On January 20, 2016, the Supreme Court issued its decision in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S.Ct. 651 (2016).  The decision, while settling a conflict between the federal Courts of Appeals, makes the recovery of an overpayment of disability benefits, or the recovery of medical benefits reimbursable under a health plan, more challenging. 

What Montanile firmly establishes is that a plan can no longer recover the overpaid disability benefit or a reimbursement of medical expenses through a recovery against the claimant's general assets.  Montanile provides the plan can pursue only the "specifically identified fund" which the claimant recovered to satisfy the plan's right to recovery. 

What is a traceable item?  In Montanile, the Supreme Court referred to traceable items as "identifiable property" such as a car.  Clearly, the court views tangible assets as traceable items.  Query whether this would include real property if, for instance, the claimant used the funds to make a mortgage payment, or, whether items purchased through a credit card, and the credit card bill is paid by the fund, makes the purchased item "traceable." 

What are non-traceable items?  These include services and "consumable" items such as food or a vacation.  The plan has no right to recovery against such items. 

For long-term disability plans, if the plan is continuing to pay benefits to the claimant, it appears that an offset against future benefits for the amount owed may still be appropriate.  This raises a question as to whether health plans could offset the payment of future medical expenses against amounts owed. 

Montanile does not address the recovery of LTD benefits as a result of the claimant's receipt of Social Security Disability Income ("SSDI").  However, Montanile raises significant issues as to the ability of ERISA benefit plans providing LTD benefits to recover the overpayment of LTD benefits as a result of the claimant's receipt of SSDI benefits.

There is a split among courts on this issue.  Claimants typically raise the defense of 42 U.S.C. §407, the anti-alienability provision of the Social Security Act.  That provision states that "none of the monies paid or payable for rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, ..."  Courts that have allowed the plan to recover the overpayment have held that §407 is not applicable because the "specifically identifiable fund" the plan was seeking to recover was the overpaid LTD benefits, not the SSDI benefit.  See Weitzenkamp v. Unum Life Insurance Company of America, 661 F.3d 323 (7th Cir. 2011); Cusson v. Liberty Life Assur. Co. of Boston, 592 F.3d 215 (1st Cir. 2010).  Montanile potentially upends this argument.  Claimants will argue the "specifically identifiable funds" that the plan can recover is not the LTD benefit, but rather the SSDI benefit.  As such, the anti-alienability clause kicks in and may prohibit recovery.  This is essentially the rationale used by the Ninth Circuit in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012) which found that §407 prohibited the plan from attaching the claimant's SSDI benefit.  We believe plans can anticipate seeing this argument more frequently going forward.