Is My Health Insurance Entitled to Be Paid from the Settlement?
Every health insurance contract or plan contains a “reimbursement" or “subrogation" clause that provides that if you are injured by somebody else who is liable to you for medical expenses covered by the policy, and you seek a settlement from that person’s liability insurance, the plan is entitled to recover the amounts it paid for medical expenses from the settlement. Some reimbursement clauses also state that the plan is entitled to reimbursement from other types of auto insurance coverage that you purchased for your own protection, like medical payments and uninsured or under-insured motorist coverage. Many people have a hard time with the reimbursement obligation since they paid for the health insurance in the first place. Health insurance companies justify reimbursement by the fact that some of the money you are receiving from the liability insurance represents payment for medical expenses that they actually paid. Whatever the philosophy, the reality is that you are a party to the contract and the terms were written by the health insurance company. When you settle a personal injury claim, you will have to deal with the right of the health insurance company to reimbursement or face possible legal action. Like other aspects of personal injury claims, dealing with health insurance reimbursement has become more difficult in recent years. There are several legal rules established by statute and case law in California that limit the amount that your health insurance can take from the settlement. For instance, it is well established in California that under the “common fund doctrine," if you retain an attorney and have to pay a percentage of your settlement for attorney’s fees and legal costs, the health insurance company must reduce its claim for reimbursement by a proportional amount. (Civil Code §3040(f).) This rule stems from the fact that the health insurance company is benefiting from the attorney services, and must therefore pay a proportional share of the cost of those services. Additionally, the health insurer can take no more than half of a settlement if the injured party does not have an attorney, and no more than a third of the settlement if the injured party has retained an attorney. (Civil Code §3040(c)(2) & (d)(2).) If there is a final judgment that includes a finding by a judge, jury, or arbitrator that the injured party was partially at fault, the right of reimbursement is reduced by the percentage of fault. (Civil Code §3040(e).) Case law also provides that if the available settlement money is not enough to “make the injured person whole" in light of the injuries suffered and expenses incurred, there is no reimbursement right. While California law provides many good tools for reducing the health insurance reimbursement lien, federal law is not as generous. Most health insurance plans provided by private employers are governed by the Employee Retirement Income Security Act (ERISA), a federal statute. In many cases, laws governing ERISA contracts “pre-empt" state law. That means that if there is a federal law on point, it controls any state law that would otherwise apply. Realizing that ERISA law provides an opportunity to collect more from settlements than is allowed under California law, health plans try to argue that every plan is governed by the federal case law. Unfortunately, consistent with the tort reform culture, recent federal court cases have given ERISA health plans much stronger rights to reimbursement than are allowed under state law. Evaluation of any reimbursement claim requires careful review of the health insurance contract and special knowledge of the applicable law. The best personal injury attorneys know how to take advantage of these rules when they are available to maximize the reduction or even eliminate completely the insurance company’s right to reimbursement.