As financial pressures on health plans drive sponsors, benefits advisors and third-party administrators (TPAs) to prioritize cost containment, it’s good to have a solid understanding of fiduciary responsibilities related to subrogation.
Lately, subrogation is attracting more attention due to pending legal actions. As a result, fiduciaries are now taking a more expansive view of their responsibilities because they can be held responsible even after claims have been paid.
A rise in ERISA lawsuits should not spark panic, but as an attorney, I can tell you that subrogation can be complex. It is critical to be prepared, so knowing how subrogation works and how to navigate it is critical to avoiding unnecessary risk.
Key to health care cost containment
First, a basic explanation of subrogation. It is the process where a health plan seeks to recover money it paid on a member’s claims when those claims were caused by a third party. It is common in situations involving auto accidents, workers compensation, or property liability claims and reimbursements that often come from insurance policies or lawsuits.
In a nutshell, subrogation protects from unnecessary costs being passed on to the overall health plan member population by determining when accident-related medical claims should be reimbursed by third parties.
Subrogation is a key piece of the cost containment puzzle, yet billions of dollars in reimbursable claims go unrecovered each year. According to CMS, in 2023, more than 69% of the $4.6 trillion in national health expenditures were paid by private insurance, Medicare and Medicaid.
Yet many accident-related medical claims that should be covered by a third party are often paid by the health plans. This underscores the need for a fiduciary to perform regular evaluations of their subrogation plan performance. Since there is a well-established, mature marketplace of subrogation activity, a fiduciary can compare their results against industry benchmarks.
Fiduciary duties related to health plan subrogation
A fiduciary is anyone with discretionary authority over a health plan’s management, assets and administration. ERISA fiduciaries must meet the prudent person standard of care.
In the context of health plan subrogation, this means they are responsible for efficiently managing the identification, negotiation and recovery of subrogation cases, either directly or by delegating to qualified professionals. Fiduciaries must also mitigate predictable risks that could reduce recoveries.
Whether an employer decides to handle subrogation itself or outsource it, you need to thoroughly evaluate the options and document the decision process on an annual basis based on performance and defined metrics.
3 ways to strengthen a plan’s subrogation strategy
Whether an employer is just getting started with subrogation or needs to refine a plan’s approach to it, here are three ways to streamline the process and ensure fiduciary responsibilities are met in order to maximize subrogation recoveries.
- Review the current plan’s subrogation language. Make sure the recovery language is clear and broad in its application and ensure you take a consistent approach to following the subrogation terms. Don’t hesitate to line up a legal resource or tap a knowledgeable third party to ensure nothing is overlooked.
- Get ahead of latent risks that can reduce subrogation recoveries. One of the biggest risks is how you respond to document letter requests. Recently, these requests have become more frequent and complicated and the ability to properly and thoroughly respond impacts total reimbursements. You can get ahead of these requests by establishing an effective strategy, approach and workflow to the request before it arrives.
- Know when to bring in legal counsel. A well-designed subrogation operation can recover in most cases without legal counsel. Still, larger claims will arise that require legal expertise to negotiate the best result. Also, legal advice can make sure the right processes, language and protocols are in place so that when a subrogation claim arises, it can be properly and efficiently handled. This strategy ultimately saves a lot of time and allows you to maximize recoveries while reducing the risk of not upholding fiduciary responsibilities.
Fiduciary liability based on systemic subrogation breaches
While each subrogation case has its own fiduciary risk profile, the larger concern for anyone responsible for subrogation is the extent that a single case issue reflects systemic problems due to insufficient investigation, oversight and monitoring processes. The way to address this concern is with a thorough investigation and evaluation followed by taking the proper steps to shore up subrogation-based obligations.
If subrogation comes under your responsibilities, it is important to ensure the organization meets its fiduciary duties. Consult with trusted colleagues, counsel, advisors, and industry peers to ensure the right foundation is in place to identify every subrogation opportunity and maximize reimbursements.
Win Rawson is Chief Legal Officer at Intellivo.
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