Personal Injury Legal Myth Busters: Myth #3 “I Don’t Have to Reimburse My Health Insurer”

After Receiving My Personal Injury Settlement, I Don’t Have To Reimburse My Health Insurer/Med-Pay Provider for Amounts Paid for My Accident-Related Medical Bills

Wrong. The reason this myth likely arose among non-lawyers is that clients understandably believe that the high cost of monthly insurance premiums that they pay for health and auto insurance—including all those years when they never used the coverage—should be compensation enough so why should they receive anything from a client’s personal injury settlement? I definitely sympathize with my clients on this point, but the reality is that the law is not on their side. There is a reason why, however, and sometimes understanding of the law can soften the blow.

What is Subrogation?

Most health insurance plans and automobile med-pay coverage provisions have a section in the plan or policy entitled either Subrogation, Coordination of Benefits or Right of Reimbursement. These provisions state that while the insurer is obligated to pay medical expenses pursuant to the terms of the contract, they also state that if any of the medical expenses paid are due to an accident and their insured pursues a claim against an at-fault party for damages and obtains a recovery, then the plan has a right to be reimbursed for the amounts they paid for accident-related care. Even if your health insurer or automobile med-pay coverage insurer did not have that language in its plan or policy, subrogation is still recognized by the courts as an equitable (fairness) doctrine, as distinct from a contractual provision. This right to piggy back along with an injured party’s claim and seek reimbursement in the event a monetary recovery is made is what is meant by subrogation.

Why is Subrogation Applied?

Subrogation is applied by courts to avoid a judicially disfavored double recovery to an injured party.  Since almost every personal injury claim includes medical expenses as a significant part of the claim against an at-fault party, if the injured party was allowed to recover the medical expenses incurred due to an accident, even though he or she was not the one who actually paid the medical bills, in the eyes of the law the plaintiff would be experiencing a windfall—receiving as damages money for medical bills that they did not personally pay out-of-pocket.

Other Legal Doctrines Impacting Subrogation

Collateral Source Rule – Subrogation also interacts with another legal doctrine in Wisconsin known as the collateral source rule. This rule provides that an at-fault party is not supposed to receive a benefit (reduction in damages caused by their own negligence or fault) just because the injured party had the good sense to have health insurance or medical payments coverage under their own insurance policies at the time the accident occurred. This rule works with subrogation to avoid a windfall to either the injured party or an undeserved benefit to the at-fault party by requiring the “collateral source” (the health insurer or med-pay provider) to be reimbursed.

Make Whole Rule – To complicate matters even further, there is yet another legal doctrine at play in Wisconsin known as the make whole rule. It provides that a subrogated party, such as a health or med-pay insurer, should only be allowed to be reimbursed for accident-related medical expenses it paid if the injured party is first made whole. This doctrine arises out of the sensible and fair view that as between a commercial insurer and an injured party, the commercial entity can better absorb the loss caused by an accident. Sounds good, right? In theory, yes. As a practical reality, however, most personal injury cases are resolved by a compromise settlement to avoid the costs, risks and uncertainty of trial, so how does one determine with any certainty whether an injured party was made whole by a settlement when a jury has not yet spoken on the extent of damages? While there is a procedure short of a full jury trial where a court can hold a “make whole” hearing to resolve the issue if the injured party and the subrogated party cannot agree, in day-to-day practice, settlements are usually reached with the subrogated party.

Often the health insurer or med-pay provider will reduce their subrogation lien amount, not only to resolve the “made whole” issue, but as a contribution toward the injured party’s attorneys fees and costs. After all, the injured party and their counsel did all of the hard work necessary to obtain a settlement—a common fund—from which the subrogated party stands to benefit, even though it did not take any of the risk or do the work to prove up the case. However, the above rules do not apply to all subrogated parties. Certain types of health insurance plans, such as government-sponsored plans like Medicare or Medicaid typically apply a formula for lien reductions. Other plans, such as employer-sponsored plans created under a federal statute known as ERISA, are subject to yet other rules, complicated enough to warrant separate treatment in a future article, and can make obtaining fair lien reductions for an injured party quite difficult.

In summary, while subrogation may be a frustrating topic for clients to learn about, a skilled and experienced personal injury attorney with a good grasp of the law in this area, can use that knowledge well so that after obtaining the best possible monetary recovery from the at-fault party’s liability insurer, can then effectively do battle with the subrogation parties to try to obtain appropriate lien reduction so that the injured party can receive from a settlement, free and clear from all other obligations, an amount that is fair under all of the circumstances presented.