Reading ERISA Plan Language: Reimbursement vs. Subrogation Provisions

James Wong — Founder & Pharmacist, LienScripts | March 26, 2026 | 7 min read

The difference between reimbursement and subrogation provisions in an ERISA plan's SPD determines how aggressively the plan can pursue settlement recovery. PI attorneys must identify which type of clause they face to build the right defense — especially when pharmacy liens are also present.

ERISA plan subrogation provisions fall into two distinct categories — reimbursement clauses and subrogation clauses — and the distinction determines the plan's legal remedy, the attorney's available defenses, and how the pharmacy lien interacts with the plan's recovery at settlement. Reimbursement provisions create a direct contractual right to recover from settlement proceeds, while subrogation provisions transfer the plan into the plaintiff's shoes against the tortfeasor.

• Reimbursement clauses give the plan a direct right to recover from the beneficiary's settlement proceeds under ERISA Section 502(a)(3)
• Subrogation clauses transfer the plan's recovery right to a derivative claim against the tortfeasor
• The Supreme Court in Sereboff v. Mid Atlantic (2006) validated reimbursement claims as equitable liens enforceable under ERISA
• Pharmacy liens are contractual obligations separate from both reimbursement and subrogation provisions
• LienScripts generates a MERIT (Medication Evaluation & Rationale for Injury Treatment) report that documents medication costs outside the plan's payment system for clear settlement separation

Reimbursement vs. Subrogation: Why the Distinction Matters

Most PI attorneys use "subrogation" as a catch-all term for any health plan recovery claim. Under ERISA, however, the distinction between reimbursement and subrogation has real legal consequences.

Subrogation means the plan "steps into the shoes" of the beneficiary and pursues the tortfeasor directly. Traditional subrogation gives the plan a derivative right — the plan can only recover what the beneficiary could have recovered from the third party. This right is limited to the tort recovery and is subject to equitable defenses.

Reimbursement means the plan asserts a direct contractual right to recover from funds the beneficiary receives. The plan does not pursue the tortfeasor — it pursues the beneficiary for repayment of benefits paid. Under Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356 (2006), this creates an equitable lien by agreement that ERISA courts can enforce under 29 U.S.C. § 1132(a)(3).

[!KEY] Most modern self-funded ERISA plans use reimbursement clauses rather than subrogation clauses because Sereboff gave reimbursement claims stronger enforcement under ERISA Section 502(a)(3). When reading a plan's SPD, identifying which type of clause is present is the first step in building the defense strategy.

How to Read the SPD: Key Provisions to Identify

The Summary Plan Description contains the language that controls the plan's recovery rights. Here is what to look for, section by section:

The subrogation/reimbursement section. Usually titled "Subrogation," "Right of Recovery," "Third Party Recovery," or "Reimbursement." Read every word of this section — do not rely on the TPA's summary.

Reimbursement language (most common in modern plans):

• "The Covered Person agrees to reimburse the Plan from any recovery obtained from a third party"
• "The Plan shall have a first-priority right to reimbursement from any settlement, judgment, or recovery"
• "The Covered Person holds any recovery in constructive trust for the Plan to the extent of benefits paid"

Subrogation language (older or smaller plans):

• "The Plan is subrogated to any rights of recovery the Covered Person has against a third party"
• "The Plan may pursue any claim the Covered Person has against a responsible party"

Hybrid language (both clauses):

• Many plans include both provisions — a subrogation right against the tortfeasor and a reimbursement right against the beneficiary
• The reimbursement clause is typically the operative provision because it is easier to enforce under Sereboff

According to James Wong, PharmD, founder of LienScripts, "We train our enrollment team to ask for the SPD at intake whenever the patient has employer-sponsored coverage. Our case coordinators flag ERISA-governed plans immediately so the attorney can begin the plan language analysis early — not after the TPA's subrogation demand arrives three weeks before settlement."

[!TIP] Request the full plan document in addition to the SPD. The plan document may contain different or more detailed subrogation language than the SPD summary. If there is a conflict, courts generally look to the plan document as the governing instrument under ERISA.

Identifying Gaps in Plan Language

The most productive analysis for PI attorneys is identifying what the SPD does not say. Under McCutchen, silence on specific issues defaults to equitable principles that favor the beneficiary.

Gaps that benefit the attorney:

1. No attorney fee provision. If the SPD does not address whether the plan's recovery is reduced by attorney fees, the common fund doctrine applies under McCutchen.

2. No made-whole override. If the SPD does not expressly state that the plan can recover before the beneficiary is fully compensated, the made-whole doctrine may apply.

3. No definition of "recovery." Some plans fail to define what constitutes a "recovery" — does it include only tort settlements, or also UM/UIM payments, MedPay, or other first-party benefits? Ambiguity favors the beneficiary.

4. No "applies regardless of fault" language. If the plan's subrogation clause does not address comparative fault situations, the attorney may argue that the plan's recovery should be reduced proportionally to the client's fault percentage.

Provisions that limit the attorney's options:

1. Express anti-common-fund language. "The Plan's recovery shall not be reduced by attorney fees or costs."
2. Express anti-made-whole language. "The Plan may recover regardless of whether the Covered Person has been fully compensated."
3. Constructive trust language. "Any recovery received by the Covered Person shall be held in constructive trust for the Plan." This strengthens the plan's position under Montanile.

Pharmacy Lien Position Regardless of Plan Language

Regardless of whether the plan uses reimbursement or subrogation provisions — and regardless of how aggressive those provisions are — the pharmacy lien occupies a separate legal position:

The plan's claim covers costs it paid. Whether through reimbursement or subrogation, the plan can only recover amounts it actually expended on the beneficiary's care. If medications were dispensed through a pharmacy lien and never billed to the plan, those costs are outside the plan's claim.

The pharmacy lien is a direct contractual obligation. It does not derive from the plan, is not governed by ERISA, and is not subject to ERISA preemption. It is satisfied from net settlement proceeds under the terms of the lien agreement.

Aggressive plan language does not expand the plan's reach to lien costs. Even a plan with express anti-common-fund, anti-made-whole, and constructive trust provisions cannot subrogate against costs it never incurred.

The MERIT report from LienScripts provides the documentation necessary to demonstrate this separation at settlement — an itemized record of every lien-funded medication with dates, prescriber information, and clinical justification.

[!KEY] Plan language analysis determines how much the ERISA plan recovers on costs it paid. Pharmacy lien strategy determines whether medication costs are in the plan's system at all. The two analyses are complementary: even when plan language is unfavorable, the pharmacy lien protects medication costs from ERISA recovery.

Building the Response to a TPA Subrogation Demand

With the SPD analysis complete, structure your response:

1. Acknowledge the plan's legitimate claim on costs it actually paid — demonstrate good faith
2. Challenge overbroad line items — if the TPA includes pharmacy costs the plan never paid, counter with EOB evidence and the MERIT report
3. Assert common fund if the SPD is silent on attorney fees, citing McCutchen
4. Assert made-whole if the SPD is silent on full compensation, citing McCutchen
5. Preserve Montanile arguments by notifying the TPA of the disbursement timeline
6. Separate pharmacy lien costs with documentation showing these were never plan-paid

This structured approach — grounded in actual plan language rather than generic arguments — produces the best negotiated outcomes with TPAs.

Related Resources

• ERISA Preemption and Pharmacy Liens: Attorney Guide
• ERISA Common Fund Doctrine and Pharmacy Recovery
• ERISA Negotiation Letter Template for Pharmacy Lien Cases
• ERISA Made-Whole Doctrine and Pharmacy Liens