Amicus Curiae Brief — Sereboff v. Mid Atlantic Medical Services, Inc.

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Supreme Court of the United States

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JOEL SEREBOFF and MARLENE SEREBOFF,

Petitioners,

v.

MID ATLANTIC MEDICAL SERVICE, INC.,

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——

Respondent.

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ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

S

AMICUS CURIAE BRIEF OF

AMERICA’S HEALTH INSURANCE PLANS, INC.,

AMERICAN BENEFITS COUNCIL, AND

NATIONAL ASSOCIATION OF MANUFACTURERS

IN SUPPORT OF RESPONDENT

¢

Waldemar J. Pflepsen, Jr. Stephanie W. Kanwit

Counsel of Record Julie Simon Miller

Stephen H. Goldberg AMERICA’S HEALTH INSURANCE

JORDEN BurRT LLP PLANS, INC.

1025 Thomas Jefferson Street,N.W. 601 Pennsylvania Avenue, N.W.

Suite 400 East South Building, Suite 500

Washington, DC 20007 Washington, DC 20004

(202) 965-8100 (202) 778-3200

Jan S. Amundson Kathryn Wilber

Quentin Riegel Lynn Dudley

NATIONAL ASSOCIATION OF AMERICAN BENEFITS COUNCIL 2

MANUFACTURERS 1212 New York Avenue, N.W.

1331 Pennsylvania Avenue, N.W. Suite 1250

Washington, DC 20004 Washington, DC 20005

(202) 627-3000 (202) 289-6700

Attorneys for Amici Curiae

a —

THE LEX GROUP” » 1750 K Street N.W. ¢ Suite 475 ¢ Washington, DC 20006

(202) 965-0001 ¢ (800) 615-3781 ¢ Fax: (208) 965-0022 ¢ www.thelexgroupdc.com

Il.

III.

TABLE OF CONTENTS

IDENTITY AND INTEREST OF THE

AMICI CURIAE

A.

ARGUMENT

A.

<2 ETE a eRe RT

A Claim To Enforce The Terms

Of An Employee Benefit Plan Is

Explicitly Authorized By ERISA

Section 502(a\(3) So Long As The

Remedy Sought Is “Appropriate

Equitable Relief’.............................

The Relief Sought In This Case

Constitutes Equitable Relief

Within The Meaning Of ERISA

I a

The Equitable Relief Which

Respondent Seeks Is

“Appropriate” Within The

Meaning Of ERISA Section

RENEE AEF arbre eee eater tc Mae

eee

ll

1. Petitioners’ interpretation

of ERISA Section 502(a)(3)

would essentially preclude

the enforcement of any

plan reimbursement

provision, or any other

plan provision which

entails an obligation to pay

I Gi Biiicteticcenintcindenisies 11

2. The type of relief sought in

this case promotes the

availability and

affordability of health

ETT IES ARE REE ee 13

3. Petitioners’ assertion that

reimbursement provisions

undermine the protection

4. Rejection of enforcement of

ERISA reimbursement

claims would adversely

affect the uniform

administration of

employee benefit health

TI scisresidienbecheuelinnanieiicinlneinesienmiiiiin 21

i A crtiecrennricmenivtenenimsenniniicniiiin 23

ill

TABLE OF AUTHORITIES

Page(s)

Cases

Admin. Comm. of Wal-Mart Assocs.

Health & Welfare Plan v. Willard, .

393 F.3d 1119 (10th Cir. 2004)... 9

Aetna Health Inc. v. Davila,

I a 22

Black & Decker Disability Plan v. Nord,

Be ee, ST IED ccovccssisccissssibsiishnmdatesasueideiantinias 21

Boggs-v. Boggs,

a 7,13

Cent. States, Southeast & Southwest Areas

Pension Fund v. Cent. Transp., Inc.,

Sr SE iicichiediphietetstehenanaienscbanabcabls 19

Dzinglski v. Weirton Steel Corp.,

875 F.2d 1075 (4th Cir. 1989), cert. denied,

Se ae le III teitcedecinresisnsnnicncasacctintes 20, 21

Egelhoff v. Egelhoff, © ,

B32 U.S. 141 (2001) ...cccccccccecssessessessecsecsesseeeees 21

Ellis v. Metro. Life Ins. Co.,

126 F.3d 228 (4th Cir. 1997)....................0006+. 19

Fort Halifax Packing Co., Inc. v. Coyne,

4 Ep es: SAREE ree ear et tan 7, 13, 21

iv

Great-West Life & Annuity Ins. Co. v. Knudson,

See Eas OO GD sainscscesetnsetincsipgunlaitions passim

Gulf Life Ins. Co. v. Arnold,

809 F.2d 1520 (11th Cir. 1987).......000000000. 7,12

Health Cost Controls of Ill., Inc. v. Washington,

187 F.3d 703 (7th Cir. 1999), cert. denied,

ee BF RRP Ree 19

Hlinka v. Bethlehem Steel Corp.,

863 F.2d 278 (3d Cir. 1968)..............0............. 20

Kress v. Food Employers Labor Relations Ass’n,

391 F.3d 563 (4th Cir. 2004)............... cee 20

Land v. Chicago Truck Drivers, Helpers &

Warehouse Workers Union (Indep.)

