If you are injured by a defective or faulty medical device or medication, you may be able to recover damages from the responsible manufacturer. Depending on the facts of your case, these damages can compensate you for things such as medical bills, pain and suffering and lost wages. In cases where the manufacturer acted in particular nasty ways, such as burying a product study which showed an increased risk of injury, punitive damages may even be possible.

For plaintiffs who are able to obtain a damage award from the responsible medical device or pharmaceutical company, they understand they will not be able to keep every penny received. For example, some of it will go to their attorney (if they have one) and some of it may be subject to taxes. But sometimes, an unexpected “bill” comes from their health insurance company.

Why Do I Have to Pay My Health Insurance Company?

This is sometimes an unpleasant surprise, and you might be wondering if there is some sort of mistake; it usually isn’t. Even though your health insurance may have paid for much of your medical care resulting from the defective medical device or medication, you could still be on the hook for paying those bills indirectly. To effectively explain how this is so, let’s take a step back and see how insurance works.

How Insurance Works

Individuals sign up for health insurance to avoid the risk of a serious medical problem creating healthcare related financial burdens the individual can’t afford. Insurance companies agree to take on this risk so they can make a profit from it. An insurance company’s profit can be understood with the following simple mathematical equation:

Insurance premiums – covered losses = profit

The insurance companies decide how much of a profit they want, use actuaries and fancy computer programs to predict their covered losses, then set their premiums accordingly. This is an oversimplification as to how insurance companies make a profit, but it gives you a general idea.

However, insurance companies can lower the premiums, yet still maintain their profit, by reducing what they pay for covered losses. One way they do this is with subrogation.

What is Subrogation?

The term subrogation means to stand in the place of another. In the context of insurance, it usually refers to the insurance company standing in the place of the insured. When might this happen? When the insured has a legal claim against a third party, such as a medical device or pharmaceutical company.

Most insurance policies have special language that gives insurance companies this subrogation right. You may already be familiar with the concept of subrogation when dealing with your car insurance company. For instance, if you were injured in a car accident due to the fault of another and your car insurance company pays you for your covered loss, the car insurance company also has the right to go after the responsible party to recover what it paid you. Basically, subrogation gives car insurance companies the right to reimbursement.

Many health insurance policies give health insurance companies this same right. So if you get hurt, requiring the use of your health insurance benefits, your health insurance company may be able to recover from the responsible party what it paid to you. When a health insurance company exercises this right, they will place a healthcare lien on your settlement or judgment amount. It may not seem fair, but whether you know it or not, you actually agreed to this arrangement.

But I Never Agreed to Subrogation!

Actually, you probably did, but just didn’t know it. When you signed up for your health insurance and paid your premiums, you agreed to the terms of your insurance policy, which is a contract. Theoretically, you could have renegotiated a few of the terms in your insurance policy, including taking out the part that gives your health insurance company the right of subrogation.

But reality doesn’t allow for an individual consumer looking for health insurance to have this type of negotiating leverage. So if you really didn’t like the subrogation provision in your health insurance policy, your only option was to find another insurance policy that didn’t have it (which would have been unlikely).

Is There Any Good News?

The good news is that if your attorney negotiates a settlement with the medical device or pharmaceutical company, your attorney will make sure that any settlement amount will include money to pay any healthcare liens you may have. This is particularly true in multidistrict litigation (MDL) settlements. In some MDL global settlements, the wrongdoing manufacturer will agree to compensate the plaintiff for his or her injuries, and will also agree to cover the subrogation demands of the person’s health insurance coverage. This important benefit, for example, was part of the Depuy ASR Settlements.

Also, depending on which state laws apply to your health insurance policy, a health insurance company’s subrogation rights may be restricted. For example, some states have laws that limit the amount the insurance company can recover from you. This area of law is extremely complex, however, and beyond the scope of this post. But be aware that health insurance companies are powerful entities, and they work constantly to protect their rights to subrogation and ever higher profits. So at the end of the day, be prepared to pay health insurance liens from your personal injury recovery.

When a device or drug maker pays money to an injured person for a defective product, several costs must be repaid from these funds. There will likely be medical liens, expenses of litigation, attorney’s fees, and health insurance liens. You can get an overview of these cost repayments in a post I wrote last year. In today’s post I want to take a closer look at health insurance liens (and the related concept of health insurance “subrogation”), mainly because health insurance companies can take a big bite out of your product liability settlement funds. Best to understand this unpleasant news upfront.

How Do Health Insurance Liens Work?

