc. The list of damages in serious accidents such as this can be extensive, and all of those categories hold considerable value and are compensable in the eyes of the law. The particular jurisdiction in which this plan sits happens to have one of the most aggressive made whole rules in the country, and the judges there tend to be very pro participant. Accordingly, it’s a safe assumption that given the participant will really only receive about $600,000.00 after fees and costs of pursuit – it’s quite easy to see that the participant will not likely be considered to have been “made whole” in the eyes of the court.
Despite that, The Phia Group’s attorney has been able to negotiate for a reimbursement of approximately 20% the Plan’s interest. Should the Plan decide to try to enforce a right of full reimbursement, and the court apply the made whole rule, the Plan will receive no recovery at all and will have endured the extra time, expense, and possibly even media fallout for ‘dragging its participant through this ordeal’, of protracted litigation.
Plans, and we as their advisors, must be cognizant of the rules of the jurisdictions in which we operate and realize when a good outcome is unlikely. Sometimes, even if one has a good case and can win and recover its entire interest, the cost of doing so paired with the inability to obtain reimbursement of the costs of pursuit can render the action moot, because the cost can in many instances outweigh the interest. This is even more true, of course, in situations where the Plan is likely to lose.
Effective cost containment is about looking at the situation and determining the most cost effective approach – winning does not always equate to the best outcome.