Subrogation is often a part of a health insurance contract, but many people are not aware of what it means or how it can affect a personal injury claim. It is very important to understand how subrogation may reduce the final amount available to the plaintiff before settling any personal injury claim.
What Is Subrogation?
When a victim is injured, he or she often visits the emergency room or a doctor’s office. This visit is generally submitted to a health insurance provider for payment. However, the insurance company may explore the possibility that someone else is responsible for the cost of your injury. If there is a third party responsible for the bills, the insurer may insist that the third party reimburse the company for any money it has paid on your behalf. This is known as subrogation of a claim.
The term “subrogation” means that one party stands in place of another. In the case of personal injury, the paying party, usually an insurance company, asserts its right to be compensated for any payments it makes on behalf of the victim.
The Collateral Source and Rights of Insurance Companies
A subrogation clause generally protects the “collateral source” or the entity that pays the bills for medical treatment and other expenses. This source is typically a private insurance company or a government agency in the case of Medicare or Medicaid recipients. Subrogation clauses seek to avoid the “double recovery” quandary in which a victim is paid twice for the same injury, with the insurance company providing the first source of payment and a personal injury award paying the victim again for the same costs. Subrogation is also intended to keep insurance costs lower for everyone.
However, if the victim does not understand that the insurance company or government agency will be taking some or all of the proceeds, he or she may be pushed into a settlement that is not large enough to pay all of his or her expenses.
Is Subrogation Fair?
While insurance companies may be able to justify medical liens, the purpose of subrogation is not to leave the victim without any compensation. There are several arguments against allowing a health insurance company to subrogate a personal injury claim.
For example, if a victim has health insurance and pays a premium of $500 per month, in five years he or she has paid $30,000 for the privilege of having coverage. Over the course of five years, the victim may not have submitted any substantive claims, meaning that the insurance company has profited by at least $25,000 over that time period. When a personal injury costs the company $5,000, the victim has not “profited” by having his or her bills paid. Instead, the insurance company has still profited by $20,000 over the five-year period through the fact that the victim pays for his or her coverage.
Advocates of subrogation laws claim that they prevent plaintiffs from recovering a windfall due to a personal injury, but the insurance companies are much more likely to benefit than the victims, particularly in a small personal injury case. Additionally, insurance companies claim that subrogation is necessary to keep insurance rates low and fairly adjust the risk the companies take in writing policies, even though insurance companies routinely make huge profits off of these claims.
Subrogation laws are complex and can impact your personal injury claim. If you have been injured due the negligence of another person, it is important to have the help of a personal injury attorney who is well-versed in subrogation law to ensure that you receive the best advice on maximizing your compensation.