WHITEBOARD WEDNESDAY (September 6, 2017): Did you know that your health insurance company has a contractual right to reimbursement if you recover your medical bills in a personal injury settlement? The exercise of this right by your health insurance company is referred to as a subrogation claim and in this week’s #WhiteboardWednesday, Matt addresses how to minimize their impact on your personal injury settlement.
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<a class=”embedly-card” data-card-controls=”0″ href=”https://youtu.be/htqSRehoTeo”>Subrogation Claims: Here Comes Your Health Insurance Company</a>
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Hi, Matt Quinlan here. Welcome to this week’s edition of #WhiteboardWednesday, where we tackle real-life issues that are our clients face and answer questions that we get from people that call our office. This week, we’re gonna be talking about subrogation claims, and most people have never heard of that. And I often get questions from my clients when they are startled by the fact that their health insurance company is seeking reimbursement for the care that they got once they hire a lawyer or once they bring an injury claim.
So, I get a lot of questions about subrogation, a lot of confusion surrounds that particular topic. And so, I wanted to create a “Whiteboard Wednesday” video about this issue, so that people understand the rights that their health insurance company has to be reimbursed if you are to receive a settlement or a verdict in a personal injury case. So, let’s get started.
What is Subrogation?
What is subrogation? Well, it’s a part of your health insurance contract, okay? It’s in everyone’s contract. People don’t know it, obviously, you know, your health insurance contract is rather long and probably not something you spend too much time reading the fine print on, but in there, it does say that if you are to recover money from a third-party in a personal injury claim and the health insurance company has paid for your care, they’re entitled to be reimbursed.
So, it’s a funny issue because most people feel like, “Well, hey, I’m paying my premiums. I have health insurance. I shouldn’t be responsible for the bills and I shouldn’t have to pay them anything. That’s what my premiums are for.” But the particular clause in the contract that covers subrogation keeps you from double dipping, it keeps you from recovering twice. Once, by having your health insurance company pay for your medical care, and then trying to recover again by actually receiving from the insurance company in the personal injury claim the value of your medical bills.
So, it’s a common thing. We deal with it on every single one of our cases just about. And so, it shouldn’t be anything that’s gonna surprise you. What is important to note that it only involves third-party recoveries, so if you’ll receive money from somebody else. And so, importantly, that does not cover UIM claims, okay? UIM is first-party claims. That’s your own insurance that steps in in the event that the policy limits of the third-party are inadequate. And most subrogation clauses in insurance contracts do not include UIM claims, so that’s good.
The logistics of how it works, okay, so a lot of it requires you to self-report. You know, insurance companies aren’t in the business of trying to figure out why you went to the hospital. They just get the bill from the hospital, the doctor’s office, etc., and they just pay it based on the terms that they have and the agreement they have with the provider. They are not in the business of snooping around, trying to figure out what exactly was wrong, what your diagnosis was, why it was that you were there in the first place, what happened. They don’t do that, okay? But they are aware that they have the subrogation, a right in their contract. So, what they do is they send a letter to people they get care, specifically and especially at emergency rooms.
So, if you go to the emergency room, you should expect a few weeks later, you’ll receive a letter from your health insurance company asking you questions about why it was that you went to the emergency room and they are poking around, trying to figure out if they’re gonna have a subrogation claim. Now, I recommend to my clients that they don’t respond to that first letter. The health insurance company has absolutely no idea of why you went to the emergency room if it was related to an accident. If you’re gonna be bringing an injury claim, no clue, whatsoever. It’s a complete boilerplate, cookie cutter letter they send to everybody and they hope and count on you self-reporting the issue so that they can then kind of…did their hooks in, they can focus on you, they can open a file, and then chase down money that you might recover.
So, my advice to my clients practically is, “Hey, look. I mean, they send that letter to everybody. If it was me, I probably wouldn’t do anything about it and I would make ’em write me a second letter so that at least I felt like they have flagged my file or at least I felt like, you know, they were aware of me and they were kind of keeping track and following up and following through and are organized.”
So, my advice is when you get this first letter from your insurance company, don’t respond to it, okay? Look, technically, you have a contract with your health insurance to cooperate with them, to give them information. So, the area that I’m discussing now is a bit of a gray area and it’s really more of a practical issue as opposed to a legal one. I know that they’re sending this letter to everybody and I know that you would rather keep your money if you’re able to get a settlement.
