What Is an ERISA Lien?

Imagine suffering catastrophic injuries in an accident caused by someone else's negligence. As you struggle to recover, you sue the party responsible for the accident, and you win a financial judgment or settlement for your suffering. Now imagine being told by your health insurance provider that it wants some or all of that money to cover the medical bills that it has paid for your treatment. You've encountered what's known as an ERISA lien.

ERISA

• ERISA is shorthand for the Employee Retirement Income Security Act of 1974, the federal law that regulates how employer-provided pension and health insurance plans operate. ERISA requires these plans to give participants detailed information about their benefits and establish procedures for grievances and appeals. It gives participants the right to sue their health plans to obtain benefits that were improperly denied. Participants can also sue plans for breaching their fiduciary duty---that is, for failing to look out for participants' best interests.

Subrogation

• ERISA liens stem from the concept of "subrogation," which refers to one party acting on behalf of another. In insurance terms, subrogation boils down to an insurer seeking reimbursement for its expenses from the party that was responsible for the claim. For example, say a driver runs a red light and hits your car. The police conclude that the accident was entirely the other driver's fault. Your insurance company will pay to repair the damage to your car---but it will try to get the money back from the other driver or his insurance company.

Health Plans and Subrogation

• Health plans often include a subrogation clause that permits the insurer to seek reimbursement of the injured party's medical expenses. That could mean suing the responsible party for the money. But three words written into the ERISA law allow insurers to also try to recover the money out of funds paid to the injured party. The three words come in Section 503(a)(3) of ERISA, which permits insurers to sue or take other civil action to obtain "appropriate equitable relief" in pursuit of their fiduciary duty to minimize the health plan's expenses and therefore keep costs down for all participants.

Liens

• The act of an insurer placing a legal claim on an injured party's judgment or settlement is what's called an ERISA lien. The Supreme Court ruled in 2006 that the "appropriate equitable relief" provision in ERISA allows insurers to place liens on money paid by the responsible party. The insurer, however, can't seek to recover money directly from the general assets of the injured party. In other words, the insurer might be able to take your settlement check to pay your medical bills, but it can't take your house or your belongings.