Do I have to repay my health insurance if I receive money from an injury settlement?

Like most legal questions, this question can be answered with “it depends.” At first blush, it seems horribly unfair that an injured person who receives money from a personal injury settlement would be required to repay their health insurance. After all, the injured person didn’t ask for this! And, isn’t that what health insurance is for in the first place?

Certain forms of health insurance (both private and public) have a right of reimbursement to be repaid any amounts that the health insurance carrier paid on behalf of an injured insured if that insured later receives money from a third-party claim. “Third-party claim” means you hired a lawyer to sue the person who hurt you. For the health insurance carrier to have a right of reimbursement, three criteria must be met:

1. The health plan must be an ERISA-qualified plan (i.e., Employee Retirement Income Security Act);
2. The health plan must be self-funded; and
3. The health plan must have a written right of reimbursement contained in its Summary Plan Description (SPD).

As for the first item (ERISA-qualified), employer-sponsored plans that take salary deductions from the employee, or are funded by contributions from the employer, are ERISA-qualified plans. Basically, most all employer-sponsored health plans are deemed ERISA-qualified. 

The second item that must be satisfied is that the plan must be “self-funded.” This means that the employer takes on most or all of the costs of claims for its employees. The employer is essentially assuming the risk of paying all health claims made by its employees. Ordinarily, self-funded plans are found with large employers (e.g., Costco, Busch Gardens, etc.). 

Lastly, the Summary Plan Description must have a written right of reimbursement. The SPD is that large booklet that you were handed your first day on the job. If you didn’t read it, don’t worry, nobody does. 

The sneaky part is that many health insurance companies will send letters to injured people, or their lawyers, claiming that there is a right of reimbursement. Sometimes, after investigation, the plan is entitled to be reimbursed. But sometimes, they are not. And it takes the attorney telling the health insurance company to stand down to resolve the issue. More importantly, this has the net effect of putting more money into the client’s pocket. 

In contrast, government-sponsored health plans (Medicare, Medicare Advantage Plans, Medicaid), always have a right of reimbursement. Like any government benefit, if the government pays a benefit to Joe Citizen, and Joe Citizen later recovers money from his injury claim, Uncle Sam will have his hand out, wanting to be repaid. 

Some people are surprised to learn that not only Medicare, but also Medicare Advantage Plans, have reimbursement rights. Medicare Advantage Plans (e.g., Humana) provide Medicare benefits through a private-sector health insurer. These plans are often preferred as an “all-in-one” alternative to traditional Medicare whereby Parts A, B and usually D are bundled with lower out-of-pocket costs than original Medicare. However, as with Uncle Sam, these plans also have their hand out waiting to be repaid. Along those same lines, health insurance for military service members also have a right to be repaid. Health insurance for most military folks comes through Tricare (the same goes for Champus or CHAMPVA). These plans need to be repaid as well.

The good news is in an injury case, the injured person can claim and present to the court the full amount of the medical bills, not just the amounts paid by the health insurance carrier. For example, if someone is taken to the hospital after a car crash, and the emergency room bill is $3,500 and the health plan pays $250, and because of “adjustments” or “write-offs” the remaining balance is written off, in court, the person gets to claim the full amount of the $3,500 bill. Only the $250 that was paid by the health plan must be repaid.

It is important that an attorney knows how to navigate the different types of insurance in handling an accident case. You don’t ever want the client to be left holding the bag when a lien has not been repaid. Then, the injured person is the one who gets taken to court.