Wednesday, April 02, 2008

An Extraordinary Situation

It was an "extraordinary situation" that made Wal-mart reconsider its relentless pursuit of profit by seeking to recoup the medical expenses paid to a disabled ex-employee. Either that or it was an extraordinary situation of bad press that might have negatively impacted its future relentless pursuit of profit.

Of course, I'm speaking of the case of Deborah Shank, the former employee who was severely brain damaged after a car accident several years ago. When she was injured, she was covered under Wal-mart's health insurance plan (which she no doubt had to pay for, since Wal-mart doesn't provide employer paid benefits) for her medical expenses. Shank then sued for the accident and recovered $417,000 for her injuries (after expenses and legal fees), which was placed in trust for her future care in a nursing home. See As if you needed another reason NOT to shop at WalMart for more details on the story.

Using the legal theory of subrogation, the health plan (through Wal-mart) prevailed in its lawsuit to recoup the monies paid to her for her medical expenses, which exceed the amount of her trust fund.

It was only after Wal-mart was assaulted by universally bad press over its decision to take the trust fund money from Shank that it finally relented. As was reported in Wal-Mart drops effort to recoup medical costs:

Wal-Mart Stores Inc. is dropping a controversial effort to collect over $400,000 in health care reimbursement from a former employee who is confined to a southeast Missouri nursing home since she suffered brain damage in a traffic accident.

The world's largest retailer said Tuesday in a letter to the family of Deborah Shank it will not seek to collect money the Shanks won in an injury lawsuit against a trucking company for the accident.

Wal-Mart's top executive for human resources, Pat Curran, wrote that Shank's extraordinary situation had made the company re-examine its stance. (Emphasis added).

And what was the "extraordinary situation"? Was it the recent death of her son in Iraq, perhaps? No, nothing that simple:

Wal-Mart has been roundly criticized in newspaper editorials, on cable news shows and by its union foes for its claim to the funds, which it made in a lawsuit upheld by a federal appeals court.

Insurance experts say it is increasingly common for health plans to seek reimbursement for the medical expenses they paid for someone's treatment if the person also collects damages in an injury suit.

The practice, called "subrogation," has increased since a 2006 Supreme Court ruling that eased it.

* * * *

The case put a spotlight on the growing use of reimbursement claims by health plans, experts say.

Roger Baron, professor of law at the University of South Dakota and a specialist in health-plan law, said health plans have become "very aggressive" about subrogation since the 2006 Supreme Court decision.

"It's free money. They want the free money," Baron said.

This was one of those issues that I was going to write about when I first read about the story, but didn't get an opportunity to do so. Whatever precipitated Wal-mart's decision to let these people keep the money is a good thing, for sure.

However, as I read about the the outcome, I also read an article about the problems that Social Security is facing with being overwhelmed with claims being file for disability benefits. See Insurers Faulted as Overloading Social Security. This is the very same issue that the Shanks faced in the realm of Social Security disability. Noting the substantial increase in disability claims with little merit, the New York Times reports:

Insurance companies are the source of the problem, the lawsuits say. The insurers are forcing many people who file disability claims with them to also apply to Social Security — even people who clearly do not qualify for the government program.

The Social Security Administration defines “disabled” much more stringently than the insurers generally do, so it rejects most of the applications, at least initially. Often, the insurers then tell their claimants to appeal, the lawsuits say, raising the cost.

The insurers say that requiring a Social Security assessment is a standard practice and that there is nothing wrong with it.

The policies they sell allow them to coordinate their benefit payments with others to make sure no one is paid twice. Thus, if a disabled person can get benefits from somewhere else — like workers’ compensation, a disability pension or Social Security — the insurance company can reduce the benefit check by that amount.

This is effectively the Social Security equivalent to the subrogation claim by Wal-mart, albeit on a lesser scale. The problem is that it clogs the system, delaying those with valid claims (and perhaps without another disability policy paying benefits in the interim) from recovering benefits.

Even worse, it places an additional burden on a person already coping with a disability-related illness or injury to deal with the process of filing an administrative claim and appeal to Social Security.

I have seen this situation first hand in my practice. I have, on occasion, represented someone who has obtained long term disability benefits, who is then forced to go through the process of filing for Social Security disability. It is a frustrating exercise, since it is likely to be denied. Yet, the disability policy requires the disabled claimant to pursue the claim or risk losing their disability benefits. So, it addition to trying to recover from their injury, they have to deal with the administrative burden of filing a futile claim with Social Security.

I also recommend that they handle the claim on their own, rather than using a lawyer, since they don't want to pay legal fees with no possible benefit. The problem is that it is often an overwhelming prospect for them to deal with, so I have to encourage them not to just give up, since they will otherwise lose their needed benefits.

Yes, it is certainly an extraordinary situation, but one that is not uncommon. One for which we can thank the insurance industry.

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