Health insurance liens and personal injury settlements

If you were injured in an accident that was caused by the negligence of a third party, and some or all of your bills are paid by health insurance, your health insurance company may claim a lien against any insurance settlement you get from the third party that injured you.  Basically the health insurance company wants to get their money back out of the settlement.  Their lien would be up to the amount they paid toward your medical bills (but no more than that).

There are two types of health insurance plan: ERISA plans and non-ERISA plans.  The fundamental difference between the two types is who ultimately pays the bills.  In an ERISA plan the medical bills are paid by the employer providing the health insurance coverage, but the plan may be administered by someone like Blue Cross Blue Shield, Aetna or Humana.  In an ERISA plan the health insurance company (e.g. Aetna) administers the plan and handles claims, but at the end of the day the employer pays for the medical treatment.  In a non-ERISA plan, the health insurer (not the employer) pays for the treatment.

The difference between ERISA and non-ERISA health insurance plans matters because as a matter of federal law, an ERISA health insurance plan is entitled to dollar-for-dollar reimbursement of their lien out of the third party settlement proceeds.  Put another way, if an ERISA plan pays $1,000 on a hospital bill you have due to a car accident, the plan is entitled to get paid back $1,000 out of your car accident settlement, and if they don’t want to reduce their $1,000 lien they don’t have to.  If a non-ERISA plan however, the health insurer is more likely to agree to reduce the lien.

Health insurance companies are able to take out a lien against your recovery because they wrote subrogation language into your health insurance contract.  Your health insurance contract is probably many, many pages in length.  Buried somewhere in the contract is a subrogation clause that says, in essence, that if the health insurance plan pays your bills because a third party injured you, the plan is entitled to get reimbursed out of any settlement you get from the third party. Health insurers usually use a third party service to administer their liens, such as ACS Recovery, Benefit Recovery, The Rawlings Group and others.

Health insurance companies do not always pursue their lien by notifying the injured person’s attorney or the third party’s health insurance company however.

Please note that special rules apply if medical bills are paid by Medicare or Medicaid as opposed to other private health insurance.  Medicare and Medicaid liens must be paid out of the third party settlement proceeds, and if the third party’s insurance company (GEICO, Allstate, etcetera) thinks there may be a Medicare or Medicaid lien, they will not release any settlement proceed without something in writing stating the amount of Medicare or Medicaid’s lien, or alternatively they will name Medicare or Medicaid on the settlement check.