Health & Welfare Fund,

25 F.3d 509 (7th Cir. 1994)................. eee 20

Lockheed Corp. v. Spink,

ee Gy Ah See CD vinssinsnccinscccielitbiinideemaaianaanen 20

Nachman Corp. v. Pension Benefit Guar. Corp.,

446 U.S. 359 (1980)........... ictscitiinenisbiesasinoeiaaia 7

N. Am. Coal Corp. v. Roth,

395 F.3d 916 (8th Cir. 2005), cert. denied,

Fe GOR, Cote ven vcnsiccnssicleniselialiaieamacaiiak 11

N. Y. State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co.,

BEG TD, GD Ca wiivncivccaticiesnkaicneniaiemaniadeeae 7

Pegram v. Herdrich,

I I ic ocd ieatintatiigticptdgnnnneinninosen 21

Pilot Life Ins. Co. v. Dedeaux,

ES eae 1l

Rush Prudential HMO, Inc. v. Moran,

I I ila icctesndaeesoctunnnnne 21

Shaw v. Delta Air Lines, Inc.,

RC 13

Varity Corp. v. Howe,

516 U.S. 480 (1906) .............ccerssccceees 6, 7, 10, 21

Statutes

ETT 2

EEE TE 13

29 U.S.C. § 1104(A)1) seccecccseee aie 18

I Ot I ss ccsnchevcousesnsscnnsosencsctes 7, 8, 12

I inc cetatiisenmsininciialiansnnnecds 12

nn Oe I casuddnaubsneesoneses passim

a ae nncnctinssicncnanennees 12

Other Authority

1 D. Dobbs, Law of Remedies § 4.3 (2d ed. 1993).......6

1 G. Palmer, Law of Restitution § 1.4 (1978)............. 6

1 G. Palmer, Law of Restitution § 3.7 (1978)............. 6

vl

David Leonhardt, Poverty in U.S. Grew in

2004, While Income Failed to Rise for 5th

Straight Year, N.Y. Times, August 31, 2006 ........

Department of Labor Deputy Assistant

Secretary for Policy Bradford P. Campbell,

Testimony Before the Subcommittee on Labor,

Health and Human Services, and Education

Committee on Appropriations, April 2, 2004,

available at http://www.dol.gov/ebsa

/newsroom/ty040204 htm ........ PE LEER. SERIO De

Documentation in Health Benefit Plan

Ratemaking, Actuarial Standard of Practice

No. 31, § 3.5.4 (Actuarial Standards Bd. 1997)...

Health Econ. Practice, Barents Group, LLC,

Impacts of Four Legislative Provisions on

Managed Care Consumers: 1999-2003

(prepared for the Am. Ass’n of Health Plans,

REET ccnecetecenntinninhseantaansdntadescisimsaeaeimiiinitiniisoniantien

Incurred Health and Disability Claims,

Actuarial Standard of Practice No. 5, § 3.3.5

(Actuarial Standards Bd. 2000)..............0..ccccce

John Sheils & Lisa Alecxih, The Lewin Group,

Inc., Recent Trends in Employer Health

Insurance Coverage and Benefits, Final Report

DF, ee ecrnninennsieiteteenasiitinteniingeisinndinistainns

Kaiser Family Foundation & Health Research

and Educational Trust, Employer Health

Benefits 2005 Annual Survey, available at

http://www.kff org/insurance/7315/index.cfm .......

13

Vil

Relationship Between Health Care Costs and

America’s Uninsured: Hearing Before the

Subcomm. on Employer-Employee Relations of

the House Comm. on Educ. & the Workforce,

106th Cong. 63 (statement of Dan Crippen,

Director, Congressional Budget Office)..............

Restatement of Restitution, Comment a (1936)

Rodger M. Baron, Public Policy

Considerations Warranting Denial Of

Reimbursement to ERISA Plans: It’s Time to

Recognize The Elephant In The Courtroom, 55

Mercer L. Rev. 506 (2004).....................c00..0s00000s.

Trover Solutions, Inc., Form 10-K, for the

fiscal year ended Dec. 31, 2003 ............0.00.....2005.

U.S. Census Bureau, /ncome, Poverty, and

Health Insurance Coverage in the United

States: 2004, Current Population Reports

I II iicieinnisiniidcinabindpeiniemnaniadieltnd saslathiiinlieeeusiihiintihe 14

I.

IDENTITY AND INTEREST

OF THE AMICI CURIAE'

A. The Amici

This brief is being filed by three amici curiae,

America’s Health Insurance Plans, Inc. (“AHIP”),

American Benefits Council (“ABC”), and _ the

National Association of Manufacturers (“the NAM”),

(collectively, the “Amici”), all of which maintain a

common interest in the result of the instant

Petition.”

