A provision that would have made it easier for health insurers to seek reimbursement from lawsuit settlements for care they paid for has been dropped from the pension bill by House and Senate conferees.

The portion of the bill, known as Section 307, would have created a new federal cause of action under the Employee Retirement Income Security Act allowing group health insurers to sue plan members who receive settlements for injuries the insurer paid to have treated, and put insurers first in line to seek reimbursement for such expenses from settlement funds.

The provision was strongly opposed by some conferees, including Sen. Edward Kennedy, D-Mass., the ranking member of the Senate Health, Education, Labor and Pensions committee. Kennedy made a priority of fighting Section 307, calling it a “special interest fix” that would have allowed insurers to “raid” settlement funds meant for injured workers.

Eva Cantarella, a partner and senior litigation counsel for pensions and employee benefits at the Michigan-based law firm Hertz, Schram & Saretsky, P.C., also opposed the provision, calling its removal “good news for injured workers and their families.”

Looking forward, she said, lawmakers should focus on ensuring that injured workers are made whole before a plan may recover any reimbursement for its expenses, or even whether plans should be allowed to seek reimbursement at all.

“Indeed, one must question whether an insurance company should ever be able to obtain reimbursement for medical expenses it has agreed to pay simply because the injured worker or injured beneficiary was able, after litigation, to recover funds from the party that caused the injuries,” she said.

“Insurance companies are paid premiums to cover their risk of paying medical expenses, and those premiums are never reduced by reimbursement. Thus, reimbursement in no way serves to lower health care costs.”

Instead, she argued, reimbursement merely transfers risk back onto the injured worker, “giving the insurance company a free lunch.”

Proponents of the provision, however, have noted that allowing for reimbursement helps keep the costs of coverage down for plans and their sponsors. In 2004, according to the Centers for Medicare & Medicaid Services, private health insurers paid out roughly $658 billion in claims. Subrogation helps benefits plans recover as much as $1 billion annually, according to America’s Health Insurance Plans.

Also of importance to AHIP was that Section 307 would have established a national standard for health plans seeking reimbursement. The U.S. Supreme Court ruled in its May decision in the case of Sereboff v. Mid Atlantic Medical Services that plans can seek reimbursement for care expenditures if the recipient of that benefit receives payment for care from someone else.

That decision, however, only affects the rules for reimbursement in North Carolina, South Carolina and Virginia, according to AHIP spokesman Mohit Ghose.