ERISA or not? How to identify a self-funded health plan, and why it decides your lien

When a client's own health insurer paid for injury treatment, it will usually assert a reimbursement or subrogation right against the settlement. The single most important question you can ask is whether the plan is a self-funded ERISA plan, because that determines which rules bind it.

Why self-funded ERISA plans are different

ERISA governs most employer-sponsored health plans, and there is a key split in how they are funded:

• Fully insured plans: the employer buys insurance from a carrier, and the carrier bears the risk. These are regulated as insurance under state law, so state anti-subrogation rules, made-whole statutes, and common-fund protections generally apply.
• Self-funded plans: the employer pays claims out of its own funds, often through a third-party administrator. Under ERISA's "deemer clause," these plans are not treated as insurance and are generally exempt from state insurance regulation.

The practical result: a self-funded ERISA plan can, with the right plan language, override state made-whole and common-fund defenses. The Supreme Court's decision in US Airways v. McCutchen confirmed that clear plan terms control reimbursement, but also that where the plan is silent, equitable doctrines can fill the gap. In other words, the plan document is the whole ballgame.

How to tell if a plan is self-funded

No single indicator is conclusive; stack several:

1. 1Ask directly. Request the plan document and the Summary Plan Description (SPD), and ask the plan or its administrator in writing whether benefits are self-funded or fully insured.
2. 2Read the SPD. Self-funded SPDs often say the employer "self-funds" or "self-insures" benefits. A stop-loss carrier may be mentioned, but stop-loss coverage does not make a plan fully insured.
3. 3Check the Form 5500. Many employer plans file a Form 5500 with the U.S. Department of Labor, and the schedules can hint at funding. These filings are public.
4. 4Look at who actually pays claims. A third-party administrator adjudicating claims while the employer funds them is a strong signal of self-funding.
5. 5Watch for non-ERISA plans. Governmental and church plans are generally exempt from ERISA and follow their own rules, and federal-employee (FEHBA) plans follow federal law. These are not self-funded ERISA plans and are analyzed differently.

What changes once you know

• Self-funded ERISA with strong plan language: the plan may claim first-dollar reimbursement and disclaim both the make-whole and common-fund doctrines. Your leverage is in the plan's actual words and in negotiation, not in state law.
• Fully insured, or self-funded but silent: state law and equitable doctrines may sharply limit the claim. The make-whole doctrine may bar recovery until the client is fully compensated, and the common-fund doctrine may require the plan to share the attorney's fees that created the recovery.

The move

Get the plan document early and read it for the three answers that set your ceiling: is the plan genuinely self-funded, does it disclaim the make-whole doctrine, and does it disclaim the common-fund doctrine. Those answers, not the demand letter, tell you what you actually owe. Closeout reads plan language for exactly these terms; see document intelligence and subro intelligence.

FAQ

How do I know if a health plan is self-funded or fully insured?

Request the plan document and Summary Plan Description and ask the plan or administrator in writing. Self-funded plans pay claims from the employer's own funds, often through a third-party administrator, and are exempt from state insurance law. Fully insured plans are bought from a carrier and are regulated by the state.

Does the made-whole doctrine apply to ERISA plans?

It depends on the plan language. A self-funded ERISA plan with clear terms disclaiming the make-whole doctrine can override it. If the plan is silent, courts may apply equitable doctrines. Fully insured plans are generally subject to state make-whole rules.

Can an ERISA plan take my entire settlement?

A self-funded ERISA plan with strong reimbursement language can assert a broad right, but the amount is still negotiated in practice, and the plan's actual language and any fee-sharing terms matter. Silent plans and fully insured plans are usually more limited.

What is the common-fund doctrine in subrogation?

It is the principle that a party who recovers a fund benefiting another, such as the health plan, can charge that party a proportionate share of the attorney's fees and costs that created the recovery. Self-funded ERISA plans can disclaim it with clear language; otherwise it often applies.

This article is general information for legal professionals, not legal advice; plan terms and subrogation law vary.