America’s Health Insurance Plans, Inc. is the

national association representing the private health

plan and insurer community. AHIP’s mission is to

advance health care quality and affordability

through leadership in the health care community,

advocacy, and the provision of services to its

members. AHIP represents nearly 1,300 member

companies that administer or insure benefits,

including health, pharmaceutical, long-term care,

disability, and supplemental coverage, to more than

200 million Americans, the majority of whom are

participants in or beneficiaries of employee benefit

plans under the Employee Retirement Income

This brief was prepared in its entirety by Amuc: and

their counsel. No monetary contribution toward the

preparation or submission of this brief was made by any person

other than Amici, their members, and their counsel.

. All parties have consented to the filing of this brief in

written consents filed with the Court on January 11, 2006, and

January 13, 2006..

‘

Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et

seq.

The American Benefits Council is a broad-

based, nonprofit trade association founded in 1967 to

protect and foster the growth of this nation’s

privately sponsored employee benefit plans. The

Council’s members include both small and large

employer-sponsors of employee benefit plans,

including many Fortune 500 companies. Its

members also include employee benefit plan support

organizations, such as actuarial and consulting

firms, insurers, banks, investment firms, and other

professional benefit organizations. Collectively, its

more than 250 members sponsor and administer

plans covering more than 100 million plan

participants and beneficiaries.

The National Association of Manufacturers is

the nation’s largest industrial trade association,

representing small and large manufacturers in every

industrial sector and in all fifty states. The NAM’s

mission is to enhance the competitiveness of

manufacturers by shaping a legislative and

regulatory environment conducive to U.S. economic

growth and to increase understanding among

policymakers, the media, and the general public

about the vital role of manufacturing to America’s

economic future and living standards.

B. Interests of the Amici

Employee benefit plan reimbursement

provisions (also used herein to include _ plan

subrogation provisions), such as those at issue in

this case, are used extensively throughout the

insurance and managed care industries for both

insured and self-funded employee benefit plans.

Such provisions generally require a plan participant

(or beneficiary) to reimburse the plan for funds

expended on the participant’s behalf, if the

participant recoups money from a third party

responsible for the participant’s injuries.

The ability of ERISA plans to seek

reimbursement of benefits from plan participants

who have recovered funds from third parties is

important to their continued financial security.

Reimbursement provisions are critical cost-saving

devices for employers and other plan sponsors facing

strong health care cost inflation pressures.

Hundreds of millions of dollars, at least, are

recouped annually by employee health benefit plans

offered, insured, or administered by the Amici’s

member organizations by virtue of reimbursement

recovery mechanisms. °

The cost savings achieved by subrogation

recoveries are passed on to employers and employees

in the form of lower health care costs, making health

care coverage more available and affordable. The

Amici are concerned that the Court’s adoption of

. During fiscal year 2003, one of the largest private

health care claims recovery services in the United States

recovered $235.9 million in health claims, and had a backlog of

over $1.5 billion of potentially recoverable claims. See Trover

Solutions, Inc., Form 10-K, for the fiscal year ended Dec. 31,

2003, at 29. Based on the recoveries made by this service, and

the number of lives covered (approximately 40 million), it can

be estimated that more than $1 billion is recovered annually on

behalf of all plans.

Petitioners’ position in this case would render plan

reimbursement provisions unenforceable with the

following adverse effects:

e the cost of providing employee

health plan benefits would rise,

deterring employers from sponsoring

and funding employee benefit plans;

e additional costs would be shifted to

participants and _ beneficiaries,

deterring participation in employee

benefit plans;

¢ some participants and beneficiaries

would be unjustly enriched by

retaining double recoveries, at the

expense of the plan and other

participants and beneficiaries;

e fiduciaries would be unable to

administer employee benefit plans

in accordance with plan documents;

and

e the national uniformity of

administering plan provisions would

be sacrificed, creating an

administrative burden for plan

administrators.

II.

SUMMARY OF ARGUMENT

ERISA’ Section 502(aX3) — specifically

authorizes civil actions “. . . (B) to obtain other

appropriate equitable relief... (ii) to enforce . . . the

terms of [a] plan.” ERISA § 502(a)(3), 29 U.S.C. §

1132(a\(3). In Great-West Life & Annuity Ins. Co. v.

Knudson, 534 U.S. 204, 220-21 (2002), in a 5-4

decision, this Court precluded the insurer of an

employee benefit plan from enforcing a_ plan

reimbursement provision because, under the

particular facts of that case, the relief sought was

determined not to constitute “equitable relief” within

the meaning of Section 502(a)(3). Unlike Knudson,

_ this case requires the Court to squarely address the

issue of whether it is reasonable to conclude that

Congress, in enacting ERISA, intended to preclude

an employee benefit plan from ever being able to

enforce under ERISA a vital and customary

provision of employee benefit health plans.

In Knudson, the maiority specifically held that

a plan reimbursement and/or subrogation provision

could not be enforced against a plan participant (or

beneficiary) who was never in possession of the

settlement funds at issue. Notably, the majority

explicitly distinguished situations involving the

enforceability of plan reimbursement provisions

where, as here, a party in. possession of the

settlement funds-has been sued. Knudson, 534

U.S. at 214. The majority explained that equitable

restitution generally was available if “money or

property .. . belonging in good conscience to the

plaintiff could clearly be traced to particular funds or

property in the defendant’s possession.” Knudson,

534 U.S. at 213 (citing 1 D. Dobbs, Law of Remedies

§ 4.3, at 587-88 (2d ed. 1993); Restatement of

Restitution, Comment a, at 641-42 (1936); 1 G.

