Although I’m happy for the brain-damaged employee and her family, Wal-Mart made the wrong decision.
To be sure, this controversy arises out of an extremely sad story. Debbie Shank was in a traffic accident in 2000, which left her severely brain damaged. This caused memory problems, such that she frequently forgets that her 18-year-old son, Jeremy, was killed in Iraq. Her heart breaks all over again every time she asks about him and is told he is dead.
Because she was a Wal-Mart employee at the time of the accident, and a member of Wal-Mart’s health plan, Wal-Mart covered Mrs. Shank’s medical expenses, which totaled $470,000.
Mrs. Shank also sued the trucking company that employed the driver who hit her, and settled the matter for a little under $1 million. After paying her legal fees and related expenses, she had $417,000 left in a trust account.
Then Wal-Mart sued Mrs. Shank to take that money from her — and Wal-Mart won, after the U.S. Supreme Court rejected Ms. Shank’s final appeal last month. Wal-Mart was entitled to the money because it had a right of subrogation — that is, it had the contractual right to take back the money it paid for her medical bills.
Subrogation and Wal-Mart’s Critics
Subrogation is a perfectly normal thing in the insurance world — as even your insurance agent can tell you — and it makes perfect sense.
Let’s say you’re the victim of an auto accident and you pay your medical bills out of your own pocket, then you sue and win an award or settlement. You then get to keep all the money you’ve won after you pay your legal expenses. Part of the award you receive may be reimbursement for the medical bills you had to pay. Part may be for your pain and suffering. And in some cases, part may be an award of punitive damages.
But what if you do have medical insurance? Then your insurance provider pays the medical bills. If you sue and win, why shouldn’t the part of your award that covers your medical expenses go to the party that actually paid the medical bills? Especially when you signed an insurance contract in which you promised exactly that?
Mrs. Shank’s husband, although disappointed, seems to understand all that, telling reporters that Wal-Mart is “quite within [its] rights” to seek the money. “But,” he adds, “I just wonder if they need it that bad.”
Some in the media were less understanding. Last week, Keith Olbermann gave Wal-Mart his “Worst Person in the World” award more than once for seeking the money from Ms. Shank. He expressed outrage that Wal-Mart would make $11 billion in profit for the year but still insist on having this woman’s settlement money, too.
What Olbermann and other critics failed to understand is that seeking subrogation from Ms. Shank has nothing at all to do with corporate greed.
Wal-Mart, which is self-insured, has a fiduciary duty — the highest possible duty under the law — to all of its health plan members to seek subrogation when it can, to keep all the plan members’ premiums as low as possible. If Wal-Mart doesn’t keep costs down like that, premiums will go up, and fewer Wal-Mart employees will be able to afford health care at all. (And then, one can imagine, the likes of Mr. Olbermann will criticize Wal-Mart for that.)
To be clear: the money Wal-Mart would have recouped from Mrs. Shank would not have enhanced Wal-Mart’s bottom line. Instead, that money would go to Wal-Mart’s health plan to pay for other people’s health care.
Despite its fiduciary duty to its plan members, Wal-Mart caved to its critics this week and stopped seeking the money from Mrs. Shank.
Legally, I don’t know how Wal-Mart pulled this off. If they just stopped seeking subrogation, and did nothing else, Wal-Mart’s health plan members may be able to sue Wal-Mart for a breach of fiduciary duty. My guess is that Wal-Mart got around this problem by taking the money from some other fund at Wal-Mart (i.e., taking it away from the company’s bottom line) and putting it into the health plan to cover the loss.
That sounds charitable — but it was absolutely the wrong thing to do. By giving in, Wal-Mart has implied that its critics were right: until now, it was just being greedy when it wanted subrogation. But as we’ve seen, that’s simply not the case. And even if Wal-Mart didn’t have a fiduciary duty under the law, it is a business, not a charity, and is not obligated to give its money away.
What Wal-Mart has done is what Ayn Rand condemned so fiercely in her novel, Atlas Shrugged: it has given its sanction to those who wrongly claim it is evil for doing business.
With such an attitude, how long can Wal-Mart survive? How will Wal-Mart be able to defend itself the next time it needs to defend its rights, when it has already conceded the moral high ground to its enemies who don’t respect rights?
With such an attitude widespread — in a world where business courses teach would-be entrepreneurs that they must place “giving back” and apologizing for their success above all else — how long can our civilization survive?
Now Congress is considering legislation to limit or ban subrogation in cases like these. When even fewer people can afford health insurance as a result, what do you think our government’s next step will be?
With “journalists,” government, and cowardly businesses walking in lock-step, our reality grows ominously closer to the world of Atlas Shrugged each day.