Health Insurance Subrogation: Unraveling its Impact on Injured Parties and Navigating Subrogation Vendors

By Guest Author Teresa Kenyon, Esq. – Director of Lien Resolution for Synergy Settlement Services

Introduction:

When it comes to settling a personal injury case, the complexities of health insurance subrogation can significantly impact the disbursement of settlement funds. Attorneys handling these cases must navigate the intricate dynamics at play, especially when dealing with subrogation vendors who specialize in recovering funds on behalf of health insurance carriers. This article aims to shed light on the workings of health insurance subrogation, exploring the evolution of subrogation, its impact on the injured party, and the role of subrogation vendors.  Lastly and most importantly, it argues in the conclusion why personal injury plaintiffs and plaintiff counsel need knowledgeable experts on their side like the recovery vendors who fight for the plan’s subrogation rights.

The Evolution of Subrogation:

Subrogation as a practice has undergone significant evolution over the years to address the rights and obligations of interested parties. Subrogation defined is when an insurance company seeks reimbursement from a responsible party for a claim they’ve already paid according to their contractual requirements. Although some of these health insurance companies have their own internal subrogation departments, many choose to outsource. To navigate the complex landscape that surrounds the various legal theories, those health insurance companies often outsource to subrogation vendors who specialize in recovering funds. They are essentially their expert partner for lien resolution. It allows the insurance carrier to do what they do best – reviewing and paying insurance claims. And it allows the subrogation vendor to do what they do best by handling the collection and battle associated with clawing funds from an injured party’s settlement and sending those funds back into the insurance company’s bank accounts, with a large cut going to the subrogation vendor for collection.

Subrogation vendors like The Rawlings Company, Optum, and Conduent typically enter into contractual agreements with health insurance companies or other entities, outlining the terms and conditions of their services. These agreements specify the scope of work, responsibilities and authority, fees for service, and other relevant details. To initiate the subrogation process, subrogation vendors gather relevant data from insurance companies claims database including all relevant information related to the submission and payment of insurance claims.  They analyze this data to identify potential subrogation opportunities where the insurance company may have a right to recover funds.

The concept of subrogation has evolved over time as a legal principle to address certain situations involving the rights and obligations of parties in insurance and contract law. While it is difficult to pinpoint an exact moment when subrogation became a “thing,” its origins can be traced back to ancient legal principles and practices. Historically, subrogation emerged from the doctrine of equity, which aimed to provide fairness and justice in legal matters. In its simplest form, subrogation refers to the substitution of one person or entity in place of another with respect to certain rights or claims. This helps prevent unjust enrichment and ensures that the responsible party bears the financial responsibility for their actions or negligence. Over time, subrogation has become a well-established legal doctrine through court decisions, statutes, and contractual provisions.

The Unintended Consequences:

Unfortunately, the evolution of health insurance subrogation and the introduction and spread of expert subrogation vendors has led to unintended consequences, deviating from the principles of equity and fairness. The original purpose of subrogation, which was aimed to ensure responsible parties bear the financial responsibility of their actions, has been overshadowed by a corporate pursuit of monetary gain at the expense of the injured person. Equity is the farthest thought in the mind of most subrogation vendors. In fact, they are trained to disregard the injured person, their injury and how it may truly negatively impact their entire life.

When a health insurance company exercises its subrogation rights, it is asserting its subrogation claim to recover from the total available settlement. Consequently, the injured party’s compensation is reduced, potentially leaving them with a smaller financial recovery than they anticipated or deserve to adequately cover their future needs or compensate them for their prior trauma. Herein lies the inequity and unfairness.

The subrogation process is meant to prevent double recovery by ensuring that the responsible party bears the financial responsibility for their actions. However, in most cases, the subrogation process fails to fully account for additional costs incurred by the injured party to secure a recovery, the non-medical economic damages or the non-economic damages they have suffered. In most cases, a settlement does not allow an injured party to receive full compensation for their loss, and the subrogation claim by the health insurer further reduces their recovery since it is asserted  against all damages instead of being limited to past medical expenses.

Pursuing a personal injury claim is already a time consuming and emotionally draining process. The introduction of health insurance recovery rights adds more uncertainty regarding the amount and timing of the compensation. This can create additional financial burdens for individuals already grappling with the consequences of their injury or illness.

Vulnerable individuals, such as those with severe injuries, chronic conditions, or significant medical expenses, are disproportionately impacted by health insurance subrogation. They heavily rely on the compensation received from liable third parties to cover ongoing medical costs, rehabilitation, and other essential needs. When a portion of their recovery is usurped by the insurance company through subrogation for past medical care, it exacerbates financial hardships and impedes their ability to pay for necessary care.

In some cases, and for certain health insurance benefit programs, laws and regulations have been enacted to protect the interests of the injured party and strike a balance with insurance companies. These laws provide certain protections or limitations on health insurance subrogation, mitigating the concerns raised by the disproportionate impact on injured individuals. However, the unfortunate evolution of health insurance subrogation has allowed certain health plans, such as ERISA, FEHBA, and others, to divert more settlement dollars away from the injured person, emphasizing the need for continued subrogation reform.