Palmer, Law of Restitution § 1.4, p.17; § 3.7, p. 262

(1978)).

In contrast to this situation described in

Knudson, Petitioners ask this Court to now hold that

the object of any suit to enforce the terms of a plan

réimbursement provision is “in essence, to impose

personal liability on [Petitioners] for a contractual

obligation to pay money...” (Petitioners’ Brief, at

23 (quoting Knudson, 534 U.S. at 210)), regardless of

whether a defendant, as in the present case, was in

possession of the particular settlement funds at

issue.

Such a result is inconsistent not only with this

Court’s careful differentiation between money

damages and equitable relief in Knudson, but also

with both ERISA’s structure and the objectives by

which this Court has stated that interpretations of

Section 502(a)(3) should be informed. See Varity

Corp. v. Howe, 516 U.S. 489, 515 (1996). Plan

reimbursement provisions were commonly included

in both insured and self-insured health plans at the

time of ERISA’s enactment as a means of reducing

potentially enormous costs to the plan which could

adversely affect the cost and availability of coverage

to its participants. It cannot reasonably be

concluded that Congress, while explicitly authorizing

civil actions to “enforce the terms of |a] plan,” and

mandating the plan fiduciaries act “in accordance

with the documents and instruments governing the

plan,” intended to omit the enforcement of such

vital plan reimbursement provisions from ERISA’s

“comprehensive and reticulated” scheme. See

Nachman Corp. v. Pension Benefit Guar. Corp., 446

U.S. 359, 361 & 361 n.1 (1980) (noting that ERISA is

a “comprehensive and reticulated statute” which

provides civil and criminal enforcement).

Interpreting ERISA to exclude such provisions

from its enforcement provisions contravenes every

one of what this Court has called the sometimes

“competing congressional purposes” for enacting

ERISA in the first place. See Varity Corp., 516 U.S.

at 497. Those purposes include the desire to:

(1)create incentives for the creation and

maintenance of employee benefit plans (see Fort

Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 11

(1987)); (2)“protect plan participants and

beneficiaries” (Boggs v. Boggs, 520 U.S. 833, 845

(1997) (citation omitted)); (3) ensure the enforcement

of the terms of employee benefit plans (Gulf Life Ins.

Co. v. Arnold, 809 F.2d 1520, 1523 (11th Cir. 1987));

and (4) assure uniformity and efficiency in plan

administration. N. Y. State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co., 514 U.S.

645, 656-57 (1995).

; ERISA § 502(ax3), 29 U.S.C. § 1132(aX3); ERISA §

404(aX 1D), 29 U.S.C. § 1104(aX1)(D).

Il.

ARGUMENT

A. A Claim To Enforce The Terms Of An

Employee Benefit Plan Is _ Explicitly

Authorized By ERISA Section 502(a)(3)

So Long As The Remedy Sought Is

“Appropriate Equitable Relief”

Petitioners’ assertions that any claim to

enforce a plan reimbursement provision is not

authorized under Section 502(a)(3) because it is in

essence a breach of contract claim for money

damages, and not equitable relief, is specious.” The

language of ERISA Section 502(aX3) explicitly

authorizes civil actions by a plan fiduciary (as well

as a participant and beneficiary) “to enforce ... the

terms of [a] plan” or “to redress such violations” of

plan terms.® This straightforward grant by Congress

of the right of a plan fiduciary to enforce plan terms

belies Petitioners’ assertions. Indeed, ERISA

obligates a plan fiduciary to act in accordance with

plan terms.’

The only relevant limitation in

Section 502(a)(3) on an action seeking to enforce the

terms of a plan is that the remedy or remedies

sought in connection with such a claim must

constitute “appropriate equitable relief.” Refusing to

See Petitioners’ Brief, at 23 (citing Knudson, 534 U.S.

at 210).

See ERISA § 502(a"3), 29 ULS.C. § 1182603) (emphasis

added).

See ERISA § 404ta¥ 1" D), 29 U S.C. § 1104(ax 10D).

enforce the terms of an employee benefit plan or

allow redress for its violation under Section 502(a)(3)

solely because such claim is_ gratuitously

characterized as “in substance” a breach of contract

claim for money damages renders the relevant

language from Section 502(a73) completely

superfluous. See, e.g., Admin. Comm. of Wal-Mart

Assocs. Health & Welfare Plan v. Willard, 393 F.3d

1119, 1125 (10th Cir. 2004) (explaining that “[a]fter

all, any equitable relief, including those forms

explicated by the [Supreme] Court as available

under [Section] 502(a)(3), must involve the direct or

indirect transfer of money, and we cannot read

the statute to proscribe all forms of relief.”)

(emphasis added).

B. The Relief Sought In This Case

Constitutes Equitable Relief Within The

Meaning Of ERISA Section 502(a)(3)

Respondent’s brief amply demonstrates that

the relief sought in this case clearly falls within the

guidelines for determining “equitable relief” set forth

by this Court in Knudson and the authorities relied

upon by the Court in articulating such guidelines.

