Under the Employee Retirement Income Security Act (“ERISA”), health care providers can file legal actions to recover employee benefits if they obtain a proper assignment of the patient’s benefits. Increasingly, however, ERISA plans are including in plan documents anti-assignment provisions stating that the plans will not honor assignments of benefits by their members. While providers have, in certain circumstances, been successful in avoiding these anti-assignment provisions, most federal courts have held that the anti-assignment provisions are valid and enforceable.
There are three possible ways for providers to avoid application of the anti-assignment provisions in plan documents. One way is for providers to act as the patient’s “authorized representative.” The ERISA regulations expressly provide that the “claims procedures do not preclude an authorized representative of a claimant from acting on behalf of such claimant in pursuing a benefit claim or appeal of an adverse benefit determination.” 29 C.F.R. § 2560.503–1(b)(4).
Recently, the United States Department of Labor (DOL) issued responses to Frequently Asked Questions (FAQs) addressing an entity’s ability to act as an authorized representative for ERISA beneficiaries. In the FAQs, the DOL states that beneficiaries have the right to appoint authorized representatives to act on their behalf in connection with an initial claim, an appeal of an adverse benefit determination, or both. A plan cannot preclude claimants from designating an authorized representative of their own choosing, but may establish reasonable procedures for determining whether an authorized representative has been designated, such as requiring a claimant to complete and file a form identifying any person authorized to act on his or her behalf with respect to a claim. The plan must set forth the procedures for designating an authorized representative in its Summary Plan Description (SPD). If an authorized representative has been designated to act and receive notices on a claimant’s behalf, the plan is required to deal directly with the authorized representative.
Designations of authorized representatives should specify the extent of the authorized representative’s authority. This should include the right to file appeals, receive documents, communicate with the plan, and file legal actions on behalf of the claimant. We have developed model assignment of benefits and authorized representative forms for providers to use.
A second way to avoid application of anti-assignment provisions in ERISA plans is to have the patient sign a limited power of attorney, allowing the hospital to pursue the patient’s rights in the name of the patient. In a recent case in federal court, the judge rejected the provider’s attempt to use their standard assignment of benefits form as a valid power of attorney because the state requirements had not been met. Importantly, the judge did not rule that the provider could not have proceeded on a power of attorney basis if the proper procedures for using a power of attorney form had been met. Each state has their own requirements for valid power of attorney forms. We have developed power of attorney forms for providers to use that comply with state requirements.
A third way to avoid application of an anti-assignment clause in an ERISA plan is when the plan waives the anti-assignment provision by paying the provider directly. In these circumstances, some courts have recognized that the plan cannot simultaneously forbid assignment but at the same time honor the assignment by paying pursuant to it. This route for overcoming assignment language is more unpredictable and after-the-fact than addressing the issue proactively through the authorized representative and power of attorney options mentioned above.