Usually, health insurance is just that – it pays your medical bills for treatment covered by your policy if you are injured and receive treatment. You are only obligated to pay any co-pays (deductibles, etc.), that are required under the terms of your policy. The rest of the charges are billed to your insurance company, and they pay your medical provider. Generally, as long as you pay the portion that you are responsible for, that is the “end” of the process.
What is a lien?
When you obtain medical treatment as a result of the conduct of others, like an auto accident, the initial steps are the same. You pay any co-pays (or deductibles, etc.), and the rest is billed to your insurance company.
But, in California, almost any insurance policy that covers any portion of your medical bills will contain a right of reimbursement. The insurance company asserts a “lien” against any third party recovery you make – it is a claim for the right to payment from your recovery.
What does this mean?
If you pursue a personal injury claim against the third party, such as the other driver that rear-ended you, and you make a monetary recovery (by settlement or judgment), your health insurance company has a right to demand that you “pay back” the amount they paid for your medical bills from your monetary recovery.
When you make a personal injury claim, you are entitled to claim various damages – mainly, “special” and “general” damages. “Punitive” damages (monetary awards to “set an example” or “punish” the wrongdoer) might also be claimed for intentional torts, but are typically not available in simple negligence cases.
In essence, “special” damages are easily quantifiable – they compensate you for actual, monetary losses. Lost income, medical bills, and out-of-pocket expenses for medication, towing, etc., are examples.
“General” damages are noneconomic losses, such as compensation for “pain and suffering” or going through the ordeal of an accident and subsequent treatment regimen.
When you claim your “special” damages, your medical expenses are included. This includes the total cost of all your treatment, regardless of who actually paid it (you or your health insurance). Your recovery (through settlement or judgment) includes all your medical expenses. But it is not “fair” that you keep the entire amount you recover for medical expenses, because some of it was actually paid by your health insurance. In other words, although you made the personal injury claim, you included the medical bills that were paid by your health insurance as part of your claim. And the medical “lien” is a right for your health insurance company to be reimbursed for its expenses that you claimed.
You have health insurance with Kaiser.
You are rear-ended by another vehicle, and you are transported by ambulance to a Kaiser emergency room. The ER doctor examines you, prescribes you some pain medication, and tells you to follow up if you continue to experience any pain. You do not receive any other medical treatment.
You paid $10 for your prescription at Kaiser. You receive a $100 co-pay bill for your ER visit. The total Kaiser ER bill, excluding your co-pay, was $2,500. The ambulance bill was $1,500, but it was paid by your Kaiser insurance.
The other driver was insured by Geico. You make a personal injury claim through Geico. You claim a total of $4,110, in medical “special” damages ($10 + 100 + 2,500 + 1,500).
You also claim other damages and settle your claim with Geico (the amount does not matter for this example).
Kaiser has a right to demand that you pay Kaiser $4,000 from your settlement. Why?
Because it was Kaiser that paid its ER bill $2,500, and the ambulance company $1,500, for your medical treatment and care. But you claimed those amounts from Geico as “your” damages, even though it was not you that actually paid those bills.
Why does this all matter?
This affects the practical outcome of your personal injury claim. For example, from your total settlement, you will incur attorney’s fees and legal expenses (if you have an attorney). From the remaining balance, you will need to “pay back” your health insurance company for its lien. So that affects what is “left over” for you as the claimant.
How does an attorney help with liens?
In multiple, various ways:
- First, an attorney can likely obtain a higher settlement than an unrepresented claimant. The claimant is obligated to pay back the medical liens whether or not the claimant has an attorney. And obtaining a higher global or gross settlement will more likely result in a better net outcome for the claimant.
- Second, attorneys can identify whether liens are enforceable or not – a medical provider may try to assert a lien when it is not allowed under the law (it occasionally happens).
- And third, there are different types of liens, which leads to the most important step. Attorneys can significantly help with lien reductions.
Medical liens can be reduced.
Attorneys can negotiate reductions of your liens. In the above example, an attorney can negotiate with Kaiser and not reimburse the entire $4,000 amount that Kaiser demands.
But there are multiple ways an attorney can reduce a lien under the law. As examples:
- Legitimate charges: This requires going through the medical billings to make sure that each lien only includes charges for treatment related to the accident. For example, the hospital might accidentally include your pneumonia visit in its lien for your auto accident.
