Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

As part of uniform "regulation of insurance," states are permitted to establish certain mandates in health benefits.  These mandates can be fairly extensive, covering everything from the common such as birth control (required in New Jersey but not New York) to the more extreme, such as surgical treatment for morbid obesity (required only in Maryland, Indiana and Florida).  Mandates can also define who must be included as covered persons.  For example, New York mandates that adopted children be defined as a covered person, while New Jersey has no such mandate.  This is not to say that other laws may not impact the nature of benefits provided (since adopted children are "dependents covered under New Jersey insurance laws), but rather to point out that state insurance regulation is very complex and it is important for employers with facilities in multiple states to be aware of what they may be required to provide.

Self-insured ERISA plans routinely contend that they are not subject to state mandates because of the impact of ERISA preemption.  However, employers sponsoring these plans should be aware of the mandates of the jurisdiction where they operate if for no other reason then to evaluate the effect of their own plan in comparison to others offered (particularly union sponsored plans if union avoidance is a concern). 

To review the Council for Affordable Health Insurance's 2008 report on state mandates, client here.

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In anticipation of the April 15 tax deadline, CNN.com had an article titled "Gay couples face higher tax bills."  The content of the article came from Mount Laurel, New Jersey and it addressed how same-sex couples in a civil union in New Jersey paid higher taxes because they could not file jointly for federal purposes.

I thought it was particularly interesting that there was no mention of the tax consequences of not being able to use a cafeteria plan to pay for health insurance premiums or reimbursement of medical expenses from a flexible spending account.  Clearly these would create a higher tax burden as well.  But political and social implications aside, I am always concerned that employers in New Jersey properly treat same-sex couples in their benefit plans.

First, because of the impact of the Defense of Marriage Act on federal tax laws, the employer paid cost of providing coverage for same sex partners who are not “dependents” under the Internal Revenue Code would be considered regular compensation and would be taxable as income.  Moreover, that portion of the premium that an employee pays that is attributable to the same-sex partners coverage would not be eligible for pre-tax treatment under a cafeteria plan.  Plus, the medical expenses of the same-sex partner could not be paid with money from a Flexible Spending Account unless the partner otherwise qualified as a dependent under federal tax law. This means that employers who have employees who take advantage of the new civil union will have to make sure the value of the partner’s benefit is properly treated for federal tax purposes.

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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.

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