Clients are often taken aback when their health insurance company makes a claim for a portion of the settlement payment. Clients will ask, and rightfully so, why should my insurance company get paid from my settlement – wasn’t my insurance company supposed to pay my medical bills?
The answer is yes and no. You are correct – your insurance company was supposed to pay your medical bills, and hopefully they fulfilled that duty. But in addition to that, once those payments have been made by your insurance company, and your case is settled, your insurance company may be able to be reimbursed for those medical payments they made on your behalf. What we oftentimes will see is that an insurance company will have filed a “lien” on the proceeds of the lawsuit so that before you get paid, the insurance company is first able to recoup expenses paid out on your behalf.
Subrogation is based on the notion that your insurance company has a right to be indemnified, or "paid back" for the bills they have paid on your behalf. Essentially, your insurer can “step into your shoes” to go after the negligent party on your behalf. If however you go after the negligent party and file suit or negotiate a settlement then the proceeds which are above and beyond the subrogated amounts will belong to you. Think about it this way – but for the other person’s negligence, your insurance company would not have had to pay any medical bills. Your insurance company will honor their obligation and pay for your medical bills, but they protect themselves by getting reimbursed for those payments.
When you pay for health insurance you are paying for the assurance that in the event you are injured, you have that safety knowing that your medical bills will be paid by your health insurance company. Whether you are responsible for causing an accident or whether someone else injured you and you are not at fault for causing the accident, your health insurance is responsible for providing you with medical coverage. Even if someone else hit you and is therefore responsible for you seeking medical treatment, your health insurance cannot choose to delay or refuse coverage simply because someone else might be held legally responsible for your injuries.
Can I Contract Out of Subrogation?
Health insurance companies will pay your medical bills but they obviously want to recover their expenses. In all likelihood, your health insurance agreement has a clause which permits your health insurance company to seek repayment from you for medical bills paid out on your behalf.
You may be thinking to yourself why in the world would you ever agree to sign a contract like this with your health insurance company? Well the answer is you probably didn’t have a choice, and you probably didn’t know you signed the clause. Almost all health insurance companies have subrogation language. Fortunately, not all insurance policies are able to subrogate. If the insurance policy is governed by state law (which usually covers smaller plans) then the reimbursement that the insurance company will receive from the settlement will be much lower than what the insurance company actually paid. In the State of Georgia for example health insurance plans are subject to the “Made Whole” doctrine.
What is The Made-Whole Doctrine?
The Made-Whole doctrine is an equitable defense to reimbursement rights of the insurance company. Essentially, before reimbursement will be allowed, you as the insured must be “made whole” for all of your damages. Unless your insurance company can establish that you have been made whole (think of it as the same as you were pre-injury), then they may be barred from obtaining reimbursement.
Compared to Made Whole plans, insurance health plans that are governed by federal law and the Employee Income Retirement Security Act of 1974 (“ERISA”) usually are paid back a high percentage of the payments they make. ERISA-protected plans are generally found in larger corporations and typically are not subject to the Made-Whole doctrine. ERISA plans will allow subrogation more often than not.
Is My Settlement Subject to Subrogation?
Bear in mind that even if you have to pay back your insurance company from the proceeds of your settlement, you are only expected to pay back the actual amount paid by your insurance company. What often happens is a doctor/medical facility will “charge” a higher fee than what they will actually accept from insurance. So for example, if your doctor tells you that as a result of your car wreck, you need surgery and the surgery “costs” $3,000.00, your insurance company may only actually pay $2,000.00 for that operation. As a result, when your insurance company seeks subrogation from you, you will only have to pay $2,000.00 – the remaining balance is not owed by you to either your insurance company or the doctor who performed the surgery.
Which of the Plans Do I Have?
To determine what health insurance plan you have, you should consult with an attorney familiar with the different plans who can better advise you of your options and best course of action.
Do I Need a Lawyer?
Having explained the process and how subrogation works, it always helps to work with an attorney experienced in the field as an experienced attorney will often able to negotiate with the insurance company to reduce the amount the insurance company will accept. Taking the aforementioned surgery example, it would not be uncommon for a good personal injury attorney to reduce the $2,000.00 your insurance company wants paid back down to $1,200.00, saving you even more. In addition, the insurance company that represents the negligent driver will often try and settle the case at the lowest amount possible. A good personal injury attorney will know whether the insurance company’s offer is reasonable, and whether to proceed with the filing of a awsuit.
We all need health insurance. We just need to make sure we understand how our health insurance works for us.