- Partial recovery: In some cases, an argument might be made to Kaiser that some or all of its lien was not actually recovered. For example, some charges might have been considered “excessive” and therefore discounted by the other insurance company during the settlement process.
- Comparative fault: You might have obtained a settlement that was discounted because the accident was partially your fault. In these cases, the lien was only partially recovered, so a reduction should be made on reimbursement.
And then, it requires identifying what laws may be used to “force” a lienholder to voluntarily cut its claim. The attorney should understand what type of lien is being asserted, and the various legal ways that particular type of lien may be reduced. If that fails, it requires the ability and knowledge to seek the assistance of the court.
In our ongoing example from above:
- The California Hospital Lien Act limits the total lien recovery to one-half of all the money due to the claimant (Cal. Civ. Code § 3040(d)(2)), although how that half is calculated is a grayer area.
- The ER bill of $2,500, would be subject to an initial capitated cost reduction of 20% (Id., at subsec. (a)(2)), whereas the ambulance bill of $1,500, would likely not.
- The entire lien would then be subject to a reduction under the common fund doctrine, which is Kaiser’s obligation to “cover” or “chip in” its portion of your attorney’s fees and legal costs incurred, since as a practical matter, the attorney obtained a recovery for Kaiser. (Id., at subsec. (f)).
But the rules will be different with other types of liens (i.e., Medi-Cal recipients, contractual liens from private medical providers, or insurance policies provided through a self-funded ERISA health plan).
This becomes further complicated when there is more than one lienholder in your case, and each one tries to obtain a bigger “piece of the pie”. In these cases, even lienholders may not understand their obligations, and sometimes demand an amount they are not entitled to, with arguments such as, “If the other lienholder is not giving this discount, we won’t either”. And when that happens, the attorney and client may evaluate whether it makes sense to seek judicial determination of what each lienholder is entitled to recover.
In the end, obtaining bigger lien reductions results in a higher net settlement to the injured party. It just depends on how aggressive an attorney (or unrepresented claimant) deals with lien reduction negotiations.
Frequently asked questions:
1. Why do I have to pay back my health insurance company if it’s “health insurance” and they’re supposed to pay my medical bills?
Answer: Because the health insurance policy you purchased included a provision in its contract that allows your health insurance provider to seek reimbursement if you make a third party recovery. And in other cases, there is a statutory right to do the same.
2. What if I don’t recover any settlement or money, do I still have to pay it back?
Answer: No, because it is a lien – a right to claim an interest in any recovery you make. You do not “owe” anything “out-of-pocket” to your health insurance company for your medical bills (except your co-pays, deductibles, etc.), if you do not actually recover any money from a settlement or judgment.
3. What if I don’t make a personal injury claim, do I still have to pay it back?
Answer: No, the answer is the same as if you do not make any recovery. You will only be responsible for your co-pays, deductibles, etc.
4. Can we just “not tell” my health insurance company about my settlement?
Answer: No. When you purchased your health insurance, you signed a contract. And that contract likely requires you to notify your health insurance that certain medical treatment or care was the result of a third party accident. This allows your health insurance to investigate the claim and assert a lien if appropriate. You and your attorney are obligated to comply with that contract. You and your attorney may also have a statutory or other legal obligation to contact the health benefits provider (such as Medi-Cal).
5. I have “med pay” on my auto insurance. Does this still apply?
Answer: A “medical payments” policy is optional coverage you can purchase through your auto insurance. (See types of auto insurance coverage). A “med pay” lien may be asserted by your auto insurance company against any recovery you make from a third party.
6. The other driver was uninsured or underinsured. What happens here?
Answer: Sometimes, when you are in an accident, the other driver does not have auto insurance. Or, he provides you (or a police officer) with insurance information, only to find out later that the policy was not in force (valid) at the time of the accident (i.e., for nonpayment of the premium, or any other reason).
In these cases, you might end up making a first party claim against your own insurance company under your UM coverage. (See types of auto insurance coverage). This is a first party recovery, because you are obtaining a monetary recovery from your own insurance company. Certain liens cannot be asserted against a first party recovery.
Medical liens cannot be avoided in personal injury claims if the claimant had any type of insurance that covered any portion of the claimant’s medical bills. So, aggressive negotiations are required on two fronts – with the third party liability carrier (the insurance company of the individual who caused the accident), to obtain a higher gross settlement, and then with the lienholders, to reduce any claims for reimbursement as much as possible under any applicable legal or equitable principles.