Subrogation…subro what? That is what I thought the first time I heard the word. Before working in a law office, I had never heard of subrogation. The most basic definition of subrogation, in this instance, is a request for repayment. How does subrogation work? First, due to the negligence of another, say in a motorcycle wreck, you sustain injuries, that require treatment. Then your health insurance, for example, pays for the treatment of those injuries. Next, you make a demand to the insurance company for the person that caused your motorcycle wreck (or personal injury). Last, from the settlement, your health insurance requires repayment.
1. Types of Subrogation
There are two main categories of subrogation, statutory subrogation and contractual subrogation.
Statutory subrogation arises when the state or federal government created a statute, confirming the rights of an entity to be reimbursed from a third-party settlement. If this subrogation is not addressed in a timely manner, penalties and fines can accrue. This is not an exhaustive list, but the following entities are entitled to statutory subrogation rights:
i. Medicare (federal);
ii. Medicaid (Texas);
iii. SoonerCare (Oklahoma);
iv. Tricare (federal); and
v. Worker’s Compensation (Texas).
Another type of federal, statutory subrogation is called ERISA. ERISA stands for The Employment Retirement Income Security Act of 1974. On the website for the US Department of Labor, on the page titled ERISA (https://www.dol.gov/general/topic/health-plans/erisa), is states that “ERISA requires plans to provide participants with plan information including important information about plan features and funding…and gives participants the right to sue for benefits and breaches of fiduciary duty.” When it comes to subrogation, carriers that claim to be protected by ERISA have very strict guidelines to follow and must provide certain documents to their insured, confirming that they are, in fact, an ERISA plan. The most important of these is the plan document. Communications MUST be with the plan administrator.
Contractual subrogation is typically through a private health insurance carrier, like United Healthcare of BlueCrossBlueShield. The private health insurance carrier will have a right to subrogation if it is part of the contract with the insured. The best place to look for subrogation rights is in the policy, issued by the carrier and provided to the insured. The policy will also define the duties of the insured and the duties of the insurer, regarding notice and subrogation rights.
Another kind of contractual subrogation is with a medical payments carrier, through an automobile policy. Medical payments coverage pays for medical expenses, related to a car wreck, motorcycle wreck, basically any kind of wreck, as long as the policy has that type of coverage. If there is a settlement with the liability carrier, then the medical payments provider must be paid back, if there is a subrogation clause in the auto policy. If there is no liability coverage, but the injured victim has uninsured coverage, then the uninsured adjuster will typically take a “credit” for the medical payments coverage, when negotiating the uninsured claim.
2. Subrogation Rights of Insurer
The policy is always the best place to go, to find out the rights of the insurer, regarding any policy questions, but in this case, regarding subrogation. Most subrogation clauses, in health insurance policies are quite similar, but some are also very unique. It is typical policy language to say that the right to subrogation means that the insurance carrier is substituted to and shall succeed to any and all legal claims that the insured may be entitled to pursue against any third party for the benefits that the insurance carrier has paid that are related to the injury for which any third party is considered responsible. What the heck does that mean? Basically, the insurance carrier gets to stand in the shoes of the insured, as far as the perceived rights of the “plan”. Most subrogation clauses are drafted COMPLETELY in favor of the insurer, not the insured. When reviewing your policy/plan, you will want to beware of words like “right of first priority” or “no so-called “Fund Doctrine” or “Common Fund Doctrine” or “Attorney’s Fund Doctrine” shall defeat this right.” These are words that provide additional protection for the plan and take away almost all potential protection for the insured.
3. Subrogation Responsibilities of Insured
Again, look to your policy for your specific responsibilities, but you should expect to see something along these lines:
You agree as follows:
· You will cooperate with the Plan in protecting its legal and equitable rights to subrogation and reimbursement in a timely manner, including, but not limited to:
· Notifying the Plan, in writing, of any potential legal claim(s) you may have against any third party for acts which caused benefits to be paid or become payable.
· Providing any relevant information requested by the Plan.
· Signing and/or delivering such documents as the Plan or its agents reasonably request to secure the subrogation and reimbursement claim.
· Responding to requests for information about any accident or injuries.
· Making court appearances.
· Obtaining the Plan’s consent or its agents’ consent before releasing any party from liability or payment of medical expenses.
Your failure to cooperate with the Plan is considered a breach of contract. As such, the Plan has the right to terminate your benefits, deny future benefits, take legal action against you, and/or set off from any future benefits the value of benefits the Plan has paid relating to any sickness or injury alleged to have been caused or caused by any third party to the extent not recovered by the Plan due to you or your representative not cooperating with the Plan. If the Plan incurs attorneys’ fees and costs in order to collect third party settlement funds held by you or your representative, the Plan has the right to recover those fees and costs from you. You will also be required to pay interest on any amounts you hold which should have been returned to the Plan.
If you are thinking that the insurer has all of the rights and the insured has all of the responsibilities, we are thinking along the same lines.
4. Subrogation Reduction
There is one light at the end of the tunnel, for the insured. Unless you are dealing with a TRUE ERISA plan, you can always request a reduction. In 2014, Texas Legislature passed House Bill 1869, which limits the amount of recovery a health insurance carrier can receive from a personal injury settlement. The bill basically states that subrogation for a private health insurance carrier is limited to the lesser of (1) one-half of the gross recovery less attorney’s fees and costs or 2) the total cost of benefits paid, provided, or assumed by the health insurance carrier, less attorney’s fees and costs. The bill also disallowed private health insurance subrogation against first party coverage, unless the person paying for the coverage was not the injured party or a member of the injured party’s family. Medicare has a formula that is applied to the subrogation claim, allowing for a reduction in each case, depending on the settlement numbers and expenses. You can request a reduction from Medicaid, but the response varies greatly, from case to case. Tricare will typically work with attorney’s on reductions.
Subrogation is a topic that many people have never heard of before. If you have never been in a car accident or motorcycle accident, or any kind of accident, where there is liability coverage, and had health insurance to pay for your injuries, there is no reason for you to have heard of subrogation. Sometimes, ignorance really is bliss, but in the case of subrogation, the more you know, the better off you are.