The US Court of Appeals for the Third Circuit has held that anti-assignment clauses in health plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) generally are enforceable.
Third Circuit: Anti-Assignment Clauses in ERISA Health Plans Are Enforceable
by Practical Law Employee Benefits & Executive Compensation
| Published on 18 May 2018 • USA (National/Federal) |
The US Court of Appeals for the Third Circuit has held that anti-assignment clauses in health plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) generally are enforceable.
In litigation involving coverage of out-of-network services, the US Court of Appeals for the Third Circuit has held that anti-assignment clauses in ERISA health plans are generally enforceable (American Orthopedic & Sports Med. v. Independence Blue Cross Blue Shield, , at *6 (3d Cir. May 16, 2018)).
Background
The health provider-plaintiff in this case performed shoulder surgery on a covered individual under an ERISA health plan. In billing the individual for the procedure, the provider – because it was not part of the plan’s provider network – charged amounts that far exceeded the plan’s reimbursement limits for the surgery. The plan’s insurer applied its out-of-network limit in processing the claim and reimbursed only a fraction of the total amount charged. The provider then:
- Asked the individual to assign his right to pursue the claim to the provider.
- Pursued a claim for the unreimbursed amounts, without success, through the insurer’s internal administrative claims procedures.
(See Claims Procedure Requirements for Group Health Plans Checklist.)
The provider sued the insurer to recover the unreimbursed amounts and the insurer moved to dismiss, asserting that the plan included an anti-assignment clause prohibiting the covered individual from assigning his right to receive benefit payments to another person, hospital, or entity. The district court agreed and dismissed the complaint, and the provider appealed.
Outcome
On appeal, the Third Circuit held that anti-assignment clauses in ERISA health plans are enforceable as a general matter.
ERISA’s Text
Regarding the parties’ arguments based on ERISA, the court concluded that the statute’s text was inconclusive concerning the enforceability of anti-assignment clauses. The Third Circuit noted that some circuit courts of appeals have been persuaded by language in a 1988 Supreme Court decision indicating that Congress’s silence concerning the assignability of welfare benefits (in contrast to pension benefit plans, under which assignments are prohibited) meant that anti-assignment clauses in health plans must be enforceable. (See Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825 (1988); and Standard Clause, Plan Language, Non-Assignability of Benefits.)
However, the Third Circuit indicated that it was less persuaded by the Mackey language than other circuits have been. The court reasoned that the absence of statutory language prohibiting assignment in the health plan context did not necessarily mean that Congress wanted assignability rights to be extinguished through blanket contractual waivers. The court acknowledged that barring assignment in the health plan context could:
- Disadvantage patients with shorter-term needs and limit patient choices.
- Eventually reduce the market share of out-of-network providers.
The court also observed that assignment of plan benefits was “fairly ubiquitous” in the health plans context, meaning that Congress may have:
- Simply intended to maintain the status quo.
- Not seen the need to expressly state that individuals can assign their benefits to service providers.
Congressional Policy
Observing that ERISA does not expressly bar anti-assignment clauses, the Third Circuit characterized the dispute as one concerning a statutory gap that must be filled through the development of federal common law (see Practice Note, ERISA Litigation: Preemption of State Laws (Overview): Federal Common Law and ERISA Preemption and ERISA Litigation Toolkit). This process could include examining the federal policy underlying ERISA.
The Third Circuit concluded that congressional policy did not definitely point to how the assignability question should be decided. According to the court, ERISA’s policy interests include protecting participants’ interests in benefit plans and increasing access to care. The health provider in this case argued that enforcing anti-assignment clauses created incentives for providers not to serve out-of-network patients covered under plans with such clauses (for fear of nonpayment or having to sue patients for payment, which is bad for business). The insurer argued that anti-assignment clauses advance Congress’s goal under ERISA of maintaining premium costs at a reasonable level. The court concluded, however, that neither party had supported their policy rationales with authoritative empirical data, and their arguments did not “tip the scales” one way or the other.
Decisions from Other Circuit Courts Offer Persuasive Authority
As a result, the Third Circuit relied largely on persuasive authority from the other circuits, observing that every circuit to have considered the question has concluded that nothing in ERISA bars plan administrators from negotiating anti-assignment clauses (among other provisions) in their plans. The court therefore applied the legal proposition that the terms of an unambiguous private contract must be enforced. Joining the other circuits that have decided this question, the Third Circuit held that anti-assignment clauses in ERISA health plans as a general matter are enforceable.
Practical Impact
The Third Circuit (Delaware, New Jersey, and Pennsylvania) here joins an expanding list of circuits that have held that anti-assignment clauses in ERISA health plans are generally enforceable – a list that includes the First, Second, Fifth, Tenth, and Eleventh Circuits. For out-of-network providers such as the one in this case, this line of decisions limits the providers’ standing to bring an ERISA suit for reimbursement – thereby limiting their available remedies for nonpayment.
