As mentioned in my other blog articles, there are many pitfalls for the accident victim in personal injury claims. One of the more likely to cause heartburn is a legal doctrine called subrogation. You’ve probably never heard of it–in fact most people haven’t. Yet, as an injury victim, if you are seeking compensation for your medical expenses and other injuries from the person (or their insurer) that caused your accident, you are likely to hear from a “subrogation specialist” who is seeking repayment from your settlement. These people are usually former bill collectors (or at least they seem as friendly as bill collectors) who are hired by your own insurance company to get back what your own insurer has paid on your claim.
Subrogation law provides that auto, health, and workers compensation insurers, as well as government programs such as Medicare and Medicaid, have a legal right to seek repayment from an injured person’s settlement for what these insurers or government programs may have paid for the injured person’s medical expenses. This right exists even though an injured person has paid premiums for the insurance coverage, or in the case of government programs, has paid taxes for this benefit. Subrogation comes in many varieties and I will describe the major types in this article as follows.
AUTO INSURANCE–MEDICAL PAYMENTS COVERAGE
Automobile crash victims often have a benefit called medical payments coverage under their car insurance policy. This coverage provides that a victim’s own auto insurer will pay for accident related medical expenses up to the medical payments coverage policy limit which is set forth in the policy. While many clients understand that they have this benefit under their policy, few realize that they have to pay back what their insurer has paid if they receive a settlement or judgment from the at fault person’s insurance company.
Fortunately, Indiana law allows victims who have hired an attorney to reduce the amount that must be repaid by 33 1/3% in consideration of the claimant’s attorney fee and a percentage of any advanced costs that were incurred in pursuing the claim. If the injured person does not have an attorney, their insurer is usually entitled to be reimbursed 100% of what they have paid.
Indiana law also provides that if an injured person is not being fully compensated for their injuries from the responsible person’s insurance company because of a lack of sufficient insurance or a dispute regarding who caused the accident, the subrogation claim may be reduced further.
Healthcare insurers have a similar right to subrogation, but in some cases they can avoid reducing their subrogation claim. This is because some employee health benefit plans fall under the Employee Retirement Income Security Act (ERISA), which is a federal statute that allows self-funded benefit health plans to ignore state laws that may reduce subrogation amounts. In fact, in a recent case the United States Supreme Court ruled that under current federal law these self-funded benefit plans can legally require that the injured person repay every penny of the health plan’s subrogation claim from their settlement, even if the injured person ends up receiving nothing from a settlement or judgment. These self-funded employee benefits plans usually exist when the injured person receives their health insurance benefits from a very large employer who pays all health claims of their employees themselves instead of buying a health insurance policy. Examples are Wal-Mart, Ford Motor Company, and U.S. Airways.
Aggressive subrogation practices by health insurers and self-funded employee benefit plans have become a bigger issue in recent years because more healthcare plans and insurers have increased efforts to recover money from injury victims as a way to boost profits. This trend was well documented in a 2007 Wall Street Journal article that focused on Wal-Mart and its very aggressive subrogation efforts. A link to the WSJ article is provided here.
As discussed in this article, Wal-Mart filed a federal lawsuit to seek subrogation reimbursement from a former employee who suffered a traumatic brain injury, severe physical injuries, and permanent disability after surviving a car crash with a negligent semi-truck driver. While a federal court eventually ruled that Wal-Mart was within its legal rights to take every penny of this woman’s settlement, the story generated such a backlash in the media that Wal-Mart decided to abandon its subrogation claim.
To qualify under ERISA and avoid state law that requires that subrogation claims be reduced, a health benefit plan must meet several strict criteria under federal law. Thus, an important task in every case is determining whether the health insurance subrogation claim arises from an ERISA based self-funded employee benefit plan like Wal-Mart, or is simply a garden variety group health insurance policy that is provided by the employers. Unfortunately, many of the companies that are hired to pursue these subrogation claims argue that they are self-funded ERISA based health plans, even when this is not actually the case. Therefore, knowing what paperwork to ask for regarding these employee benefit plans is very important.
WORKERS COMPENSATION INSURANCE
Indiana law provides that if a worker is injured while on the job, a workers compensation insurer must pay for the injured person’s medical bills. However, when the accident was caused by another person who was not an employee of the same company, the workers compensation insurer is also entitled to be reimbursed from any settlement or judgment that might be obtained. This is called a workers compensation subrogation lien.
Indiana does provide that a workers compensation subrogation claim or lien is reduced to reflect the claimant’s attorney fees and other costs, and may be further reduced if the injured person is not being fully compensated by the settlement or judgment. However, a trap for the unwary is that once the injured person settles their claim with the responsible person or their liability insurer, their right to further workers compensation benefits is terminated. Therefore, before the claim with the responsible person or their liability insurer is settled, it is important that the claimant has received all the workers compensation benefits that they are entitled to.
Government programs such as Medicare and Medicaid also have subrogation rights in which they will seek to be reimbursed for accident related medical expenses from any settlement or judgment that might be obtained from the responsible person or their liability insurer. In fact, Medicare’s rights are so broad that many call it a “super lien.” This is because federal law gives Medicare the right to go after the accident victim, their attorney, the person who caused the accident, their insurer, and just about anyone else that was involved in the case if Medicare is not repaid.
Under federal law Medicaid also has a subrogation right, but has no legally enforceable lien unless it first files a Notice of Lien in the county circuit court where the accident victim lives before a settlement takes place. However, legislation is being introduced in Congress now to eliminate this filing requirement and provide a “super lien” status that is similar to Medicare.
Both Medicare and Medicaid must reduce their subrogation claim to reflect the claimant’s attorney fees and other costs. Federal law also provides that if the claimant is not being fully compensated for their injuries, Medicare may be required to reduce their lien further if a hardship to the Medicare beneficiary would otherwise result. What is a sufficient “hardship” to justify a further lien reduction is usually debated with Medicare. Conversely, Medicaid is required under state law to reduce their lien if the claimant is not being fully compensated without having to prove any type of hardship. Medicare also requires that if a person who is receiving Medicare benefits is likely to require accident related medical care in the future, a portion of the settlement proceeds must be set aside to pay these future medical expenses. The exact requirement of when and how much must be set aside for these future expenses is still being developed by Medicare.
As one can see, subrogation claims are often complex. Therefore, an injured person should consult with an experienced personal injury attorney to help determine what type of subrogation claim exists, and how to pay back as little as legally possible from the settlement proceeds. Please call the offices of Indiana Car Accident Attorney James Ludlow at 1-877-897-9466 or submit the simple form on the Contact Us page for a free case evaluation and put my experience and knowledge to work for you.