Many clients are surprised to learn that when they receive a personal injury settlement or verdict, they may be required to repay their health insurer for any medical expenses that were caused by the negligence of the defendant. This may seem unfair, because after all, the client has been paying health insurance premiums, sometimes for many years, in order to have that medical coverage available when needed. This week begins a series of posts explaining the various types of medical liens and how they may affect the settlement of a case.
Unfortunately, there is usually little that can be done to avoid completely the reimbursement obligation—either at the time of settlement or in advance. The health insurer’s right to be repaid is almost always a matter of contract, an infrequently noticed paragraph in the long document that explains the health insurance coverage and rules. Usually titled “Third Party Recovery,” “Subrogation,” or something similar, the clause says that when an insured patient receives compensation from a third party for injuries that have required medical treatment, the health insurer must be reimbursed for any treatment costs it has paid.
Most people don’t notice this provision when they get their health insurance policy, so it comes as quite a shock when the proceeds of a lawsuit are being distributed. The legal reasoning behind these provisions is that the cost of an injury should be borne in full by the person or entity that caused it, and not by the injured person or his health care insurer. Thus, in theory, the victim recovers his medical costs from the defendant, and in turn, reimburses the health insurer. Even where the victim has no health insurance, a medical provider may assert a lien against the tort recovery, by following the procedures in G.L. c.111 s.70A.
And it gets worse. In most cases, the health insurer is not required to pay any of the attorney’s fees or costs incurred by the client in obtaining the recovery. Essentially, the insurer gets a free ride, recovering 100% of its expenditures, while the client pays the cost of recovery. And the Supreme Judicial Court, in Pierce v. Christmas Tree Shops, 429 Mass. 91 (1999), has said this is legal.
But things aren’t always that bleak. Some insurers do negotiate with plaintiff’s counsel to accept less than the entire amount owed. The insurer may agree to reduce the lien to take into account the client’s costs, because the defendant has limited funds or insurance coverage to compensate the client, or because liability questions may make it advisable to settle a claim for less than full value. Figuring that something is better than nothing, many insurers will reduce their lien to make it more attractive for the client to settle a case, rather than risk a loss at trial where both the client and the insurer may get nothing. And sometimes plaintiff’s counsel may be able to convince the insurer that not all of the claimed payments were related to the negligence. This argument may be particularly successful where causation of injuries is a disputed issue in the lawsuit. And if the lien is claimed by a medical provider, rather than an insurer, it must be properly perfected by giving notice as required by G.L. c.111 s.70B.
If a settlement is contemplated, it’s important for the client and the lawyer to discuss what liens might be asserted against the recovery and how they should be handled. If the repayment obligation is ignored, either the client, the lawyer, or even both, may be liable to the insurer down the road—long after the funds are gone.
Special rules apply to medical payments made by government programs such as Medicare and Medicaid, or for injuries suffered as a result of medical malpractice. Some of these rules will be explained in the next post.