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Welfare Benefit Plan Subject to Suit Based on Assignment

A United States Court of Appeals for the Fifth Circuit recently reversed a district court decision and it may have the impact of reverberating across the benefits community. The case is Tango Transport v. Health Care Financial Services LLC1 and the Fifth circuit court held that a nonhealth care provider assignee can have derivative standing to sue an ERISA welfare plan for benefits under ERISA Section 502(a).

The case revolved around a participant, Alice Huff, who was a participant in a medical benefits plan sponsored by Tango Transport. On four occasions in June and September 1997, Huff received medical treatment from Mississippi Baptist Medical Center. On each visit, Huff executed an assignment of benefits to MBMC. In March 1998, MBMC, in turn, assigned Huff’s outstanding accounts to Healthcare Financial Services. Healthcare filed suit against Huff for the balance on those accounts and Huff filed a petition for bankruptcy relief, eventually obtaining a discharge of the debt. Healthcare then sought reimbursement of Huff’s medical expenses from Tango. Tango responded by filing a declaratory judgment action in District Court stating that Healcare had not received a valid assignment and therefore, did not have standing to sue Tango. The District Court agreed finding that Healthcare does not have standing to sue for insurance benefits under ERISA. The Court of Appeals reversed the decision concluding that the collection agency, as an assignee of a plan participant, may bring suit under ERISA Section 502 as if it were a plan participant. Tango argued that ERISA’s antiassignment clause had been violated. The court emphasized the fact that the ERISA antiassignment clause does not apply to welfare plans stating further that ERISA welfare benefits are assignable and that an assignee stands in the shoes of his assignor and may bring any suit that his assignor could bring. The court said ``..[T]his Court, like many of our sister Circuits, recognizes derivative standing which permits suits in the context of ERISA-governed employee welfare benefit plans, to be brought by certain non-enumerated parties,’’2 citing several recent cases in which hospitals and providers had been permitted to obtain an assignment of benefits from a patient to sue the patient’s ERISA-governed health plan for reimbursement.

The U.S. Supreme Court has likewise espoused the validity of an assignment of an employee welfare benefit is not expressly barred under ERISA when it held that a collection agency obtaining a money judgement against several plan participants who were trustees of an ERISA welfare benefit plan could collect money judgements by garnishing the plan benefits under the state garnishment law.3 The Supreme Court determined that the collection agency was entitled to seek garnishment and that Congress’s express intent to bar assignments with regard to ERISA pension plans did not extend to ERISA welfare benefit plans. ``Congress did not enact any similar provision applicable to ERISA welfare benefit plans, such as the one at issue in this case.’’4

In reaching the conclusion that the collection, as an assignee of the participant, had derivitate standing to sue for benefits under ERISA, the court concluded that the collection agency acted within its rights to bring the suit adding that there is no express language in the statute that prohibits a health care provider who has a valid assignment from the plan participant or beneficiary to subsequently assign its rights to enforce an ERISA-governed employee welfare benefit plans.

Traditional Use of Nonassignment Provisions

Welfare benefit plans routinely encourage employees to use a medical plan’s managed care feature by incorporating participating providers and a nonassignment provision. Under such an arrangement, the employee is free to use either a participating or nonparticipating provider.

The key method mechanism for shifting utilization to the participating provider is the method of reimbursement. Typically, if the participant uses the participating provider, the plan pays the provider’s fees directly to the provider and the participant pays only the copayment, if any. If the participant uses a nonparticipating provider, the plan’s nonassignment clause would force the participant to pay the entire bill first and then submit a claim for reimbursement, subject to the plan’s copayment requirement.