If you have health insurance, much of the cost of your medical care will be paid by your health insurance plan. Let’s say you need revision surgery to remove defective hernia mesh. The total cost of the surgery is $36,000.00, but under contracted payment rates between the hospital and your health insurance company, the cost is reduced to $24,000.00. Under your agreement with your insurance company, it pays $20,000.00 for this surgery and you pay a total of $4,000.00 in “co-pays” (that is, the amount you must pay “out of pocket” under your health insurance plan). So far so good.

A week after the surgery, while you recover from the operation (and watch afternoon commercials asking if you have been injured by defective hernia mesh), you receive a letter from your health insurance provider asking specific questions about how you were injured. The health insurance company is trying to figure out if a third-party is ultimately responsible for your injuries and thus for the costs of your revision surgery. The insurance company may want to know if you are pursuing a product liability claim against the manufacturer of the hernia mesh. It is no secret that the health insurance company is looking to be reimbursed for the payments it made for your mesh revision surgery. The moment you file a lawsuit against the product manufacturer, your health insurance company will submit a “lien” identifying its claim to some of the settlement funds. And trust me, these companies will not let this claim go lightly; they will pursue reimbursement aggressively, and you will most likely have a contractual responsibility to pay the health insurance company from your settlement funds. In fact, if possible the insurance company will expect to be repaid 100% of the costs it paid for your health care caused by the negligence of others.more

Health insurance subrogation is the closely-related concept whereby your health insurance carrier pays for your health care and then directly pursues reimbursement of those payments against the negligent third party or the third party’s insurance provider. Subrogation is the substitution of one person or entity for another with respect to an insurance claim or debt, and the entity substituted will obtain all the rights associated with the insurance claim or debt. What this means is that if your health insurance company pays money for your medical care, and it turns out your injuries were caused by a negligent third-party (such as a distracted driver or the manufacturer of hernia mesh) then the health insurance provider can step forward and demand to be repaid for the costs it incurred in your treatment. Essentially, it can pursue a lawsuit against the negligent third-party on its own, without you.

But Isn’t My Health Insurance Company Supposed to Pay for My Health Care?

In a word, yes. And these companies will pay for your health care related to injuries you sustain from a failed medical device, a problem prescription, or a car crash. At least, they will pay what they are required to pay based on the health insurance contract (and not a penny more). However, if a third party is at fault, they will want to be repaid from the third party for payments made.

This repayment can sting because it will naturally lower your overall net award from your product liability settlement. It also stings because you have paid health insurance premiums for years to provide medical care when you are injured, and the moment you receive compensation for an injury caused by someone else, your health insurance company will expect to be repaid for the medical care it paid on your behalf.

Let me put it another way, in any given year you may not receive any health care, but you paid monthly health insurance premiums every month. The insurance company does not give you that money back, and there is no mechanism for you to recover these premiums in a year when you did not need health care. What can I say? The health insurance industry has a more robust lobby in Washington D.C. than do individuals injured by defective products.

How Much Can the Health Insurance Company Take of my Product Settlement?

This can be the shocking part: in some cases the health insurance lien can be larger than the third-party is willing to pay in settlement. This means that you as the injured person may receive nothing from pursuing an injury claim against a negligent person or company. Quick example: you are hurt by the failure of a metal-on-metal artificial hip, but in the revision surgery you suffer a mild heart attack. Your health care related to your recovery from the heart attack eventually costs the health insurance company $225,000.00, but the hip manufacturer will only offer $300,000.00 to settle your case. In that situation, after other costs are paid there would be no money left over for your pain and suffering.

Some good news is that many states recognize the “Made Whole Doctrine.” This doctrine is a defense to a health insurance provider’s lien or subrogation rights. It goes like this: the insured (or injured person) must be “made whole” before an insurance company may step in and assert its rights to be repaid. But a word of caution: often the subrogation rights of insurance companies is stronger than the defense of the made whole doctrine.

If the “Made Whole Doctrine” does not protect you in your state, the other modest good news is that health insurance companies will occasionally work with a competent lawyer to lower the overall health insurance lien. For example, in the above example the health insurance company may agree to take two-thirds of the total cost for the health care “to get the deal done.” In that case, there would be money left over for you.

Finally, in many multidistrict litigation settlement agreements, the parties negotiate an arrangement for the product manufacturer to pay the health insurance liens and other liens as part of the overall settlement package. This can be one of the more attractive features of a multidistrict litigation settlement.

If you have more questions, call me: (919) 830-5602.

Note: this is not legal advice.