Medical Liens and Subrogation: Why Your Health Insurer Gets Paid From Your Settlement

When your health insurance provider pays for injury-related care, and someone else caused the injury, the plan often has the right to be repaid from your settlement. Liens can directly reduce the amount you receive from your settlement.

If you need assistance understanding your contractual obligations to your insurer once your personal injury case settles, use the Super Lawyers directory to contact an experienced insurance coverage attorney in your area. They can explain your legal options.

What Is Subrogation?

Subrogation allows your insurer to “step into your shoes” to recover money spent on your care from the person or company responsible for your injury. Think of it like a friend covering a bill for you and expecting to be paid back once you receive the money owed to you.

Instead of suing the at-fault party directly, most health plans will seek payment from any settlement you receive. The right to receive these funds is part of the language in your insurance policy or plan documents (contractual subrogation).

What Is a Medical Lien?

A lien is a legal claim against your settlement funds that must be resolved before you receive the full payment. Some liens exist by operation of law, not because of a contract. Medicare liens, Medicaid liens, and, in many states, hospital lien statutes are considered statutory liens.

Subrogation is the right to be repaid, but a lien is the legal tool that secures payment from settlement funds.

Why Health Plans Have a Legal Right To Reimbursement

Settlements often include money for medical expenses and bills that your insurance paid to medical providers. Repayment keeps you from being paid twice for the same expense.

Although it reduces your settlement proceeds, health insurance subrogation helps insurers control premiums and protects taxpayer-funded public programs. Most health plans include reimbursement terms in the policy language or plan documents you receive at enrollment.

How Subrogation Works for Different Types of Health Coverage

Learning that you must repay a portion of your settlement proceeds to your health insurance company may come as a surprise.

However, these claims are part of the settlement process. An experienced attorney treats them as a negotiation rather than a fixed bill. Each major type of insurance has standards for recovering payments through subrogation, including what is negotiable and what is not.

Private Health Insurance (Individual and Fully Insured Employer Plans)

With private health insurance, the policy’s reimbursement or subrogation clause governs your right to recover in a subrogation claim. These plans generally follow state insurance rules.

Depending on your state, your settlement may be governed by one of the following rules:

• Made-whole rule. In some states, an insurer cannot be repaid until you are fully compensated for your losses, including pain and suffering.
• Common fund rule. The insurer may need to share in attorney’s fees and case costs that made the recovery possible.
• Anti-subrogation laws. A few states limit or prohibit certain recovery claims.

Your location can significantly impact how much a private insurer can recover for a health insurance lien.

ERISA Plans (Most Employer-Sponsored Plans)

The Employee Retirement Income Security Act (ERISA) is a complex federal law that governs most employer-provided benefit plans. ERISA plans include self-funded plans, which differ from fully insured plans.

• Self-funded. The employer pays the claim directly. In such cases, federal law generally overrides state consumer protections.
• Fully insured. The employer buys coverage from an insurer. This means that state insurance laws may still apply.

Courts usually honor the written terms of self-funded ERISA plans. If the plan does not discuss attorney fees, the common fund rule may still apply. Attorneys must request the full plan document to confirm exactly what the plan can claim.

ERISA claims can be the most difficult to resolve with liens because ERISA preempts state law. When preemption applies, ERISA plans generally do not have to follow state anti-subrogation laws, a state’s “made whole” doctrines usually don’t apply, and attorney fee reductions aren’t guaranteed.

Negotiation is still possible with ERISA plans; experienced counsel can often minimize their impact. The strength of your position is based on the plan’s language and your specific circumstances.

Medicare

Under the Medicare Secondary Payer Act, Medicare’s payments for care related to personal injury claims are considered “conditional” and must be repaid from any settlement. After the Medicare recovery contractor reviews the charges, it issues a conditional payment summary. Your attorney reviews the charges and disputes any charges unrelated to the injuries involved in the personal injury lawsuit. Medicare issues a final demand once settlement is reported.

Medicare automatically reduces its claim by a share of attorneys’ fees and costs. If you have a financial hardship, you can request a waiver or a compromise of the amount owed. Never ignore a medical provider lien, as interest, penalties, collection actions, and possible effects on future benefits can be at issue. Medicare Advantage Plans also have recovery rights you must address. Liens may seem substantial, but they are rarely as large as the initial figures suggest.

In recent years, Medicare has introduced various settlement programs that can help reduce the lien under certain circumstances. These include programs such as a fixed percentage payment or a self-calculated conditional payment amount for modest settlements.

Medicaid

Under federal law, each state sets its own rules for recovery from responsible third parties. Each state sets its own recovery procedures. Medicaid can recover only the portion of a settlement related to medical treatment.

In Gallardo v. Marstiller (2022), the U.S. Supreme Court has also allowed recovery from settlement funds set aside for future medical care. Medicaid does not allow for recovery of compensation for pain and suffering or lost wages.

How Attorneys Negotiate Medical Liens To Maximize Your Recovery

Active, skilled personal injury attorneys don’t treat medical bills and hospital liens as final. They work hard on your behalf to negotiate them down.

Liens Are Resolved Before You Are Paid

Your attorney typically holds settlement funds in a trust account until all liens are resolved. Paying off lienholders protects you from future collection efforts, penalties, or personal claims. You receive a settlement statement showing every deduction before funds are released.

Step One: Identify and Verify Every Lien

Notify all health plans and request itemized payment records. Confirm the type of health care insurance involved in your case (i.e., private, self-funded ERISA, fully insured, Medicare, Medicare Advantage, or Medicaid).

Obtain and review the actual plan documents and policy language to determine what laws and rules apply to your situation. An attorney experienced in insurance coverage law can help you interpret plan language.

Step Two: Audit the Charges

A tedious step in your case is auditing the charges healthcare providers made. You’ll need to remove charges unrelated to the accident, such as routine medical appointments or treatment for preexisting conditions.

You may also catch duplicate billing and coding errors that could result in significant overcharges. During the audit, you are confirming that the amounts listed reflect what the plan actually paid, not what the provider billed.

Step Three: Apply Legal Reductions and Arguments

Depending on the law governing your case, laws may reduce the amount of medical liens. For example, you may need to request reductions under the common fund rule or Medicare’s procurement cost formula. For “made-whole” arguments, you will need to show that the settlement does not fully cover your losses.

When insurance coverage is limited, you may argue for a proportional reduction when the at-fault party’s policy limits cap your settlement. When dealing with Medicaid, ensure that the settlement figure attempts to recover only from the medical portion (where the law allows it). If you are making a hardship request, be sure to provide adequate documentation to support waivers or compromises.

Step Four: Negotiate and Document the Final Agreement

Any personal injury attorney you engage should leverage their experience and relationships with lienholders and recovery contractors to secure final, written lien amounts before disbursement.

Every dollar removed from a lien means that you recover more in compensation. Lien negotiation is a core part of a personal injury lawyer’s work. You don’t have to handle it alone.

Consult an Insurance Coverage Lawyer for Help

Health plans often have a legal right to repayment when someone else caused your injury. Subrogation is the right to be repaid, but it is usually the starting point, not the final number. It’s critical to understand how these liens are calculated and how they impact the settlement proceeds you receive.

An experienced insurance coverage lawyer will work with you to address any subrogation and medical lien issues and how they affect your personal injury settlement.