As we’re gonna to get to here, actually, I’ll just jump to it now. I have absolutely no obligation and whatsoever to report the issue to your private health insurance company. I don’t want to do that. I want you to keep as much money as possible. All the money that we have to pay back to your insurance company comes out of your pocket. So, you know, as long as it’s not a governmental entity, I, as the lawyer, have no obligation whatsoever. So, private is good, government bad, because if I have a situation where Medi-Cal is involved or just some sort of governmental agency that pay for your healthcare, I do have a duty to report. So, there’s no kind of dodging it. There’s no running from it. It’s gonna be something that if you don’t do it, I’m gonna do it.
But with the private healthcare, which is most people’s situation that come into my office, I don’t have an obligation to do it, so I’m not gonna do that. I’m trying to get you as much money as I can. And so, it’s really up to you. So, it’s a level of…you have to have your own level of comfortability with kind of withholding information, okay? You’re not lying to your health insurance. You just didn’t respond to their letter. So, that’s always my advice to my clients and typically, people take it and it serves them well.
Back to logistics. So, they send you these letters, maybe they send you one or two. Don’t respond to the first one. The second one is questionable. If it looks cookie cutter, I would recommend that you don’t respond to that one either. Make them focus on you. Make them realize that you actually are a potential source of recovery for them and not just another follow-up letter that a machine or a computer spit out. They do hire outside companies to try to track this stuff down. And the minute that they kind of get the hints or get the idea or become informed that you do, in fact, have a third-party claim that’s coming, they’re gonna probably hire an outside company that’s in the business of keeping in touch with you, keeping in touch with your lawyer, following the case online, if possible, if it’s been filed, because they do, in fact, want to be reimbursed.
Like I said, they’re entitled to it. My goal, generally, is to try to keep your health insurance company out of your pocket. And I give my clients advice to try and help them do that. But when they do find out, whether it be because eventually it became to the point where it just you had to ‘fess up, that yep, sure enough, I hired a lawyer and I’m bringing a claim, or they figured it out in some other way because you filed a lawsuit, for example, or a situation where a governmental institute is paying for your health insurance, then, we have to honor it, okay?
And so, one of the services that I provide to my clients is, after we receive a settlement or a judgment, I negotiate with your health insurance company a settlement for their lien on your case, okay? So, they have a financial interest in your settlement or your verdict. And so, I will then, after the settlement or verdict, negotiate with them on your behalf because every dollar I can get them to forego is another dollar in your pocket. So, that’s a service that I provide to my clients, which takes us into negotiating the subrogation claims. You know, the first thing I always do is try to figure out what kind of insurance policy we are dealing with. Is it a private insurance policy or is it a governmental insurance policy like Medicare, Medi-Cal?
If it’s a private insurance company, I’m very happy. I have a good opportunity to save you some money, long history of successfully negotiating these bills way down. And so, that would be the most positive situation.
There is a type of private insurance called ERISA policies, which involve your retirement funds. Those are particularly difficult to deal with. Trying to get a reduction on an ERISA claim is very, very hard because you’re dealing with people’s money and they’re all pooled funds that have to do with people’s retirement. So, trying to get a good reduction here is almost impossible. We do have some tricks and we have been successful getting them to do it. But if you can do better than 10% when you’re dealing with an ERISA claim, you’re doing great, okay? Ten percent is also pretty good. Sometimes ERISA claims will say, “No reduction, no exceptions.” You know, tough.
Medicare, Medi-Cal, well, I should say about the private health insurance. So, in this particular instance, I will be dealing with a human being, a person that’s been assigned to your file and I will be able to communicate with him or her about your claim, in various subrogation claim. And we can use kind of our personal relationship, kind of, it’s a little bit more freewheeling. There’s a little bit more flexibility for me and for them to negotiate the deal. It can feel right. It can feel fair.
And so, there’s been a lot of success at my office dealing with these private medical insurance companies. I mean, sometimes, you can get them to drastically reduce their subrogation claim. I mean, for peanuts, if you don’t recover a lot of money for your case and they paid out a lot, those situations are bad deals because you don’t end up getting what you’re entitled to. But, you know, generally speaking, if you can get, you know, a 33% to a 40% reduction of the medical claim, private, you’re doing well. I’m gonna get into the tricks of how I go by in doing that here in just a second.
