This is a word that most of you will never encounter in your day to day lives: subrogation. What is subrogation? It is the right by an insurance company to pursue recovery from a third party that injured the insured. Where does that right come from? Well, you read your health insurance policy, right? Before you purchased that health insurance plan, perhaps the only one offered by your employer, or one of the few available on the exchange? Well, there’s a clause in your insurance policy that creates a right of subrogation, and federal law holds that the language is valid.
Ok ok, but what does that mean? Well, it means that if you spend four months in a hospital because your surgeon accidentally connected your intestine to the wrong organ, your health insurance has the right to get repaid for the money that it paid to the hospital for your long, miserable, hospital stay. You know, after years of paying premiums? This (claimed) right of reimbursement is subrogation. And many health insurers will aggressively pursue these funds, for themselves, for your devastating injury. The thing is, while you are assuming the risk of bringing the litigation, including all of the expenses it entails, your insurer has no skin in the game.
Many insurers just expect to be repaid dollar for dollar after you’ve been through years of litigation and misery. And the law, will let them, depending on which jurisdiction’s laws apply.
This is because not all health insurance is the same. For many of us, our health insurance plan, especially if it comes through a small business, is subject to state law regarding subrogation. Many large companies, like large multi-state employers that build and sell airplanes, for example, have established health benefit plans through a federal law called the Employee Retirement Income Security Act of 1974 (ERISA). This is significant because state law and federal law treat subrogation differently.
In Washington, the insurer’s right of subrogation is limited by some doctrines, like the “made whole” doctrine, which allows that the injured person – you – must be fully compensated or “made whole” for your injury before your insurer can collect a dime. And the common fund doctrine provides that if they do get to collect any funds, they are obligated to pay their share of attorneys fees and costs for the lawsuit for them to receive that recovery.
But that’s not the case for ERISA plans. ERISA plans are governed by federal law, specifically by the language of the contract. So, an ERISA carrier may seek dollar for dollar recovery for what they paid on your behalf, and they may demand it before you get to see a penny. They may demand full repayment even if a jury determines that you’re partially at fault for your injury and reduces your award accordingly. Some exceptions do exist though: while the health benefit carriers will almost always insist they are owed full reimbursement, there are ways to chip away at their claims. For example, for many of these rights to apply the plan must be fully self funded by the employer (rather than partially funded by insurance).
What does this mean for folks like you that have suffered a devastating injury or lost a loved one? A cynical person may say that the plans get it coming and going: they collect your premiums, and in the event they have to pay for care, they’re the first to get reimbursed out of any settlement or award.
