Fully Insured Plan Third Party Claim
Last updated: August 27, 2026
What Is a Fully Insured Plan?
A fully insured plan is an employer-sponsored health plan in which an insurance company underwrites the plan and pays medical claims. The employer pays premiums to the insurance company, and the insurance company bears the risk of claim costs. Fully insured plans are ERISA plans, but they are also subject to state insurance regulation under ERISA's savings clause.
| Feature | Fully Insured Plan | Self-Funded Plan |
|---|---|---|
| Who Pays Claims | Insurance company pays | Employer pays directly |
| Governed By | ERISA + state insurance law | ERISA (federal law only) |
| ERISA Preemption | No – subject to state insurance law | Yes – preempts state lien law |
| Priority vs. Hospital Lien | Hospital lien generally has priority | Plan may have priority |
ERISA Savings Clause
ERISA Section 514(b)(2)(A), known as the savings clause, provides that ERISA does not preempt state laws that regulate insurance. Fully insured plans are considered insurance and are therefore subject to state insurance law, including state laws that limit subrogation and state hospital lien statutes. This means fully insured plans do not have the same ERISA preemption advantage that self-funded plans have.
Priority Under State Law
Because fully insured plans are subject to state law, hospital statutory liens generally have priority over fully insured plan subrogation claims. State lien statutes establish priority for hospital liens over unsecured creditors and contract claims. Fully insured plans are treated as contract claims subject to state lien priority.
| Competing Claimant | Priority vs. Fully Insured Plan | Reasoning |
|---|---|---|
| Medicare | Medicare has priority | Federal law (Medicare Secondary Payer Act) preempts state insurance law |
| Medicaid | Medicaid typically has priority | State Medicaid lien statute generally takes priority |
| Hospital Statutory Lien | Hospital lien has priority | State lien statute gives priority to hospital |
| Self-Funded ERISA Plan | Self-funded plan may have priority | Self-funded plan preempts state law |
State Anti-Subrogation Laws
Some states have anti-subrogation laws that limit or prohibit health insurers from recovering medical payments from personal injury settlements. These laws apply to fully insured plans but not to self-funded plans. When a state anti-subrogation law applies, the fully insured plan may have limited or no subrogation rights, even if the plan document asserts them.
Equitable Defenses
Fully insured plans are subject to equitable defenses under state law, including the made whole doctrine and common fund doctrine. State law determines whether these defenses apply and how they are calculated. Participants in fully insured plans have stronger equitable protections than participants in self-funded plans that have rejected equitable defenses in their plan documents.
Enforcement Challenges
Fully insured plans face greater challenges in enforcing subrogation rights when settlements are small. The plan must compete with higher-priority liens (Medicare, Medicaid, hospital liens) and is subject to state laws that may limit recovery. As a result, fully insured plans often negotiate reductions or accept lower recoveries when the settlement is insufficient to satisfy all claims.
Why do fully insured plans have lower priority than self-funded plans?
Fully insured ERISA plans are subject to state insurance law under ERISA's savings clause and do not preempt state lien statutes. Hospital statutory liens generally have priority under state law. Self-funded plans, in contrast, preempt state law and may assert priority over hospital liens.
Can a fully insured plan enforce subrogation if the settlement is small?
Yes, but the plan is subject to state lien priority, state anti-subrogation laws, and equitable defenses. Hospital liens, Medicare, and Medicaid generally have priority over fully insured plan claims. The plan may negotiate a reduction or accept a lower recovery based on what remains after higher-priority liens are paid.