Preventing Assignment of Health Plan Benefits

March 22, 2012

Authored by: benefitsbclp

A recent South Carolina federal district court case underscores the importance of a robust anti-assignment clause in health plan documents.  In the case, the court held that a hospital could not stand in the shoes of a plan participant and sue a health plan to force payment of benefits to the hospital.  Prior to receiving treatment, the participant had signed a standard form assigning his benefits to the hospital.  When the plan denied benefits, the hospital sued to force the plan to pay.

The plan in question had a strong anti-assignment provision.  The court basically said that the plan’s anti-assignment clause governed and rendered the participant’s assignment invalid.  The court said that the fact that the plan could, and did, pay benefits directly to providers on behalf of participants in other circumstances did not change the result.  The court stated that the direct payment of benefits to providers was not inconsistent with the anti-assignment provision because payment to a third party (here, the hospital) made that party a beneficiary, not an assignee.  The hospital had its own rights as a third-party beneficiary, but was not an assignee because it did not receive an assignment of the participant’s rights due to the anti-assignment provision in the plan.

This case highlights the need for plan sponsors to make sure their health plan documents and SPDs contain robust, unambiguous anti-assignment provisions.  While this case involved a single provider and a single participant, there are circumstances where a single provider could acquire assignment from several employees and bring a case on their behalf (for example, where the provider provides treatment to several participants using a unique, but experimental, service that the plan sponsor does not intend to cover under the plan).  That provider will have a much greater incentive to sue a plan to force payment than any individual participant.