Subrogation is where the insurance company who paid health insurance benefits to you as a result of the care you received to treat your accident related injuries is able to seek reimbursement from any amount of money you recover from the at fault party, whether your recovery is by way of settlement, an arbitration award, or a trial verdict. In a typical injury claim arising from an auto accident, for example, this allows your health insurance company and/or your auto insurance company if you had "medical payments coverage" to get "paid back" out of your settlement with the other driver. There are some new laws in Colorado which help the injury claimant keep more of their injury settlement, award, or verdict.
Subrogation under the old law - medical payments coverage.
Under the old law, automobile insurance companies were able to seek complete reimbursement of all medical payments made under your own automobile insurance medical payments coverage. In other words, when you purchased medical payments coverage, got injured in a car accident, and used the coverage to pay your medical bills, your auto carrier would then want COMPLETE reimbursement from any monies you received from the at fault driver. Effectively, all you got for your premium dollars was a "loan". This rendered medical payments coverage worthless.
Colorado passed Colorado Revised Statute 10-4-635 which COMPLETELY ELIMINATED an auto insurers right to seek any reimbursement or subrogation from its own insured for medical benefits paid. The new law is effective for all medical payment insurance coverage policies issued after 1/1/2009.
Subrogation under the old law - health insurance payments.
Under the old law, health insurance companies could require you to pay them back for any bills they paid on your behalf for accident-related injury medical care from your settlement, verdict or arbitration award. In fact, there were even scenarios where they would make a subrogation claim which would EXCEED the gross amount you obtained from the at fault party. For example, if you were injured in an auto accident and you received $100,000 from the at fault driver's insurance company (policy limits of the available coverage), but your health carrier paid $120,000 in medical bills, they would claim your ENTIRE settlement - despite the fact it would leave you with nothing. Skilled and diligent injury lawyers were usually able to negotiate with the health carrier, but we were hindered by the lack of real, solid law to support the reduction we were requesting for our clients. The new law has changed it all.
The new subrogation law - Common Fund Doctrine.
The new law, Colorado Revised Statute 10-1-135, effective for all settlements, awards or verdicts received after August 11, 2010 now solidifies both the Make Whole and Common Fund Doctrines. It is these doctrines which a qualified injury attorney can use to reduce and/or completely eliminate the health insurers subrogation claim. The Common Fund Doctrine essentially means that the health insurance company must reduce it's subrogation claim by the same percentage that the insured had to pay its lawyer (fees and any costs of the case). Simply put, if the insured paid their lawyer a 33% contingent fee, and there was another 2% of the total settlement going to pay costs advanced for the lawyer to handle the case, under the new law, the health insurer must reduce its lien by 35%. This is a powerful new law. However, the Made Whole aspect of the new law is even more helpful to injury victims.
The new subrogation law - Made Whole Doctrine
Colorado Revised Statute 10-1-135 also codified the "Made Whole Doctrine". This aspect of the new law can operate to completely ELIMINATE a health insurers claim of subrogation, allowing the injury victim to keep all of their settlement, less fees, costs and other liens. The new law states that repayment of a health insurance claim is only allowed after the injured party has been fully compensated - or what we refer to in the law as being "Made Whole". The law presumes that if the injured party settled or received a verdict or award in the amount of the Defendant's insurance policy limits, they were NOT made whole, and as such, the health insurer has absolutely no claim of subrogation against the injured party's recovery. To see how huge this new law is, just consider our example in section 3 above. Under the old law, the injured party received very little, if anything, after the subrgation claim. Under the new law, the subrogation claim would be eliminated.
Application of the new subrogation law.
The new subrogation law of C.R.S. 10-1-135 does not apply to Medicare, Medicaid, self-funded ERISA plans, Federal insurance plans, and hospital liens. Essentially, any health plan that is not governed by Colorado State law is exempt from the new law. Further, since the law is new, injury lawyers and insurance companies are fighting it out trying to establish good case law with respect to the treatment and application of the new law, particularly where there may be some vagueness or ambiguity. The new law also requires an injury claimant provide certain written notice to take advantage of the made whole aspect of the law, so it remains imperative to utilize the services of a skilled injury lawyer to take full advantage of the new law.
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