If you’ve been injured or are dealing with a health insurance claim, you may have heard the term ERISA. It sounds technical, but what’s important to know is that it can have a real and sometimes decisive impact on your case.

This post explains what ERISA is, why it exists, and why it matters to both personal injury claims and health insurance bad faith claims.

What is ERISA?

The Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq., is a federal law enacted in 1974. Its original purpose was to:

• protect employees participating in employer-sponsored benefit plans;
• ensure transparency and accountability in how those plans are administered; and
• create a uniform federal framework governing those plans.

While ERISA was initially focused on pensions, it also applies to many employer-sponsored health insurance plans.

Why ERISA Exists

Before ERISA, employee benefit plans were regulated inconsistently across states. Congress stepped in to:

• standardize plan administration;
• protect plan assets; and
• limit abuse and mismanagement.

To accomplish this, ERISA includes a powerful feature called federal preemption. This means ERISA overrides certain state laws that would otherwise apply. It’s that concept of preemption that affects injury victims and insureds in a very real way.

Where and How ERISA Shows Up in Real Cases

At our firm, ERISA comes up in both personal injury cases and first-party cases against health insurance companies.

Personal injury cases

If you are injured and your health insurance pays your medical bills, your insurer may later seek reimbursement from your settlement of the amounts it paid. The process of health insurers getting paid back is generally known as subrogation. In personal injury cases, ERISA works to strengthen the health insurer’s right to recover money and limits our clients’ ability to negotiate the amount of reimbursement actually paid at the end of a case.

Insurance bad faith cases

In Colorado, insurance companies that act unreasonably can often be held accountable through statutory claims for unreasonable delay or denial and through common law claims for first-party bad faith. The torts of bad faith and unreasonable delay / denial apply to a wide variety of insurers, including those writing automobile, homeowners, and health insurance policies. Some health insurance plans are governed by ERISA. For the members of those plans, ERISA eliminates these state law claims and replaces them with lesser remedies.

Why This Matters for Potential Clients

Most people don’t know whether their health plan is governed by ERISA and even fewer people understand what that means. But the consequences are significant and can include less leverage for negotiating subrogation at the close of personal injury cases and fewer and less powerful legal remedies against insurers handling claims under ERISA governed healthcare plans.

What’s Next in This Blog Series

This is Part 1 of the three-part series on ERISA, so stay tuned for more. In Part 2, we’ll break down:

• how subrogation works in injury cases;
• which healthcare plans are governed by ERISA; and
• why self-funded ERISA plans are especially powerful and challenging.

Part 3 will focus on:

• Colorado’s powerful bad faith laws;
• why they apply to most insurance claims; and
• and why they do not apply to health insurers operating under ERISA.