Do I have to pay my health insurance company back?

I often get asked, “if I am in an auto accident, do I have to pay my health insurance company back for the medical  bills they paid on my behalf?” For an answer to this and other questions on health insurance liens, contact Northbrook lawyer Barry Zlotowicz at 312-848-9783 for a free consultation.

Do I have to pay my health insurance back?

Most of our clients are surprised to hear that when they settle their case that they have to pay their health insurance company back for medical bills it paid on their behalf. It doesn’t make a lot of sense. You paid health insurance premiums for this very purpose – to pay for your medical treatment if you get injured.

It is a matter of contract law. When you purchased your health insurance plan, there was a clause in the contract where you promised to pay back Blue Cross Blue Shield or Aetna if you incur medical bills in an accident caused by someone else (a third party). This applies to Medicare and Medicaid too.

Shortly after your accident, you will receive a questionnaire from your health insurance company asking whether your injuries were caused by a third party. You have to fill this form out (or send it to your attorney if you have one) and send it back. Otherwise, payment of your medical bills may be delayed.

Then your health insurance company will send you a “subrogation” letter or lien putting you on notice that you are required to pay them back upon settlement of your case. For a broader discussion of this topic see my blog article on liens.

Problems that arise from health insurance liens

This causes many problems because it often happens that your health insurance lien is for more than you recover in settlement. How does this happen? In Illinois, the minimum insurance required is $25,000.00. Many if not most people have this amount and a significant number of people are uninsured altogether.

What happens if there is only $25,000.00 to recover and you have $50,000.00 in bills? Do you have to pay back your insurance company out of your own pocket?

Generally speaking, no you do not. The State of Illinois has enacted a law that governs this situation. It is called the Healthcare Services Lien Act (770 ILCS 23/). It states that there are two situations where your health insurance must reduce their health insurance lien:

1. When their insured (you) is partially at fault for the accident.

In the State of Illinois, you can still recover for your injuries even if you are partially at fault for your accident. See my article on comparative negligence.

If that occurs, your ability to recover is diminished by how much you contributed to the accident. For example, if your injury is worth $100,000.00 but you are 50% at fault for the accident, you can only recover $50,000.00. Let’s say in this situation, you had $30,000.00 in medical bills. In this case, under the Lien Act, your health insurance company could only recover 50% of your bills or $15,000.00.

2. When the auto insurance proceeds are insufficient to adequately compensate the victim (you) for his or her injuries

What does this mean? Let’s say that your injury is worth $50,000.00. However, there is only $25,000.00 in auto insurance available and you have $30,000.00 in medical bills. What do you do?

In this case, per the Lien Act, you are being inadequately compensated for your injuries – by 50%. As such, your insurance company shall only recover 50% of their medical lien or $15,000.00.

Attorneys’ Fees

The Lien Act goes on to say, that if either of the above two situations apply, your health insurance must pay a pro rata (fair share) of your attorney’s fees. Why? Because your lawyer essentially helped them recover money that they probably would not have recovered otherwise.

Irony of the Lien Law

In both scenarios above, your lawyer has a thin line to walk. In the first scenario, he or she must argue that you were partially at fault for your accident. And, the more at fault you are, the larger the reduction off the medical lien you will receive. In scenario number two, your lawyer will argue that you were inadequately compensated for your injuries. And, he/she may argue both – that you were partially at fault for your accident and you were inadequately compensated for your injuries.

Other Issues

One issue which arises from the law is how do you establish how much (what percentage) at fault you were for your accident? This will dictate how much of a reduction should you get.

Whatever percentage you agree to with the defendant’s insurance company regarding fault (for example, 50/50), is not binding on your health insurance company. In other words, just because you agree with Allstate insurance that you were 50 percent at fault, does not mean that Blue Cross Blue Shield is required to accept payment of 50 percent of their lien.

However, it’s been the experience of this Northbrook lawyer that most health insurance companies are fairly open to negotiation with you on this issue. They also don’t want to hire attorneys to represent them in court in front of a judge to come to a determination as to a percentage of fault.

The trickier issue is establishing an estimated value of how much your case would have been worth had there been adequate insurance. However, in the end, in most cases it behooves the parties to come to an agreement on this as well to avoid the expense of litigation.

Conclusion

If you received a letter from your health insurance company asking you if the injuries you received treatment for were caused by a third party, contact Northbrook lawyer Barry Zlotowicz for a free consultation at 312-848-9783.

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