Thus, despite acknowledging the “fairness” of

enforcing plan reimbursement provisions in

circumstances like these in this case,” Petitioners

would ascribe to Congress (without a scintilla of

legislative history) an intent to preclude the

enforcement of such important employee benefit plan

provisions under precisely the circumstances that

Petitioners’ Brief, at 21.

10

this Court has stated gives rise to a basis for seeking

equitable restitution.

To deny such. relief where the settlement

funds are in defendant’s possession and undoubtedly

belong “in good conscience to respondent” is to

interpret the term “equitable relief’ without regard

to the primary objectives of ERISA and in a fashion

which disregards a reasonable interpretation of the |

language of ERISA Section 502\aX3) according to

guideposts carefully articulated by the majority in

Knudson. Following Petitioners’ path would turn

innumerable cases involving the interpretation of

“appropriate equitable relief’ into precisely the

immersion into the esoteric pronouncements of

relevant treatises and ancient cases that both the

majority and minority in Knudson hoped to avoid.

C. The Equitable Relief Which Respondent

Seeks Is “Appropriate” Within The

Meaning Of ERISA Section 502(a)(3)

Petitioners assert that, even if the relief which

Respondent seeks is “equitable relief within the

meaning of ERISA Section 502(a\(3), it nevertheless

is not “appropriate.” Such an assertion is

inconsistent with this Court’s guidelines for

interpreting that term set forth in Varity Corp. v.

Howe, 516 U.S.-489 (1996), and with ERISA’s

primary policy objectives which are an important

touchstone in determining whether particular relief

is “appropriate.” Jd. at 515 (“We should expect that

courts, in fashioning ‘appropriate’ equitable relief,

will keep in mind the ‘special nature and purpose of

—— oe

Petitioners’ Brief, at 30-35.

11

employee benefit plans,’ and will respect the ‘policy

choices reflected in the inclusion of certain remedies

and the exclusion of others.” (quoting Pilot Life Ins.

Co. v. Dedeaux, 481 U.S. 41, 54 (1987)).

1. Petitioners’ interpretation of

ERISA Section 502(a)(3) would

essentially preclude the

enforcement of ~ any plan

reimbursement provision, or any

other plan provision which entails

an obligation to pay money to a

plan.

An affirmance in this case would, effectively,

eliminate the right and ability to enforce under

ERISA any plan’ reimbursement provision.”

Reimbursement provisions, such as those at issue in

this case, prevent the dissipation of a limited pool of

health care funds that would lead to increases in

health benefit plan costs, discourage employers from

maintaining iiealth benefit plans, and inevitably

increase the ranks of the uninsured.

Functionally, reimbursement provisions

operate to allow insurance companies and health

benefit plans to recoup funds directly from

participants or beneficiaries who ultimately recover

wm

The same reasoning could be used to foreclose plan

fiduciaries from recouping overpaid health and pension plan

benefits. See N. Am. Coal Corp. v. Roth, 395 F.3d 916, 917 (8th

Cir. 2005) (district court may properly award equitable relief to

plan and its administrator who brought lawsuit against

individuals who refused to return monies mistakenly overpaid

from pension benefit plan), cert. dented, 126S Ct. 14512005).

12

payments for the same injuries from responsible

third parties. Reimbursement differs from the more

costly and burdensome alternative of subrogation in

that under a reimbursement provision, a health

benefit plan does not actually commence an action in

the beneficiarys name, as it would under a

subrogation provision, but instead acts as a first

lienholder upon any third-party funds collected by

the beneficiary.

A primary objective of ERISA is to ensure the

enforcement of terms of a plan. See, e.g., Arnold, 809

F.2d at 1523 (“The purpose essential to section

1132(aX(3)(B) is to enforce the terms of [a] plan...

.”). Such an objective is manifest in the structure of

ERISA which, among other things (i) requires

fiduciaries to act in accordance with the terms of a

plan,’ (ii) provides plan. participants and

beneficiaries with a cause of action to enforce their

“rights under the terms of the plan,”” and

(iii) authorizes participants, beneficiaries, and

fiduciaries “to enjoin any act or practice which

violates .. . the terms of [a] plan” or “to obtain other

appropriate equitable relief . . . to redress such

violations.”

ERISA &§ 404(a 14D), 29 ULS.C. § 1104¢a” 14D).

ERISA § 5021aX 1" B), 29 U.S.C. § 1182(aW1B).

BRISA § 502(aX3), 29 U.S.C. § 11321003).

13

2. The type of relief sought in this

case promotes the availability and

affordability of health insurance.

Not only does the Petitioners’ interpretation

undermine the enforcement of a critically important

plan provision, but it contravenes the intent of

Congress that ERISA be used to protect plan

participants and beneficiaries‘ and create incentives

for the creation and maintenance of employee benefit

plans.”

Employer-based health insurance is the

keystone of the American health care system. In

2003, approximately 131 million people in the

United States had some kind of private health

coverage through ERISA-governed group health

plans.° As the number of privately insured

individuals decreases, the financial burden of health

" See Boggs, 520 U.S. at 845 (“The principal object of the

statute is to protect plan participants and beneficiaries.”)

(citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983).

ERISA itself notes that the express purpose is “to protect

interstate commerce and the interests of participants in

employee benefit plans and their beneficiaries.” ERISA § 2(b),

29 U.S.C. § 1001(b).

= See Coyne, 482 U.S. at 11 (1987) (“A patchwork scheme

of regulation would introduce considerable inefficiencies in

benefit program operation, which might lead those employers

with existing plans to reduce benefits, and those without such

plans to refrain from adopting them.”).

" Department of Labor Deputy Assistant Secretary for

Policy Bradford P. Campbell, Testimony Before the

Subcommittee on Labor, Health and Human Services, and

Education Committee on Appropriations, April 2, 2004,

avatlable at http://www.dol.gov/ebsa/newsroom/ty040204 html.

14

care is shifted to the already-strained federal and

state systems.'’ National public policy is clearly

against altering the health insurance and ERISA

plan industry in any way that would significantly

increase premium rates and deductibles.”

Insurance companies and employee health

care plans base their rates and benefit levels on

actuarial predictions of future claims and expense

levels which are based, in part, on past claims

experience. Reimbursement and subrogation results

- See John Sheils & Lisa Alecxih, The Lewin Group, Inc.,

Recent Trends in Employer Health Insurance Coverage and

Benefits, Final Report, 7 (Oct. 21, 1996) (projecting that as the

percentage of people with employer-sponsored health care as

their primary health care coverage decreases, the percentage of

people with Medicare or Medicaid as their primary source of

health care coverage will increase), available at http://www.

lewin.com/Lewin_Publications/Uninsured And Safety Net/Pub

lications-23 htm. See also U.S. Census Bureau, Income,

Poverty, and Health Insurance Coverage in the United States.

2004, Current Population Reports (August 2005) (the

percentage and number of people covered by government health

insurance programs increased between 2003 and 2004, while

the percentage of people covered by employment-based health

insurance decreased).

= While the rate of increase has slowed recently,

premiums for employer-sponsored health insurance still

increased by 9.2% in 2005. Kaiser Family Foundation &

Health Research and Educational Trust, Emplover Health

Benefits 2005 Annual Survey, avaiable at

http://www_kff org/insurance/73 15/index.cfm.

15

are factored into claims experience.’ With the

inability to recoup plan funds, the inevitable result

will be that rates will ultimately increase or benefits

will decrease for all members of employee health

benefit plans, or in some cases benefits will be

discontinued entirely. The impact of the loss of the

ability to enforce reimbursement provisions may be

particularly harsh for smaller plans, where a single,

unreimburseable loss could lead to a significant rate

increase for a plan because of the size of the loss

relative to the plan’s aggregate claims experience. ~

- See, e.g., Incurred Health and Disability Claims,

Actuarial Standard of Practice No. 5, $3.3.5 (Actuarial

Standards Bd. 2000), which states:

Coordination of Benefits (COB) or Subrogation -

The actuary should take into account the

relevant organizational practices and

regulatory requirements related to COB or

subrogation. In particular, the actuary should

consider how these items are reflected in the

data (for example, negative claims or income)

and make appropriate adjustments for COB,

subrogation, or other adjustments or recovery.

See also Documentation in Health Benefit Plan Ratemaking,

Actuarial Standard of Practice No. 31, $3.5.4 (Actuarial

Standards Bd. 1997).

= A simple mathematical example confirms this:

Assume a group with $4M of claims in 2005 is renewing

their contract with the same plan and population. Assuming

further a 10% increase due to changes in cost and utilization, a

3% increase for the aging of the population, and no reductidn in

claims in the past for recoupment, then the expected claims for

2006 might be calculated as $4.52M, a 13% increase. For

insured plans, premiums would be based on this expected

claims number.

~

16

Even a one percent increase in health plan

costs nationally “results in a potential loss of

insurance coverage for about 315,000 individuals”

over a five-year period.”’ Thus, as reported in the

New York Times on August 31, 2005, a new survey

by the U.S. Census Bureau shows that, after four

years of rapidly rising health costs, the percentage of

people receiving health care from employers

decreased from 63.6% in 2000 to 59.8% last year

(2004). Cost containment mechanisms such as

reimbursement provisions are critical to ensure that

the number of privately insured individuals does not

further decrease.”

Petitioners appear to recognize that a

subrogation claim brought directly by a plan or

insurer against a third-party tortfeasor would

constitute “equitable relief’ within the meaning of

However, if during the prior year the group had a

$200K net recoupment recovery then the actuary would reduce

the prior year’s claims experience to $3 8M. Applying the 13%

increase to this experience results in an expected claims

number of $4.29M. This is approximately 5% less than the

projected claims without allowing recoupment.

as See Health Econ. Practice, Barents Group, LLC,

Impacts of Four Legislative Provistons on Managed Care

Consumers: 1999-2003, ini (prepared for the Am. Ass'n of

Health Plans, 1998).

= See David Leonhardt, Poverty in US. Grew in 2004.

While Income Failed to Rise for 5th Straight Year, N.Y. Times,

August 31, 2005, at AQ.

