North Carolina Trial Law Blog: SEHP lien statute signed by Governor, but not helping

SEHP lien statute signed by Governor, but not helping

August 30, 2006

Governor Signs the Bill, but SEHP doesn't Get it

The governor signed the SEHP bill (Session Law 2006-264** SB 602) yesterday on the last possible day to sign the legislation. Great news, right? Well, maybe. Looks like SEHP is interpreting the statute in a very odd manner.

SEHP is not reading the new statute correctly

It appears that the lawyers at the SEHP have consulted with the collection agency they use and have decided that their interrpretation of the statute is nothing like mine (or what the law says). Basically, what SEHP is saying is that while they will reduce the lien for attorney fees, they won't reduce it beyond the 50% of gross cap.

Examples of the WRONG interpretation:

I think SEHP is not interpreting this correctly because in their version, if the lien is $1 more than the 50% gross cap, then the atty fee deduction does not apply. I think that SEHP has sort of made this into an "either or" approach, which it is clearly not designed to be. It seems that the only place they would allow the attorney fee reduction would be if the lien does not exceed the 50% cap.

Example 1 of how they have it wrong

30,000 Settlement

10,000 Attorney fees

250 costs

16,000 SEHP lien

Is the 16,000 Lien > 15k ( 50% of the gross settlement): YES

THEN: Reduce lien to 15 k
NO ATTY FEE DEDUCTION BECAUSE Reduced to 50% cap

Example 2 of how they have it Wrong

30,000 Settlement

IS the $3,000 Lien < 15k ( 50% of the gross settlement): YES

THEN: Reduce lien by atty fees/costs:

Figure %ratio of atty fees plus costs to Settlemet: 10,250 / 30,000 = 34.15 %

THEN: reduce lien by ratio $3,000 (lien) x .3416 = $1,024.80 (REDUCTION AMOUNT)

FINAL LIEN AMOUNT: 3,000 - $1,024.80 = $1,975.20 LIEN

10,000 Attorney fees

250 costs

3,000 SEHP lien

My Analysis of why they are Wrong

I think that this interpretation is completely contrary to what the statute is trying to get to. I think the "purpose" of the statute was to make sure that the SEHP paid their fair share of the "collection" costs. It is easy to understand if you think of the Plaintiff's attorney as a "collection agency" for the SEHP. The Attorney should get "paid" our collection "percentage" which should only be taken off what SEHP actually "receives". (Of course, the client gets the "collection costs")

This means that SEHP should pay their fair share on what is actually "collected," meaning that they even have to pay on the 50% of the gross. I'm sure they don't pay their collection agents on the "total claimed lien" but only on the "collected" lien. We all know that 33.3% of 0 is 0.

Had the statute intended SEHP's interpretation, it would have said that the attorney fees are to be deducted from the total lien amount and then if that reduced amount was greater than 50% of the gross settlement, the lien would be reduced to 50%, and no less.

Therefore, I don't think that SEHP is even following an "alternative" view or interrpretation of the lien statute. They are making up their own statute where the "reasonable costs of collection" are sometimes paid, and sometimes not paid. This means that the "reasonable costs of collection" are being paid in varying amounts.

Possible Constitutional Violoation by SEHP

Of course, we are somewhat at their mercy because the statute says that they decide on what is "reasonable" and I suppose they can say that if the lien amount is greater than 50% of the gross, "reasonable" collection fees are always Zero.

I think that we might be able to mount a constitutional challenge to that interpretation. When the lien was first enacted, we approached SEHP and said, "hey look, can't we look at each case individually and then arrive at an agreement as to what is a 'fair' reimbursement?" We gave examples of a family where the bread winner is killed, leaving three children and an unemployed widow, and the insurance policy only covers $30,000 of damages and the lien exceeds the coverage. Under the old statute, SEHP got all the $30,000 and the widow and children got NOTHING.

SEHP said, "Sorry folks, we can't 'bargain' with individual SEHP members because that is unconstitutional. We have to treat every citizen/member the same. It's in the NC Conststitution. We've been sued for that." So when the new SEHP legislation was passed in one house, SEHP started to "accomodate" by voluntarily accepting the 50% cap, but not reducing for attorney fees. So in the above example, the SEHP got 15,000, and the widow got $5,000. And SEHP got their money because the widow paid an attorney to get it for them. How generous of SEHP, right? And when I say SEHP, what I really mean is OUR STATE. SEHP is the State of North Carolina.

Well, sure. Maybe you'll get sued again. I think this is a ridiculous argument. The Attorney General's office "settles" discretionary matters every day, from State Tort Claims to tax deficiencies. I think this was classic beuracratic whimpiness on the part of SEHP.

Anyone up for a Constitutional Challenge? I love the smell of "founders intent" in the morning. Smells like victory.

Chris Nichols

www.NicholsTrialLaw.com

www.NicholsTrialLaw.com 1.800.906.5984

Posted at 09:46 AM in NC State Employees Health Plan Lien | Permalink | Comments (0)

Tags: attorney, Attorney General, constitution, law, liens, NC, SEHP, subrogation, trial