And then the other type of insurance are the governmental insurance, okay? So, there’s private. There’s an ERISA exception because if you get one of those, it’s tough. But the other is the Medi-Cal, Medicare, and other governmental insurance policies. And in those instances, it’s more of a system you’re working with. Did I lose you? Nope, false alarm. We record these live. I thought I lost you. So, Medicare. So, you go through a system, right? So, a lot of us have done it online, and I don’t have the ability to interact with a particular person, which makes it kind of tough. And it’s a government, so there’s a lot of red tape. There’s a lot of rules and regulations. There are no exceptions, too.
So, I would say that, you know, I’ve been successful over my career dealing with Medicare liens. They will be reasonable with you, but it’s far from my deals. So, you know, in this situation, I would say if you’re able to do, you know, a 33% to 40% reduction, now you’re doing great, but you’re probably gonna end up doing a little worse than that. And then set-asides. So, all the same as they’re entitled to be reimbursed for the care they have paid for in the past. Well, you’ve got some money from a third-party, so that should also be covering the care you’re gonna get in the future, okay? So, that’s called a “set-aside.”
So, in this particular instance, you have to take the government’s interest in mind and say, “Well, listen my client’s gonna need a surgery in the future or more physical therapy or something like that,” and you have to set aside some money from the settlement, you stick it in a private fund, and you set it there for the purpose of paying for your medical bills. So, this is a complicated area of law. We deal with stuff like this here, but it’s not something that we love doing. And it’s tricky and there’s a lot of kind of finesse in it, and you also have to set aside some of your settlement, which is never pleasant for my clients.
Negotiating Subrogation Claims with Insurance Companies
So, let’s get to the negotiation tactics about how I go on about trying to get these bills reduced for you, so I could put more money in your pocket. Cost of procurement. Well, look, a cost of procurement is the cost that you incurred to obtain any money, right? So, at least, in theory, had you not hired me to represent you, you weren’t gonna get anything. You were gonna be totally unsuccessful. You aren’t gonna get anything. And when you get nothing, then there’s no subrogation claim, right? So, you only have to pay back your insurance company if you actually get a settlement.
And so, you had to hire me on a contingency fee. I work on a one-third, 40% contingency fee. You had to pay me either one-third or 40% of the settlement to get anything. So, my argument is that your insurance company and their subrogation claim should also be reduced by the same amount that your total settlement was reduced by my contingency fee. That’s called the cost of procurement, and this works really well with private insurance, not ERISA, mind you. I’m gonna do this, so you know. This is a no-go. And then sometimes, you can get it to work with Medicare also. It just depends on what you’re dealing with and what the situation of the particular case is.
Tied closely to the cost of procurement, which, again, is gonna be something like a third, 40% reduction, which is consistent with the contingency fee, is a pro rata share of cost. So, all the same, I have advanced all the cost to get you this settlement. You have to pay me back those costs. And so, if you had to pay for costs in the case, well, then, they should have to pay for cost in the case. So, the idea is they pay their fair share of the cost that were incurred as well and they reduce the lien further. So, this is very closely tied to the cost of procurement. They’re often handled as one and the same, and it just involves them taking a reduction for the cost just like you had to.
And then, lastly, there’s a California insurance code that is used quite frequently that in short says, “A subrogation lien holder can only take one-third of the total settlement if you have an attorney.” The idea being the lawyer gets a third, you get a third, and they are reimbursed a third, assuming the one-third is less than what they totally paid out. If one-third of the settlement is a bigger number than what they paid, then obviously, you’re gonna get the smaller and they’re not gonna get the third.
And then also, if you don’t have a lawyer, they can get half. Now, the idea there is, well, the subrogation company and the health insurance company gets half the settlement, you get half the settlement and you go your separate ways. So, California Insurance Code 3040 at least protects you and make sure that you end up with something in your pocket, and it’s not the type of deal where only your lawyer gets paid or only the health insurance company gets paid, or only the lawyer and the health insurance company gets paid and you end up with some money, too, which is fair.
So, there you have it. That is a really brief, short, quick version of subrogation. It’s a rather, you know, extended and lengthy subject. I’m happy to speak with you about subrogation claims and negotiating them. I’ll answer any other questions you might have about personal injury matters. I appreciate you watching, and tune in again next week for “Whiteboard Wednesday.”