See Relationship Between Health Care Costs and

America’s Uninsured: Hearing Before the Subcomm. on

Employer-Employee Relations of the House Comm. on Educ. &

the Workforce, 106th Cong. 63 (statement of Dan Cmppen,

Director, Congressional Budget Office).

17

Section 502(a)(3).** Such an approach, however, is

far more administratively complex, costly, and

unpredictable than the relatively simple

enforcement of a reimbursement provision. Indeed,

for that reason many plans contain only

reimbursement provisions. The legal costs alone

incurred by a plan or insurer in pursuing an action

against the third-party tortfeasor often can exceed

the amount which the plan or insurer is seeking to

recover as reimbursement for the benefits which it

paid.

Thus, in the present case, where the amount

at issue is approximately $75,000, a direct suit

against the tortfeasor probably would not have been

cost effective. Moreover, again as demonstrated by

the facts in this case, the plan participant or

beneficiary often fails to cooperate with the plan or

insurer with respect to the latter’s participation and

often (if not usually) may arrive at a settlement with

a tortfeasor before the plan or insurer is made aware

that the participant or beneficiary is seeking

recovery from a third party. Most significantly, it is

inconceivable that Congress could have intended, as

Petitioners argue, to authorize a subrogation action,

but not one for reimbursement, because of

purportedly different treatment of those actions

under antiquarian equity principles.

a See Petitioners’ Brief, at 28-30.

18

3. Petitioners’ assertion that

reimbursement provisions

undermine the _ protection of

beneficiaries is without merit.

Petitioners argue that “[i]t strains credulity to

suggest that [the enforcement of a plan

reimbursement provision] is ‘appropriate[]”” because

such enforcement might result in making the plan or

its insurer “whole at the expense of [an injured]

beneficiary who is left ‘in part.” Petitioners’ Brief,

at 34 (citing and quoting Rodger M. Baron, Public

Policy Considerations Warranting Denial _Of

Reimbursement to ERISA Plans: It’s Time to

Recognize The Elephant In The Courtroom, 55

Mercer L. Rev. 595, 631 (2004)). This assertion,

based upon an article which itself relies primarily on

conjecture and anecdotal comment rather than

empirical evidence, ignores several fundamental

facts which render such an assertion untenable.

First, the Petitioners’ argument is based only

upon the perspective of an injured participant or

beneficiary, as distinguished from the perspective of

what is in the best interest for a plan’s participants

and beneficiaries as a whole, including the injured

participant. ERISA, however, requires plan

fiduciaries to discharge their “duties with respect to

a plan solely in the interest of the participants and

beneficiaries,” and to “act to ensure that a plan

receives all funds to which it is entitled, so that

those funds can be used on behalf of participants and

ERISA § 404(a¥"1), 29 U.S.C. § 1104/a 1).

19

beneficiaries.” Cent. States, Southeast & Southwest

Areas Pension Fund v. Cent. Transp., Inc., 472 U.S.

559, 571 (1985). The statute’s deliberate use of the

plural reflects that the interests of those plan

members in the aggregate are paramount, and one

member should not be allowed to _ benefit

disproportionately at the expense of the group. See

Ellis v. Metro. Life Ins. Co., 126 F.3d 228, 234 (4th

Cir. 1997) (a fiduciary “must serve the best interests

of all Plan beneficiaries, not just the best interest of

one potential beneficiary”). Yet Petitioners

completely disregard that a failure of the plan or its

insurer to recover benefits paid to an injured

beneficiary or participant out of a judgment against

or a settlement from the tortfeasor responsible for

the injury may increase the plan’s insurance

premiums and/or uninsured costs to the detriment of

all of its participants and beneficiaries. .

Second, reimbursement provisions eliminate

double payment for the same claim, as well as

ensure that the liability for tort claims falls only on

those who cause injury rather than innocent plan

participants, beneficiaries, or their health plans. See

Health Cost Controls of Ill., Inc. v. Washington, 187

F.3d 703, 711-12 (7th Cir. 1999) (noting that “[t]he

obvious purpose of [an ERISA plan’s document's

reimbursement provision] is to prevent double

payment for the same claim”), cert. denied, 528 U.S.

1136 (2000). Barring enforcement of a_ plan

reimbursement provision allows unjust enrichment

of one participant or beneficiary at the expense of all

other participants.

20

Third, Petitioners ignore the well-recognized

fact that in enacting ERISA, Congress intended to

leave to the discretion of plan sponsors the design,

benefits, benefit exclusions, and other terms of

employer benefit welfare plans. Land v. Chicago

Truck Drivers, Helpers & Warehouse Workers Union

(Indep.) Health & Welfare Fund, 25 F.3d 509, 514

(7th Cir. 1994) (“This court similarly has observed

that ‘Congress never intended ERISA to dictate the

content of welfare benefit plans’ and that decisions

as to the content are within the discretion of the plan

administrators”) (citation omitted); Dzinglski v.

Weirton Steel Corp., 875 F.2d 1075, 1078 (4th Cir.

1989) (“Congress left employers much discretion in

designing their plans’ under ERISA and in

determining the level and conditions of benefits.”)

