Actuarial Services

Group Life, Group Health and Blanket Insurance: General Standards for Contract Provisions

Prohibition on Subrogation/Third Party Liability Provisions

Adopted Repeal and New Rule: N.J.A.C. 11:4-42.10

Proposed: February 4, 2002 at 34 N.J.R. 647(a) (see also 33 N.J.R. 4309(a)).

Adopted: July 3, 2002 by Holly C. Bakke, Commissioner, Department of Banking and Insurance.

Filed: July 3, 2002 as R. 2002 d. 245, with substantive changes not requiring additional public notice or comment (see N.J.A.C. 1:30-6.3).

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17B:25-18.2.

Effective Date: August 5, 2002.

Expiration Date: November 30, 2005.


Summary of Public Comments and Agency Responses:

The Department received two comments from Aetna US Healthcare and Horizon Blue Cross Blue Shield of New Jersey/Horizon Healthcare of New Jersey.

COMMENT: Both commenters stated that the Departmentís proposal prohibiting subrogation or third party recovery provisions in group health contracts is too expansive. The commenters stated that the proposalís blanket prohibition would preclude insurers from recovering in cases that do not involve the collateral source rule (for example, those in which New Jersey law does not apply to the underlying tort, such as motor vehicle accidents involving an out-of-State driver/tortfeasor; for injuries covered by workersí compensation; and for benefit plans involving the Federal Employee Health Benefits Act (FEHBA), Medicare or Medicaid).

RESPONSE: The Department agrees that its proposed rule would preclude health insurers from recovering for benefits paid by an out-of-state tortfeasor in a motor vehicle accident. However, the Department agrees with the Perriera court that as a matter of public policy, health insurers are required to pay the benefits for which insureds pay a premium. As the Perriera court stated, "That bargain, struck between an insurer and its insured guarantees payments, in exchange for a premium, regardless of whether an injury was caused by the insured or a third party." Perreira v. Rediger, et al., 169 N.J. 399, 417 (2001). Further, New Jerseyís collateral source law at N.J.S.A. 2A:15-97 excludes workersí compensation benefits (as well as proceeds from a life insurance policy). Finally, the Departmentís proposal does not preclude insurers from coordinating benefits with benefits paid by FEHBA, Medicare or Medicaid (See the Departmentís recent adoption of amendments to its Group Coordination of Benefits rules (N.J.A.C. 11:4-28) appearing in the April 15, 2002 New Jersey Register at 34 N.J.R. 1440(a)).

COMMENT: One of the commenters stated that a pending Federal court case (Carducci v. Aetna U.S. Healthcare, Docket No. 1-01-04675 (JBS)) will address whether Federal law preempts the Perriera decision for ERISA plans.

RESPONSE: Notwithstanding the outcome of the Carducci case, its application to ERISA plans only would have no effect on the Departmentís rules, which apply to only State-regulated group health insurers.

COMMENT: One commenter stated that recovery of medical expenses when a third party is responsible performs a valuable function in reducing medical expenses that would otherwise drive up premium rates in circumstances under which those expenses have otherwise been reimbursed. The commenter suggested that the Department revise its proposed amendment to permit insurers to include subrogation language in its contracts, but limit its application. The commenter suggested that the Department permit insurers to use the following language, which is contained in the Individual Health Coverage policy form, Right to Recovery Ė Third Party Liability provision at N.J.A.C. 11:20, Appendix Exhibit A: "If a Covered person makes a claim to Us for benefits under this Policy prior to receiving payment from a Third Party or its insurer, the Covered Person must agree, in writing, to repay Us from any amount of money they receive from the Third Party, or its insurer for an Illness or Injury. We will only require such payment when the amounts received through such settlement, judgment or otherwise, are specifically identified as amounts paid for health benefits for which We paid benefits and those amounts were not otherwise deducted from an award, judgment or settlement in a civil action, brought in a court of this State, pursuant to N.J.S.A. 2A:15-97."

RESPONSE: The language suggested by the commenter would, in fact, permit subrogation and other third-party recovery actions, which is prohibited by the Perreira decision. The Individual Health Coverage Program Board will be meeting in the near future to discuss proposing changes to its policy forms. In the interim, the Departmentís Bulletin No. 01-11 issued July 5, 2001 directed all New Jersey licensed health insurance companies, HMOs, health service corporations, hospital service corporations and medical service corporations to cease all subrogation and recovery efforts against persons covered by group or individual contracts or policies issued in New Jersey, except to the extent permitted by N.J.S.A. 2A:15-97. The Small Employer Health Benefits Program Board recently proposed amendments to its policy forms, including repeal of the Right to Recovery - Third-Party Liability provisions contained in Plans A through E, HMO and HMO-POS plans, to comply with the Perreira decision (see the February 4, 2002 New Jersey Register at 34 N.J.R. 648(a)).

COMMENT: One commenter disagreed with the Departmentís statement in the Economic Impact statement to this proposal that health carriersí rates will not increase as a result of this rule because they are not priced based on the possibility that some money may be recovered from collateral sources. According to the commenter, the actual recovery of benefits due to subrogation or reimbursement acts to reduce medical benefit expenses of the carrier, and that eliminating these recoveries will result in greater expenses for carriers, leading to higher rates.

RESPONSE: While the Department may agree that any recoupments from subrogation and other third-party recovery actions could serve as a cost-containment measure for carriers to some extent, the Department reiterates that a carrierís plans are not priced with any reliance on the possibility that some recovery of paid benefits may occur. Rather, rates are based on the amount in claims the carrier expects to pay out, plus administrative costs. Any amounts recovered through subrogation or other third-party recovery actions cannot be relied on in setting rates.

Summary of Changes upon Adoption:

At N.J.A.C. 11:4-42.10(b), the Department is changing "July 1, 2002" to "December 31, 2002" because the proposed date of July 1, 2002 for insurers to file endorsements to previously filed forms has expired.

Federal Standards Statement

A Federal standards analysis is not required because this adopted repeal and new rule is not subject to any Federal standards or requirements.

Full text of the adoption follows (addition to proposal indicated in boldface with asterisks *thus*; deletion from proposal indicated in brackets with asterisks *[thus]*):

11:4-42.10 Prohibition on subrogation/third party liability provisions

    1. (No change from proposal.)
    2. Insurers shall file with the Commissioner no later than *[July 1, 2002]* *December 31, 2002*, endorsements that remove any subrogation and third party recovery provisions contained in previously filed contract, policy or certificate forms.