This is the September 10, 2007, issue of Elder Law FAX, a free newsletter published by the Elder Law Practice of Timothy L. Takacs   Health Insurance Plan May Be Reimbursed from Special Needs Trust Deborah Shank was a Wal-Mart employee and a member of the Wal-Mart Associates' Health and Welfare Plan, a self-funded employee benefit plan. This plan is regulated by federal law, the Employees Retirement Income Security Act (ERISA). In May 2000, Ms. Shank was severely injured in a car accident, and was eventually adjudicated an incompetent.   Pursuant to the terms of the Plan, the Plan paid for the full amount of Ms. Shank's medical expenses related to the accident, a total of $469,216. Ms. Shank eventually filed a lawsuit against the parties responsible for her injuries, and in 2002, she obtained a settlement of $700,000.   After deducting attorney's fees and costs, the trial court placed the remaining $417,477 from the settlement into a special needs trust, with Ms. Shank as the beneficiary and her husband, James Shank, the trustee.   The Plan contains a subrogation and reimbursement clause that grants the Plan first priority over any judgment or settlement Ms. Shank received relating to the accident, so the Plan may recover in full the amount it paid on Ms. Shank's behalf.   After the Plan learned of Ms. Shank's settlement agreement, it sought to enforce its reimbursement provision, bringing suit under ERISA against Deborah Shank, James Shank, and the special needs trust.   The trial court granted summary judgment for the Plan and imposed a constructive trust on the funds in the special needs trust, in an amount not to exceed $469,216. The Shanks appealed the judgment of the trial court to the federal Eighth Circuit Court of Appeals. That court affirmed the judgment of the lower court.   People who are seriously injured due to the negligence of others and recover substantial monetary damages often find that the receipt of those funds is a mixed blessing: on the one hand, money is recovered; on the other hand, having that money can result in a loss of public benefits such as Supplemental Security Income (SSI) and Medicaid.   For people such as Deborah Shank who have been rendered permanently and totally disabled due to an accident, settlement funds may be placed in a special needs trust, which permits her to continue receiving public benefits and maintaining trust funds for special or supplemental needs--that is, goods and services that those public benefits don't provide.   What if there are not sufficient settlement funds to pay for incurred medical expenses, attorneys fees, and litigation costs, however? This was Deborah Shank's dilemma. Had the Wal-Mart Health Plan first been reimbursed for the medical expenses it paid out for her, she would have nothing left.   On appeal, she argued that the appeals court should apply either the federal common-law "make-whole" or "pro rata" doctrine to defeat the plan's reimbursement claim. Under the make-whole doctrine, the plan could not be reimbursed unless the participant was first made whole--that is, she was fully compensated for her injuries.   Sadly for Ms. Shank, the Eighth Circuit Court of Appeals rejected her argument. There is no federal "make-whole" doctrine under ERISA. "Make-whole" and "pro-rata" are doctrines that have been created by courts under state insurance law, to which the Wal-Mart self-insured health plan is not subject.   This case might have turned out differently, observes the Employee Benefits Institute of America (EBIA), if the plan had been insured and Ms. Shank had tried to use a make-whole doctrine under state insurance law to defeat an insurer's claim for reimbursement.   Administrative Committee of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Shank, August 31, 2007