The Seventh Circuit has ruled that a self-insured health plan is not entitled to a refund of amounts paid to a hospital for the treatment of an employee’s newborn child who was later determined to be ineligible for plan coverage. The employee had asked the plan to cover the medical expenses of his daughter who was born with a serious medical condition, but he delayed submitting the necessary forms to establish that she met the plan’s eligibility criteria. The plan made numerous attempts to obtain the information before finally determining—almost a year later—that the child was not eligible for coverage. In the interim, the plan paid almost $1.7 million to the hospital for the child’s treatment. When the plan demanded that the money be refunded, the hospital refused, and the plan sued.
In an earlier decision, the court dismissed the plan’s claim under ERISA because the child was never a participant in the plan and thus was not a “covered person” entitled to ERISA protection. The court also denied the plan’s claim for unjust enrichment, ruling that the hospital had provided adequate services for which it received fair compensation. The only remaining issue before the appeals court was the plan’s claim for breach of contract—that the provider agreement between the plan and the hospital contained an implicit term requiring a refund. The court acknowledged that judges may supply missing contract terms when necessary to make a contract work according to the intentions of the parties. But the court ruled that to infer a contractual obligation for a hospital to return fees solely because the plan neglected to confirm the eligibility of a dependent is “to infer absurdity.” Accordingly, the court ruled that the hospital did not have to refund payments received from the plan.
EBIA Comment: This case should prompt plan sponsors to carefully consider their plans’ criteria for dependent eligibility as well as the process by which eligibility is to be verified. With respect to child coverage, some plans simply require the employee to acknowledge the child’s status at enrollment, while other plans may require further documentation of the child’s status (e.g., copies of birth or adoption records). Plans requiring documentation should describe the documentation requirements in plan documents and SPDs and should timely review and act on documentation received in order to avoid or reduce claims paid for ineligible dependents.
