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How Much Do I Have to Pay Back my Health Insurance from my Settlement?

Tuesday, March 12, 2019By Richard Alexander and Nina Shapirshteyn

Here is what you need to know about medical lien claims, which is a system of legally approved claw backs from your recovery in your personal injury case at your expense.

We don’t like it either. You paid premiums that generated profits for an insurance company and its executives and now the carrier wants more from you.

Having suffered an injury subjects you as a plaintiff [a person making a personal injury claim once a lawsuit is file] to laws that are basically unfair and a corruption of justice. As plaintiffs’ lawyers we have fought against these arcane legal concepts for years. The only worthwhile advice we can provide to come to terms with “bad’ laws is this: there are forces beyond your control that can take away everything you possess except how you will respond. You cannot control what happens to you. You can only control what you do in response. Here is how we recommend fighting back on medical insurance liens.

Health insurance policies are entitled to claw back payments for medical care from the person who caused injury. By law these claimants against your recovery get a free ride on your attorneys’ fees and case costs. You pay; they don’t. Medicare and Medi-Cal on the other hand recognized the cost of the effort to obtain settlements. Medicare bears a full and fair share; Medi-Cal bears a lesser share of the charges, as explained below.

Medical insurance liens by definition are specious because they are fabricated amounts that do not completely resemble the insurance company’s financial position in your case. Although a given sum was paid in reimbursement, you are never told what side deals the insurance company made with the hospital or medical conglomerate providing services. For example, there are quarterly readjustments made by carriers to hospitals depending on the specifics of the specialty contract negotiated by the hospital or hospital chains and the lawyers for Blue Cross and other carriers. This topic cannot be adequately addressed in this article, but the point is clear. The numbers generated by the carrier benefit the carrier.

This is most evident for Kaiser patients. Kaiser only produces bills when it can obtain third party repayment, which is jargon for the settlement you hope to achieve from the insurance company of the person who injured you. Otherwise, Kaiser patients never get a bill. Kaiser in the past has asked patients to sign an acknowledgement of its contractual lien rights which also give up the right to sue Kaiser for malpractice in California courts. Never sign any such document no matter what the threat. If the lien is valid, there is no need to ask you to re-acknowledge it.

As soon as medical records are subpoenaed by your lawyer, the providers by contract must report to the insurance companies, who then give notice to the lawyer of their lien rights. Medicare and Medi-Cal are protected by laws that require the lawyer for a settling plaintiff to advise them of the lawsuit and the settlement. That’s how the payors control the process. Lawyers are routinely asked by the Kaiser collection agents to recognize and agree to pay the lien. Alexander Law Group declines doing so and when it comes time to address that issue after a settlement or verdict, we treat Kaiser like any other lien claimants: they are your enemy and ours.

Remember that the lien collection companies pay their employees a commission for collecting from you and have monthly, quarterly, semi-annual and annual quotas that must be met and also bonuses for exceeding the quotas. You will get a better lien reduction at the end of a month or quarter when the collection agents need to meet collection goals or move their winnings to a higher level. Simply being a tough negotiator and dragging out a “We’re not paying” position can get a better deal. For example, in a severe burn injury claim Kaiser submitted a lien for $3,502,820. After an extended negotiation, arguing all of the issues outlined below, a final payment of $1,250,000 was accepted. Results differ in every case but fighting for the best result is worth the effort.

Lien notices sent to your lawyer will cover all expenditures from the date of injury to present, including non-accident related services. The lien holder should be advised to delete non-accident care and gross over-charges commonly claimed by hospitals providing asserting a special lien for emergency care provided by California law.

California law allows you to recover damages, reduced by the percentage of your own fault in causing your injuries. Reimbursement claimants stand in the shoes of the plaintiff and in cases of comparative fault that means reducing the lien by the same percentage as you. If you are 33% at fault, the lien must be reduced 33%. A creative lawyer can introduce a finding of the plaintiff’s fault in a settlement agreement that is deemed judicially approved, following a mediation or mandatory settlement conference before trial. Insurers commonly demand the finding of comparative fault be made by a court and should be threatened by the plaintiff’s lawyer with a declaratory relief action to establish the percentage of the plaintiff’s fault; the carrier normally will capitulate, primarily because the employees of the company collecting the lien want their commission now.

Making a consortium claim [your spouse’s loss of care, comfort and society because of your injury] can reduce a lien by reducing the overall recovery for you and sharing it with your spouse. This requires separate releases from the defendant’s insurance carrier and puts you in a better position to request a hardship reduction of the lien. It makes nil difference in most Medicare liens and is valuable in Medi-Cal and private insurance liens because it supports a plaintiff’s claims for a failure to “make whole” and a common fund defense.

The Made Whole Doctrine limits a lienor’s rights when the plaintiff gets a disproportionately small recovery, e.g. $100,000 in medical care, substantial past wage loss, loss of earning power, permanent disability and pain and suffering but the defendant only has a $50,000 policy and financially cannot contribute to a final settlement. The concept holds that claw back rights do not exist until the victim has been fully compensated for their losses and supports the plaintiff’s demand for a full waiver.

If you personally paid for your medical insurance, the insurer who makes a lien claim against your settlement must pay a pro-rata portion of the plaintiffs’ attorneys’ fees and case costs, which discounts the carrier’s lien by the same percentages. That is known as the Common Fund Doctrine which for California cases is codified in Insurance Code Section 3040. That statute provides that a medical insurance lien cannot exceed one-third of the moneys due to the insured under from a final judgment, compromise, or settlement agreement.

