As part of my continuing, “If I had a nickel for every time” series, “If I had a nickel …” for every time I told a client that we had to pay back their health insurance company on their lien, I would be rich. So, make yourself a strong pot of coffee, take some “No Doz”, and let’s explore the fascinating (yawn) world of health insurance!
The best way to understand this concept is to compare a car crash where you were at fault to one where the other driver was at fault. If you are driving along, enjoying some tunes, enjoying some scenery, and run into a parked car, that’s on you. When you go to the hospital, your health insurance company will pay your bill after your PIP insurance exhausts.
In this first scenario, the bill is submitted to your insurance company, the bill is paid according to the terms of your insurance contract, and you are done. There is no other party against which you can recover money since the crash was your fault.
Now let’s look at scenario number two where you get hit by another driver and it’s their fault. You go to the hospital, your PIP insurance exhausts, and now your health insurance starts to pay your bills. You then retain an injury attorney to help you. During the work up of your claim, the attorney will draft something called a “demand package”. Here is the critical piece – within that demand package, the injury attorney will include all of your damages. One piece of those damages will be the amount that your health insurance has paid out on your bills.
The amount that your health insurance pays out is known as a “subrogation lien”. When your injury attorney submits your demand package to the at fault party’s insurance company, this amount will be included as part of your damages. Your injury attorney will most likely break down the different portions of your claim into bite-sized pieces such as medical bills, out-of-pocket expenses, pain-and-suffering damages, and liens. Your demand package will then be reviewed and evaluated by an adjuster at the at fault party’s insurance company.
Even though your attorney may have painstakingly tried to outline and break down your damages, the adjuster at the insurance company frankly could care less. They are going to make a “global” offer meaning they will not send an offer that breaks out what amount is for medical bills, what amount is for pain and suffering, and, most importantly, what amount is for the lien. Rather, the offer will be one number that includes everything, i.e. “global”. Now don’t get me wrong, it’s assumed that within that settlement offer your lien is included but, it is not broken out as a line item payment.
Now we are ready to tackle the hard part which is trying to understand why you, after paying all of your premiums, now have to repay your health insurance company when you get a settlement from the auto insurance company for the at fault party. Ready, here is the reason – you would be getting a double recovery.
“A double recovery? Are you nuts? I was hurt in the crash, I did nothing wrong, I’ve been paying my insurance premiums, and now I have to pay back my health insurance company so I don’t get a double recovery? Did you really graduate from law school?”
I completely get the frustration, but hear me out. Because your health insurance company paid your medical bills pursuant to your contract of insurance, you didn’t have to. Yes, I get it, you may have had to pay some of the bills out-of-pocket but that was your choice because you chose your particular insurance contract. For the most part, your health insurance not only paid the medical bills but, they paid them at a reduced contractual rate. Therefore, you were not “out-of-pocket” for those medical bills.
Admittedly, even though you didn’t pay the medical bills “out of pocket” you did pay premiums for the coverage. But you paid the premiums because you did not want to take the risk of being hit with medical bills. So the premium money went towards an intangible namely, your peace of mind. What you got in exchange for the premiums was not payment of your medical bills dollar for dollar but rather, the peace of mind of knowing that you would be protected especially in the event of a catastrophic medical bill.
Because your injury attorney included this lien which was not an out-of-pocket expense to you, if you were to pocket the money coming back from the at fault party’s insurance company, you would have been repaid for something that you never paid in the first place. This would be a “double” recovery meaning your bills were paid, recovery #1, and you then received money for bills you did not pay, recovery #2. That is why you are paying money back, albeit at a far lower amount, to your health insurance company.
If you’re still with me and think this through it sort of makes sense. If you have mercifully fallen asleep no worries, my next blog will be on medical marijuana!