Protecting a Settlement from Your Health Insurance Provider

"Why should I have to protect my settlement from my hospital and health insurance company?" It's a fair question. Health maintenance organizations (HMOs) have forced deep discounts on hospitals and clinics. They are also reluctant to pay many claims. So, medical care providers try to scrape for every penny. Some hospitals are claiming part of their patients' liability settlements to collect what patients owe them. But some are reaching further than that.

Your health insurance company also has an interest in recovering what it paid for your healthcare from your settlement. That keeps you from benefitting by having your medical bills paid twice — once from insurance and once from your settlement.

The following summarizes best practices for protecting a settlement from your medical and health insurance provider.

How Do Health Care Providers Overreach?

The basics of medical insurance payments are simple. A health insurance company will contract with a hospital to pay a certain percentage or fixed amount for each charge. For example, a hospital's standard charge for a chest x-ray is $150. The insurer may contract to cap the total payment due for a chest x-ray at $100. In turn, the insurer's contract with its customers may require the insurer to pay 70 percent of the cost of x-rays. So, if you get a chest x-ray, the insurer will pay $70 (70 percent of the $100 agreed cost). You will have to pick up the remaining $30 (the "co-pay").

Who's on the hook for the extra $50 of the hospital's regular charge? Nobody. The hospital's contract with the insurer resets the price of the x-ray for the insurer and its policyholders.

When you're in an accident, you may need extensive medical services. The amount left over after your insurer pays its part of the contracted rate can be very high. You owe this money as your co-pay obligation. So, the hospital can collect it from the proceeds of your accident settlement.

Going back to the above example, the hospital charges $150 for the x-rays. But your insurance company contracts with the hospital to set the cost of an x-ray at $100. When the insurance company pays its part, $70 in this case, you still owe a $30 co-pay. If you don't pay your $30 part of the bill, the hospital can recover that amount from your settlement.

But sometimes hospitals try to get a second slice of the pie. They do so by billing the patient their regular rate instead of the rate they contracted with the insurer. In our chest x-ray example, that means that not only would the hospital try to claim the $30 you owe, but it would also try to claim the $50 difference between its regular and insurance company rates. This practice can make the fees add up quickly!

This practice is known as "balance billing." It's illegal in a growing number of states. The federal government is also getting involved in stopping the practice. But some hospitals ignore the law where liability settlements are involved.

How Does a Hospital Make a Claim on a Settlement?

The easiest way to explain how a hospital can claim part of a settlement is by giving an example. A hospital admitted Jane Driver after she received substantial injuries. She tells the hospital that she has health insurance through an HMO. She also tells the hospital that her injury is from a defective product.

Hospitals may file a lien on an accident insurance settlement without a patient's permission. They must do so within a certain period (often between ten and thirty days) after providing care. So, the hospital files a lien against any settlement Jane receives.

Jane received an injury settlement for $10,000. Jane's hospital bills are $7,500 at the hospital's regular rate. But, because Jane's insurance company contracted lower rates with the hospital, her bill is $5,000. So, there's a $2,500 ($7,500 - $5,000) difference between the hospital's regular rate and its contracted rate with Jane's insurer.

Jane's insurance company pays 70% of its contracted rate. So, its part of the bill is $3,500 ($5,000 x 70%). Jane's responsibility (co-pay) is the remaining 30% of the contracted rate, or $1,500 ($5,000 x .30%).

But the hospital billed Jane the full $7,500 instead of the $5,000 contracted rate. So, instead of recovering just the $1,500 that Jane owes from her settlement, it recovers $4,000 from Jane's settlement. That's the $1,500 Jane owed plus the $2,500 difference between its regular rate and its contracted rate with Jane's insurance company. In many states, the hospital broke the law.

What Are the Courts Saying About "Balance Billing?"

More and more patients are suing hospitals. Some are suing individually while others are pursuing class action lawsuits. Key cases in Texas and Wisconsin have resulted in strong language from the courts. They also resulted in significant judgments against the offending hospitals. In the Texas case of Satsky vs. United States, the patient's insurance company paid the hospital in full. The court ruled the hospital could not recover any further funds. A lien could only attach if the lien secured a debt. But the insurance company paid the bill in full per the health insurer's contract with the hospital. So, there was no debt remaining for the hospital to collect.

The Wisconsin judge in Dorr vs. Sacred Heart Hospital didn't mince words, stating that the hospital had filed its lien "purely as a ploy to try to get as much money as possible" and had intentionally disregarded the patient's rights in doing so.

The attorney general of Maryland warned healthcare providers that "balance billing" is illegal. Florida's and Arkansas' insurance commissioners have done the same.

Michigan's public health regulations expressly forbid the practice. The California Supreme court unanimously upheld a state law barring balance billing.

As the practice continues, it is expected that courts in more states will rule that the practice is illegal, and that more states will take an official stance.

How Can I Protect Myself Against Balance Billing?

In a non-emergency situation, ask many questions about how the hospital bills. You can also insist that all the services you receive are in-network. But situations that give rise to an injury settlement are often emergencies. In these cases, you likely don't think about, or are even able, to ask questions.

In the case of an emergency, review your hospital bill thoroughly when you get it. If you think you're the victim of balance billing, check to see if the practice is illegal in your state. You may be able to file a complaint with the appropriate state agency. You can also contact an attorney experienced in personal injury for legal advice.

Can My Health Insurance Company Take Part of My Settlement?

Your health insurance company often has a right to take part of your injury settlement to recover some of what it paid for your medical care. It depends on the terms of your health insurance policy. This practice is called subrogation.

The theory behind subrogation is that you should not have your medical bills paid twice, once by your health insurer and once by a settlement or judgment in an accident liability case. So, you would have to reimburse your insurer for part of their medical expenses.

Get Legal Help To Protect a Settlement From Your Health Insurance Company

Understanding who's entitled to what in a personal injury case can be complex. An issue involving an insurance company, hospital, or other third parties can get even murkier. It's vital to understand who is responsible for what. Luckily, you can contact an experienced personal injury attorney today. An attorney will know the relevant laws in your state and help protect you from unintended outcomes.