When a medical insurance policy is paid by an employer the policy comes under the federal ERISA law [Employee Retirement Income Security Act of 1974], which has been perversely corrupted to benefit the insurance industry. [That’s another story to be told elsewhere] The U.S. Supreme Court in McCutcheon v. U.S. Airways ruled that in ERISA policies the carrier can claim all of your recovery. The ultimate irony is that the claim by U.S. Airways was based on a lie uncovered years later when the case was remanded to the federal court in Pennsylvania and then settled under a gag order. That whole decision and the subsequent resolution stinks to high heaven because it leaves a legal decision on the books that is the bastard child of a fraud. ERISA carriers don’t recognize the value of the fees and costs you have paid and are legally entitled to ignore the discount you are entitled to receive for having created the recovery that benefits them. Nonetheless it is the law, but in practice, ERISA insurers recognize that they need plaintiffs and plaintiff’s lawyers to finance litigation for them to get back their liens and accordingly many negotiate liens irrespective of their ERISA rights under McCutcheon. That’s largely because the bill collectors want to get their percentage bonuses, so they settle. At times we have told such a carrier to sue us, hold the lien amount in trust and wait. Once the four-year statute of limitations for an action on a written contract passes the funds are released to our client.

If a Medicare lien is not paid from your recovery, the government can bring a lawsuit against everyone: the insurance company paying a settlement, your attorney, and defense attorneys and you, plus penalties and interest. That’s why settlement agreements or releases always include the plaintiff’s commitment to satisfy all outstanding liens.

If Medicare has to sue it can collect twice the amount originally owed. The law requires that Medicare be given notice of the litigation so it can obtain the permission of the insureds to communicate with their lawyer on the lien. When a settlement is made, notice must be given to the Center for Medicare Services, which administers the collection process and at that time it prepares a notice of the amounts of “conditional payments” which is bureaucratic jargon for the amount of its lien. That concept reflects the general intent of the law that everyone else has the primary responsibility for medical bills and that Medicare is the secondary or backup resource. Once the Medicare lien is confirmed, 42 Code of Federal Regulations section 411.37 determines the amount the government will take. If the recovery is less than the Medicare lien, no payment is due. When the Medicare payments are less than the judgment, the lien is reduced by a pro-rata share of the attorneys’ fees and costs. The regulation was written by the same lawyers writing Internal Revenue laws and uses language that plaintiff’s lawyers never use. The federal government calls attorneys’ fees and costs “procurement costs” and mandates the determination of the ratio the procurements costs to the total recovery. That ratio is applied to the Medicare bills and that amount is deducted from Medicare’s lien. “The remainder is the Medicare recovery amount.”

Lawyers are required under Haro v. Sebelius 747 F. 3d 1099 [9th Circuit 2014] [federal appellate court for California] to pay Medicare liens first, before disbursing to clients. In practice this means a delay of weeks to obtain Medicare’s final lien statement, which then has to be scrutinized for unrelated care.

Normally Medicare’s liens are surprisingly reasonable and the rule of thumb is that they are approximately 20% of the full retail charge, also known as the “chargemaster” which are the huge amounts you see on Explanation of Benefits forms when a carrier reports to you the amounts paid for your care and your portion, if any. Many clients are frightened by a huge retail medical bill after a surgery and weeks of hospitalization, only to learn that the Medicare lien is much less. The key take-away is that Medicare does a good job of negotiating payments to hospital and doctors and gets fair and reasonable rates. A good argument for extending Medicare coverage to those below age 65.

Medi-Cal operates similarly and recognizes that without your having an attorney to collect your damages it would not be obtaining reimbursement for the cost of your medical care. Medi-Cal limits the attorneys’ fee it recognizes to 25% of the recovery, even when you pay more, and reduces its lien claim on a pro-rata basis.

Medi-Cal liens are funded under the Affordable Care Act which pays for the “expansion” population in the state’s Medi-Cal program. California is required to pay back the feds whenever it recovers any funds through a lien and the state cannot waive the debt. If Medi-Cal reduces a lien, in cases of hardship, by more than 50% the Department of Public Health must repay the U.S. government from the state’s general fund. This impacts lien reduction.

Medi-Cal liens can be reduced under Ahlborn, a 2006 decision of the U.S. Supreme Court in Arkansas v. Ahlborn which recognizes that a personal injury settlement has multiple components: general damages for pain and suffering, past lost wages, loss of earning capacity, past medical expenses and future medical expenses. Ahlborn held that the Arkansas equivalent of California’s Medi-Cal lien can only be collected from the past medical expense portion of a settlement. The Ahlborn formula was codified in California Welfare and Institutions Code Section 14124.76(a) which provides that Medi-Cal’s recovery is limited to “that portion of a settlement, judgment or award that represents payment for medical expenses or medical care, provided on behalf of the beneficiary.”

Other lawyers may come to conclusions contrary to those expressed here. We invite anyone’s comments or suggestions.

Alexander Law Group, LLP attorneys share our knowledge of the law and the results of our research and experience. Our goal as personal injury lawyers is to make a difference for our clients. In doing so we deal with a broad range legal, health and safety issues that most people do not think about until they are forced to do so. Our mission is to provide that information to you for informed, safer and healthier living. And we are always available to answer questions. We never charge for doing so and only get paid when we collect for our clients.

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