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Medical Bills, Medical Liens and Subrogation Rights -- Sharing Your Personal Injury Settlement Proceeds with Your Health Insurance Provider

One of the biggest issues our clients have is dealing with medical liens and subrogation rights of private health insurance carriers. The concept is simple. If you have health insurance, and that insurance pays for medical expenses for injuries arising out of an accident, that health insurance provider is entitled to recover any costs it paid out from your personal injury lawsuit settlement. This is called a right of subrogation.

The modern version dates back to the American Revolution and was applied in areas such as property insurance. An insurer, for instance, might seek to be repaid by the maker of a faulty furnace that caused a fire in a building the company covered.

In recent years, subrogation has mushroomed into a multibillion-dollar source of offsetting costs for private health insurers as well as Medicare and Medicaid. Medicare reaped nearly $2.5 billion last year, aided by a 2007 law that requires the federal insurer for the elderly to be notified of any legal settlements paid to its beneficiaries so it can subrogate the funds.

This law is very frustrating because we have seen it allow insurance companies to receive 80 percent of the settlement proceeds, leaving the injured victims with next to nothing.

The liens have spawned companies and law firms that identify cases and, representing the interests of medical insurers, pursue patients who have received court settlements.

We constantly deal with such firms as Rawlings, who hire "analysts" that do nothing other than follow and track the work we do on the case and once there is settlement the analysts sticks out their hands and say "pay me".

Insurers and employers say getting back money in these cases helps lower premiums for all members of a group plan.

All but two states either ban subrogation outright or limit how much insurers can collect. In New York, the General Obligations Law specifically prohibits such subrogation claims.

Unfortunately, many employers provide health insurance as an employee benefit under the Employment Retirement Income Security Act, or ERISA, which is a federal law. Congress specifically designed ERISA to supersede any state statutes related to employee benefit plans. More than 90 percent of workers with medical coverage at the largest U.S. corporations are insured this way. Hailed at its passage in 1974 for safeguarding employees' pension plans, ERISA now helps deny or reduce compensation to workers injured through someone else's negligence. In other words, the state laws that forbid subrogation claims do not apply to any such claims where the insurance policy is part of an ERISA plan. And, of course, most, if not all, such plans are ERISA plans.

One of the most famous cases regarding subrogation claims involved James McCutchen, a US Airways mechanic badly injured in a highway wreck in 2007. When US Airways demanded repayment of $66,866 it spent on his medical treatment-a figure slightly exceeding the $66,000 he netted in a settlement after paying his lawyer-McCutchen refused to pay. He argued that the US Airways lien was unfair because he had not been fully compensated for his injuries. A federal appeals court agreed, calling it a "windfall" for the airline. In 2013 the U.S. Supreme Court sided with US Airways, ruling that as long as the health plan's contract with employees specifies that it can be reimbursed for medical costs in these situations, it has a legal right to collect.

Most employees have no idea these provisions exist. Indeed, we have a policy at StolzenbergCortelli LLP of telling our clients during our initial meeting about these subrogation claims and we try and continue to educate our clients as the lawsuit proceeds and as the settlement time draws near. However, it is very difficult for the client to accept that the carrier may be getting a bigger piece of the pie than the client would. And, quite frankly, it's hard for us to accept this fact as well. It's just not fair. But, given the Supreme Court decision, our clients face an uphill fight if they want to defend against the subrogation claims. The problem now is the law is pretty clear with the McCutchen case. The options are severely limited.

In fact, there really is no other option at all.

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