Subrogation, Reimbursement and Health Plans
In the world of employee health plans, subrogation (and its partner, reimbursement) might be one of the most misunderstood concepts in plan administration. Subrogation exists where the plan steps into the shoes of the injured party by virtue of the payment of benefits. The plan takes over the ability of the injured participant to sue the person or entity that cause the injury. Reimbursement, on the other had, is an obligation on the part of the injured participant to pay back the plan benefits paid from a recovery source.
For example, a participant is injured in a fall at a store. The participant sues the the store owner for his injuries. The participant's medical bills are paid by the plan. Subrogation means that the plan has the ability to assert a claim against the store for the medical bills paid. Reimbursement means that when the participant recovers from the store, the participant must pay back the plan for the covered medical expenses.
One basic way to control plan costs is to enforce subrogation and reimbursement provisions. By recovering claims paid from another responsible party, the plan limits its own expenses. But a plan has to be clear about what right is has and how it intends to enforce that right. If it is relying on subrogation alone, the plan must be prepared to pursue a claim against the responsible party directly. If reimbursement is implicated, then the plan must be prepared to make demand for reimbursement from the participant.
Whichever right a plan has, I believe it could be considered a breach of fiduciary duty for a plan to not pursue subrogation or reimbursement to recoup plan expenses. Since the fiduciary obligation is to protect the plan as a whole, the fiduciary has an obligation to pursue those funds the plan is entitled to receive, either from the original tortfeasor through subrogation, or from the participant through reimbursement.
