Courts split on assignment of benefit laws: Insurers say state policy benefit laws are pre-empted by ERISA, but federal government rules differently

An assignment of benefits is a transfer of an insured's interest in policy benefits to another party. The policy generally requires a written assignment by the insured to the provider, allowing the provider to bill the health plan directly. Such an assignment results in the payment of medical benefits directly to the healthcare provider rather than to the insured.

The assignment of benefits clause of the policy generally does not come into play with respect to care provided by network providers. When services are provided in-network, the provider already has the right to submit his claims directly to the health plan-pursuant to the terms of his provider contract.

VALID ASSIGNMENT

A valid assignment of benefits does not alter the insured's obligations under his or her policy for payment of deductibles or coinsurance. The assignment only relates to the payment obligation that the health plan owes to the insured under the terms of the policy.

Similarly, the assignment does not in any way expand the coverage provided under the policy. If the policy states that the insured is entitled to the payment of usual and customary fees for out-of-network care, the provider is only entitled to receive the amount that the insured would have received under the policy.

Payment by the health plan to the provider relieves the health plan of any further obligations under the policy. Consequently, by executing an assignment of benefits, the insured transfers all payment obligations under his or her policy to the provider.

Some insurance companies have challenged assignment of benefits laws enacted by the states on the basis that such laws are preempted by ERISA. The federal Fifth Circuit Court of Appeals recently ruled that ERISA does not pre-empt a Louisiana law requiring plans to honor assignment of benefits by insureds to healthcare providers. Other federal courts, however, have ruled differently, concluding that ERISA does pre-empt such state laws. At present, the Supreme Court has refused to resolve this conflict in the federal court decisions.

This column is written for informational purposes only and should not be construed as legal advice.

Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP in the firm's Austin, Texas, office.