These anti-assignment clauses have been challenged by nonparticipating providers. The Court of Appeals for the Ninth Circuit upheld such a plan design as not violating ERISA. Noting that Congress expressly incorporated in ERISA a prohibition against assignment of pension benefits, but did not do so for welfare benefits, the appellate court held that Congress intended to allow the free marketplace to work out "competitive, cost effective, medical expense reducing structures as might evolve."5 The Court of Appeals for the Eighth Circuit has held that a general state law requiring free assignability of claims affects plan administration including cost-control measures and thus "relates to" an ERISA plan and is preempted by ERISA.6

ERISA Section 502

ERISA Section 502(a)(1)(B) establishes a cause of action for participants or beneficiaries under any pension or welfare plan "to recover benefits due..under the terms of ...[the] plan, to enforce...rights under the terms of the plan, or to clarify...rights to future benefits under the terms of the plan."7

ERISA Section 502 contains two principal provisions for private causes of action to enforce benefit rights or plan terms. Subsection (a)(1)(B) creates a cause of action for a participant or beneficiary:

  • To recover benefits due under the terms of a plan;

  • To enforce his or her rights under the terms of the plan;

  • To clarify rights to future benefits under the terms of the plan.

In addition, subsection (a)(3) authorizes suits by a plan participant, beneficiary, or fiduciary to:

>Enjoin any act or practice that violates the terms of the plan; or

>Obtain other appropriate equitable relief to redress such violations or to enforce the terms of the plan.

The courts continue to recognize that ERISA permits the assignment of welfare benefits and that health care providers have standing as assignees to sue under ERISA.8 In City of Hope National Med. Ctr. v. HealthPlus, the court adopted the position that an assignee health care provider acquires derivative standing and is thus able to sue as a plan beneficiary.9 In I.V. Servs. of Am. v. American Consulting Engineers Council Ins. Trust Fund, the Second Circuit Court of Appeals stated that "the court agrees with our sister circuits that, under federal common law, the assignees of beneficiaries to an ERISA governed insurance plan have standing to sue under ERISA". Similarly, in Lutheran Gen. Hosp. v. Printing Indus. of Ill/Ind. Employee Benefit Trust, found that hospital had standing to use under ERISA because the beneficiary validly assigned his benefits to the hospital when he signed a standard consent and authorization form10

To have standing to sue as an assignee under ERISA, the plaintiff must have a colorable claim that it is in fact an assignee, not just that the plan permits assignments.11

However, one court described the burden as a "low hurdle" that was satisfied even through the assignment form assigned only the right to receive payments and not the right to file suit.12

A district court held that a plan participant’s assignment of benefits to a health care provider did not preclude the participant herself from bringing an ERISA claim as well. Hansen v. Aetna Health & Live Ins. Co. 1999 WL 1074078 (D.Or. Nov. 4, 1999). The court noted that if a participant’s status as assignor of benefits deprived her of standing, such assignments would be discouraged and the risks of nonpayment would be increased.

In another case, the Ninth Circuit ruled that a third party that was not a health care provider but had been assigned claims by health care providers that were themselves assignees did not have standing to sue.13

1 No. 02-602(5th Cir. March 12, 2003) 30 EBC 1009
2 Id. at 30 EBC 1011
3 Mackey v. Lanier Collection Agency & Service, Inc. 486 u.S. 825 (9 EBC 2129) 1988
4 Id. at 836.5
5 Davidowitz v. Delta Dental Plan of Cal Inc., 946 F 2d 1476, 1481 (9th Cir. 1991)
6 Arkansas Blue Cross & Blue Shield v. St. Mary’s Hospital, 947 F 2d 1341 (8th Cir 1991)
7 29 U.S.C. Section 1132(a)(1)(B)
8 I.V. Servs. of Am. v. Inn Dev. & Mgmt., 182 F.3d 51, 54 n.3 (1st Cir. 1999)
9 156 F.3d 223, 22 EB Cases 1914 (1st Cir. 1998
10 24 F.Sup. 2d 846 (N.D. Ill. 1998
11 Ward V. Alternative Health Delivery Sys., 55 F.Supp. 2d 694 (W.D. Ky. 1999) dismissing suit where there was nothing in the pleadings to indicate an assignment.
12 Inn Development & Management, 182 F.3d at 51, see note 3
13 Simon v. Value Behavioral Health, Inc. 208 F.3d 1073, 1080-82, 24 EB Cases 1208 (9th Cir. 2000) Cert denied, 121 C. Ct. 843 (2001)