We all get the silly form letters in the mail, usually from companies called “third-party adminstrators”, like the Rawlings Company in Kentucky. The form letters of third-party administrators seek to enforce a subrogation claim on a private health insurance policy against a personal injury or malpractice settlement. Unfortunately, many lawyers (if not most) simply assume the subrogation claims have merit and pay at least a portion of the subrogation claim. Huge mistake!
The subrogation claims made by third-party administrators are completely bogus in 95% of the cases. Section 5-335 of New York’s General Obligations Law prohibits subrogation claims by health insurers with one rare exception. Only “self-funded” health plans are exempt from New York’s statutory bar on subrogation claims.
A “self-funded” health plan is one where the participant’s employer is paying directly for the employee’s healthcare treatment. A “self-funded” plan is very rare, since typically only large companies with 10,000 or more employees can afford this option; in essence, the employer is insuring its employees for health care.
In contrast, the more typical health plan is “insured”, where the employer pays a premium to an insurance company to provide for the employee’s health care expenses. An “insured” health plan has no right to seek to enforce a subrogation clause in its health policy, since New York law bars such claims. However, third-party administrators ignore New York’s law and continue to seek to collect on bogus subrogation claims.
The next time you get a letter from a third-party administrator, like the Rawlings Company, you should send a certified letter demanding that they provide the health plan’s Summary Plan Description and a tax form known as Form 1055. These documents will state whether the health plan is “insured” or “self-funded” and with this information, you will have all the ammunition you need to challenge the phony subrogation claim.
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