Understanding Subrogation Vendors:

Focusing on subrogation vendors is essential as they have played a significant role in shaping laws that favor their corporate clients.  This alignment with insurance companies not only benefits the vendors financially but also strengthens their relationship with their health insurance clients. By collecting in more situations and recovering higher amounts, they can generate larger compensation for themselves. As partners for insurance carriers, subrogation vendors enter into contractual agreements with big insurance companies that outline the terms of their services. They analyze data from insurance claims databases to identify subrogation opportunities and work to collect funds from the injured party’s settlement, receiving a significant portion of the recovery as their fee.

Negotiating with subrogation vendors can be challenging for attorneys and their clients. Here are a couple quick hitting facts about most subrogation vendors handling ERISA subrogation claims. Most are understaffed. They juggle between 700-1000 cases, leading to significant delays and often, overlooked details.  And no, they aren’t reading your lengthy letter on ERISA lien law.  They are swamped. Representatives are typically narrowly trained, limiting their ability to appreciate counterarguments or understand complex subrogation issues outside their training sphere. They love to twist and misinterpret their recovery rights in their favor. Contrary to their statements, simply being an ERISA self-funded plan does not mean they can’t reduce their lien. It means they don’t want to because this lien type could produce the highest recovery for them. But their rights are only as strong as the plan language dictates. Even if it’s an ERISA plan, it doesn’t necessarily mean they are entitled to recover 100% of their claimed lien. The actual recovery amount able to be collected varies based on the plan language and the case specifics.

Although it’s lost some of its pizazz because it’s now 10 years old, the US Supreme Court case of U.S. Airways v. McCutchen has been used to spread a misunderstanding of the law. Contrary to popular belief, the McCutchen case did not ultimately force the injured party to repay the plan 100% of their expenses. This is a commonly misunderstood aspect that many recovery contractors exploit. On remand, the plan got even less once plan documents were reviewed with a closer eye. Speaking of plan documents, not all plans are self-funded, contrary to what they might claim. Funding status matters. Don’t rely upon what you are told; obtain and review the relevant plan documents yourself. The Cigna v Amara case held that the Master Plan Document (MPD) is the controlling document. A subrogation vendor may claim that the plan does not have an MPD. However, often, they either don’t want to retrieve it from the self-funded group or already have it and it’s not favorable to their recovery. Instead of producing the MPD, they misdirect you to the Summary Plan Description (SPD). Because it’s what they have in house. Usually this is because the document was created by the insurance carrier whereas the Master Plan Document was created by the actual self-funded employer group, making it harder for the recovery vendor to obtain.

Believe it or not, most reduction requests never actually make it to the client or plan. This is a well-kept secret that significantly impacts the resolution process. Subrogation vendor representatives will commonly refer to their client as having the decision making power.  It gives the illusion that it is the insurance company who is a Claims Administrator or the self-funded employer is calling the shots. But for many subrogation vendors, they have complete discretion in house based on their subrogation contracts with their health insurance clients. This means that they internally get to make reduction decisions without clearing through the outside party they are working on behalf of. There are internal authority processes but only in narrow situations does the representative have the file reviewed outside the subrogation vendor’s internal team.

Aside from internal processes and financial incentive of the subrogation vendor itself, another big reason why many subrogation representatives are not open to reduction is because they have a personal stake in collecting that check from the injured party’s settlement. For most subrogation vendors, employees get a bonus for each recovery check they receive whether it be based on the dollar amount of the recovery, the number of recoveries they make in a month, or the percentage of reduction they provide on all of their closed files for the month.

Conclusion:

Attorneys play a crucial role in advocating for the injured party’s rights during the subrogation process. Attorneys must be knowledgeable and strategic in their interactions with subrogation vendors to ensure their clients keep a fair and equitable portion of their settlement. Understanding how subrogation vendors operate, their financial incentives, and the importance of obtaining and reviewing relevant plan documents can assist attorneys in effectively interacting with these vendors.

All of that still might not be enough though given the unlevel playing field when fighting a subrogation vendor.  That is why outsourcing to experts in the field of lien resolution, like the health insurance plans do with recovery vendors, fights fire with fire.  Having a team of experts who understand the ins and outs of these recovery vendors can level the playing field making sure your client keeps every penny of their recovery that they should.

Synergy is here to be that expert for trial attorneys and their injury victim clients. With our expertise and understanding of the intricacies of subrogation, we develop strategies to maximize the available settlement funds for injured people. Our focus is on achieving equity and fairness in the subrogation process thereby ensuring health insurance companies aren’t collecting more than they are entitled to. Trust Synergy to navigate the complexities of subrogation and provide exceptional lien resolution services for you and your clients. Together, we can ensure that injured individuals receive the compensation they very much deserve.