(quoting Hlinka v. Bethlehem Steel Corp., 863 F.2d

279, 283 (3d Cir. 1988)), cert. denied, 493 U.S. 919

(1989). Thus, nothing in ERISA prevents a plan

sponsor from including the type of reimbursement

provisions at issue, or even conditioning the advance

payment of benefits to someone injured by a third

party on the presence of an_ enforceable

reimbursement agreement. Kress v. Food Employers

Labor Relations Ass'n, 391 F.3d 563, 569-70 (4th Cir.

2004).

No legal mandate requires employers to

sponsor benefit plans, nor is there any mandate

regarding “what kind of benefits employers must

provide if they choose to have such a _ plan.”

Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996)

(citations omitted). To the contrary, the Court has

recognized that in enacting ERISA, Congress did not

intend that the federal judiciary, as Petitioners

21

—“~e

would have it, substitute its views as to what

constitutes appropriate. plan design for’ the

judgments of employers and plan sponsors. Black &

Decker Disability Plan v. Nord, 538 U.S. 822, 831-34

(2003); Pegram v. Herdrich, 530 U.S. 211, 232-34

(2000); see also Dzinglski, 875 F.2d at 1078 (“The

judicial role is not to rewrite [ERISA] plan

provisions, but to assure that they are fairly

administered.”). Instead, this Court has been

adamant that ERISA not be interpreted in a manner

which “unduly discouragels] employers from offering

welfare benefit plans in the first place.” Varity

Corp., 516 U.S. at 497 (citations omitted).

Petitioners’ argument in this case, by failing to give

effect to a critical cost-saving provision of most

health and welfare plans, unfortunately does just

that.

4. Rejection of enforcement of ERISA

reimbursement claims would

adversely affect the uniform

administration of employee benefit

health plans.

Another important objective of ERISA is to

assure uniformity in plan administration. Egelhoff

v. Egelhoff, 532 U.S. 141, 148 (2001) (“One of the

principal goals of ERISA is to enable employers ‘to

establish a uniform administrative scheme, which

provides a set of standard procedures to guide

processing of claims and disbursement of benefits.)

(quoting Coyne, 482 U.S. at 9). See also Rush

Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379

(2002) (“ERISA’s [basic] policy [is to] inducle]

employers to offer benefits by assuring a predicable

22

set of liabilities, under uniform standards of primary

conduct and a uniform regime of ultimate remedial

orders and awards when a violation has occurred.”)

(citation omitted); Aetna Health Inc. v. Davila, 542

U.S. 200, 208 (2004) (“The purpose of ERISA is to

provide a uniform regulatory regime over employee

benefit plans.”). This goal, too, would be undermined

by the adoption of Petitioners’ arguments.

Petitioners sought review of the present case by this

Court because of a split among federal circuit courts

in interpreting and applying its holding in Knudson.

The adoption of Petitioners’ position in this case

almost certainly will not dispositively resolve the

detrimental effects of this conflict, but rather will

compound them.

Although derived from what the majority in

Knudson admitted was an “antiquarian inquiry,” the

distinction which it articulated between legal and

equitable relief clearly captured the essence of that

distinction as set forth by the sources on which the

majority relied. Petitioners, on the other hand, urge

this Court to go beyond that distinction in a never-

ending search for more esoteric and less universal

distinctions to achieve the result which they seek in

this case. Given the complexity of such an exercise,

it is reasonable to expect that the lower courts will

proceed in multiple, inconsistent directions, if they

are required to disregard the clear Knudson

guideposts.

Nor, finally, is it satisfactory to assume that

employee benefit plans can effectively enforce these

important plan rights in the state courts. No one

seriously disputes that the varying and divergent

23

laws in the states relating to plan reimbursement

and subrogation provisions would lead to a

patchwork of different results in state courts

applying state law. The national, uniform

administration of a provision central to most

employee benefit plans would be destroyed as a

consequence -- making benefits all the more costly tc

provide, thereby threatening the financial viability

of employer-sponsored plans.

IV.

CONCLUSION

For the above reasons, Amici, the America’s

Health Insurance Plans, Inc., the American Benefits

Council, and the National Association of

Manufacturers, respectfully request that this Court

affirm the decision of the Court of Appeals for the

Fourth Circuit.

24

Dated: February 23, 2006

Respectfully submitted,

Waldemar J. Pflepsen, Jr.

Counsel of Record

Stephen H. Goldberg

JORDEN BURT LLP

1025 Thomas Jefferson Street, N.W.

Suite 400 East

Washington, DC 20007

(202) 965-8100

Stephanie W. Kanwit

Julie Simon Miller

AMERICA’S HEALTH INSURANCE PLANS, INC.

601 Pennsylvania Avenue, N.W.

South Building, Suite 500

Washington, DC 20004

(202) 778-3200

Kathryn Wilber

Lynn Dudley

AMERICAN BENEFITS COUNCIL

1212 New York Avenue, N.W.

Suite 1250

Washington, DC 20005

(202) 289-6700

Jan S. Amundson

Quentin Riegel

NATIONAL ASSOCIATION OF MANUFACTURERS

1331 Pennsylvania Avenue, N.W.

Washington, DC 20004

_ (202) 637-3000

Attorneys for Amici Curiae