The process to resolve a personal injury claim has only grown longer and more complicated and much of that has to do with subrogation and reimbursement.
Although the legal concepts of subrogation and reimbursement are not new, their application in the personal injury field is relatively new. Subrogation means “The substitution of one person in place of another with reference to a lawful claim.” Recently, health insurers and auto insurers have added subrogation rights into their contracts such that they have the right to stand in an injured person’s stead for a claim. For example, health insurers pay medical bills that are related to injuries a person received in a collision. Technically, the health insurer then has the right to bring a lawsuit or make a claim directly against the responsible party to be paid for the claim. In essence, they substitute themselves in place of the injured party in the legal claim. While their policy gives them this subrogation right, rarely do they use it. The reason is that they do not want to incur any expense for prosecuting the claim; they merely want to be reimbursed. So additionally, they have liberally sprinkled reimbursement rights in their contracts.
Reimbursement is exactly what it sounds like. Insurers claim the right to be paid back from their insured, any monies that are recovered for things the health insurer paid. In a typical injury case where an injured party receives medical care from hospitals, doctors, etc. the bills are submitted to the health insurer who pays them, the health insurer then seeks reimbursement for those bills. The injured party has the right to bring a claim against the responsible party. So it now becomes the injured party’s job to go out and collect money on behalf of the health or auto insurer if they paid bills, for example, under the auto policy’s medical payment coverage.
At first blush that may sound reasonable. The problem is, as consumers, you have paid for these coverages and then the coverages are watered down. In essence subscribers are punished for purchasing the coverage. I’ll discuss further how insureds are punished for buying insurance later in this letter.
Folks who have health insurance should be entitled to the coverage purchased. If someone falls down the steps at home and requires medical attention, health insurers would have to pay those bills. No one would bring a legal claim because it was the individual’s fault that he or she fell down the steps. The insurance company would just have to pay the bills. However if someone else may be responsible, the insurance company wants to be paid back. Do injured parties get a refund in premium dollars for coverage if monies are recovered? No.
If a subscriber did not use health coverage in a particular month and asks the health insurer to be reimbursed for the premiums paid that month; will they comply? Certainly not! Why should insurers be reimbursed for the very activity they are paid to do?
The insurance industry will tell you that having these rights allows them to control costs and keep their premiums down. Over the last decade or so as the insurance industry invoked reimbursement and subrogation rights, premiums have not gone down, they haven’t even held steady; they’ve only gone up. I would argue that subrogation and reimbursement rights have done nothing to curb the cost of insurance. But let’s say the insurance industry is correct that these rights help them control costs. Consider the following scenario: A routine rear-end auto collision occurs where someone is transported by an ambulance to the hospital for some bumps and bruises and then follows up with a primary care doctor, receives some physical therapy and is then released from medical care. A reasonable person might understand why insurance companies make reimbursement claims. The medical bills total $10,000.00, the health insurance through negotiated rates with the medical providers, pays $6,000.00 to cover the $10,000.00 in bills and the company wants their $6,000.00 back.
Under current law they can be entitled to the $6,000 back. If the case settles and the company is not paid back, the repercussions could be that the health insurer bring suit against their insured to collect their money or suspend or cancel coverage.
Consider a more complex case: one in which there is an argument about who’s at fault in the collision or possibly an argument about the medical treatment received whether it can be related to the collision or to some pre-existing medical condition.
Think about the following scene: two people collide in an intersection, there are no witnesses and both claim they had the green light and the other person had the red light. According to the reimbursement/subrogation claims explained earlier, the health insurance company will want all of their money back from their insured. But the other driver’s auto insurer will not pay because they argue it is not their insured’s fault. That fact won’t stop the health insurer from seeking reimbursement.
Another potential scenario: consider that a person has knee surgery a week before a collision and that follow up care and physical therapy are already scheduled except the collision aggravates the knee and prolongs recovery. The health insurance company will claim every dollar spent for post-collision treatment even though treatment was scheduled as a result of the knee surgery. How much should they get? They want it all. Their subrogation and reimbursement rights allow them to get the first dollar and every dollar until their claim is paid. Another scenario to help sway you: a collision victim incurs serious injuries resulting in $100,000.00 in medical bills but the person who caused the accident only has $50,000.00 in coverage. The injured victim could not work for six months and ends up with plates and screws to repair a broken bone and has some permanent injuries. The health insurance company will claim the entire $50,000.00 that the victim is entitled to collect from the responsible person. The injured person would get nothing for pain, suffering, lost wages or permanent injury.
Changing the facts a little: the victim has a $100,000.00 auto policy that includes under insured motorists coverage and the person who causes the collision has a $50,000.00 policy. The victims sustain injuries costing $100,000.00 in medical bills. The responsible auto insurance company will pay their $50,000.00, and the victim’s insurance coverage would cover another $50,000.00 available from their own auto policy (this brings up another discussion about why only $50,000.00 is available -- that would be because in Ohio consumers who purchased $100,000.00 are forced to set off any amount of coverage that the responsible person has. Many states do not allow that set-off… if consumers pay for $100,000 in coverage they get $100,000 in coverage in addition to whatever else the other party has.) Now the victim’s health insurance company wants the $50,000.00 collected from the responsible person and they want the $50,000.00 in under insured motorist coverage. Again, the injured person gets nothing.
Stop and think about that situation, both health coverage and under insured motorist coverage were purchased in good faith. The victim will derive no benefit from either of those purchases because one pays the other. That is the ultimate rip off in insurance coverage, the consumer pays for both coverages and one is used to pay off the other.
Some states have come along and outlawed this subrogation and reimbursement nonsense. The reality is at the end of the day, we see no benefits to the insurance companies over this subrogation and reimbursement process. The insurance companies have platoons of employees that spend an inordinate amount of time tracking who owes whom money. Today State Farm may pay to reimburse Allstate and tomorrow Allstate will pay to reimburse State Farm. At the end of the day they’re both spending a lot of money figuring how much each one should be paying each other. They worry about that a lot. At the conclusion of every case one of the last hurdles we go through with insurance companies is verifying with each individual insurance company the exact amount of money each claimed so that each one can make sure the other got paid. They spend more energy, time and concern making sure that they pay each other than they do paying the injured human person whose life was affected by the carelessness of one of their insureds.
The last state that I know of to legislate out this subrogation and reimbursement nonsense was North Carolina and I applaud them for doing so.
Consumers should receive the coverage for which they pay. People who have the wherewithal and the foresight to pay for health coverage, automobile coverage or medical payment coverage or any coverages chosen ought to get the benefit of those.
The processes that Ohio insurance companies have created are ultimately enforced by the Ohio Supreme Court (made up of 7 statewide elected Justices) and are drafted by the Ohio Legislation made up of 99 state representatives and 33 senators. The governor signs legislation into law. As we head into an election season consider the amount of money spent on these elected positions for the state senate, state legislature, governorship and Ohio Supreme Court then think about where the millions and millions of dollars originate. Special interests (like the insurance industry) are to thank.