Accident victims often incur substantial medical bills. Accident victims who have health insurance will probably submit those bills to their insurance company. Depending on their insurance coverage, the victim may need to pay some of the bill (the “deductible”) before the insurance payments will begin. The victim may also need to pay a portion of the bill (the “co-pay”). Prescription costs may be covered under different terms than medical treatment.
When an accident victim makes a claim against the person or business whose negligence caused the victim’s injuries, the victim will want to seek reimbursement for the medical expenses the victim paid. In nearly all cases, however, the victim can and should make a claim for the full cost of medical treatment, including the portion covered by health insurance.
Does that mean the accident victim gets to keep the portion of the settlement that covers medical expenses a health insurance company has already paid? The answer to that question is usually “no,” but like many aspects of the law, the answer in any particular case can be complicated.
Windfalls and Settlements
Suppose an accident victim incurred hospital and doctor’s bills of $50,000 to treat injuries caused by a car accident. If the accident was entirely the fault of another driver, that driver’s insurance company should pay the full $50,000, plus additional compensation to cover wage loss, pain and suffering, and the cost of coping with any lasting disability.
Now suppose the accident victim paid $7,000 in hospital and doctor’s bills out of her own pocket, and the victim’s health insurance paid the remaining $43,000. If the victim could keep the full $50,000 paid by the negligent driver’s insurance, the victim would have a windfall of $43,000. She would essentially collect the same $43,000 twice — once from her health insurance company, which sent it to her health care providers on her behalf, and again from the negligent driver’s insurance company.
As a general rule, the law does not favor giving anyone a windfall. The health insurance company spent $43,000 on behalf of the injury victim, so when the case settles, it may be fair for the health insurance company to recover that $43,000 from the settlement proceeds.
It would not be fair for the negligent driver’s insurance company to avoid paying medical bills simply because they were paid by the victim’s insurance. The law does not favor windfalls, but it also does not favor letting responsible parties avoid the consequences of their negligent conduct. The question is whether the victim can keep the part of the settlement that covers medical bills or must pay it to the insurance health company that covered those bills.
Health insurance companies usually avoid an argument with the insured about entitlement to settlement proceeds by including a “subrogation clause” in their insurance policies. In simple terms, a subrogation clause gives an insurance company the right to recover funds it spent on behalf of an insured if the insured collects those same funds from another source.
In the example above, the negligent driver’s insurance company would be required to reimburse the accident victim for all medical expenses. Of that $50,000 reimbursement, the accident victim will keep $7,000 to cover the expenses that the victim paid. Because of the subrogation clause in the health insurance policy, the remaining $43,000 will be paid to the health insurance company to reimburse it for the medical expenses that it paid.
Exceptions to Subrogation
While subrogation is straightforward in the example discussed above, there are instances in which the health insurer’s entitlement to subrogation is disputed. For example, most states do not allow a health insurance company to enforce a subrogation clause unless the accident victim has been “made whole.” Injury victims are “made whole” by receiving full compensation for their injuries.
For example, suppose an accident victim incurred $40,000 in medical expenses and 80% of those expenses, or $32,000, was paid by health insurance. If the negligent driver had liability insurance limits of $50,000 and the injury victim has no option but to settle for that amount, the victim will not be “made whole” by the settlement if the full settlement value for the victim’s injuries is greater than $50,000. It would be unfair to make the victim repay the health insurance company when the victim would be left with settlement proceeds that are insufficient to cover lost wages, pain and suffering, and other elements of compensation.
Other subrogation issues arise when settlements are reduced by the comparative negligence of the accident victim and other parties to the accident. The experienced attorneys at Butler Kahn will negotiate with health insurance companies when subrogation issues arise to maximize the recoveries that their clients receive.