If a health insurer, Medicare, or a state agency administering Medicaid benefits paid any medical bills that are related to your personal injury case, they are entitled to be reimbursed for everything that they paid. In order to protect their right to reimbursement, they have a lien on any compensation that you may get from your case. A lien gives a person or entity a legal right over someone else’s property. The procedure for resolving the lien differs depending on whether you are dealing with a health insurance company, Medicare, or a state agency.
Health insurers generally require their insureds to report any potential personal injury claims to them. Medicare and Medicaid have similar requirements. But even if you do not report the accident, there is a good chance that they will find out anyway. Health insurers, including Medicare, program their computers to flag payments for medical treatment that often occurs due to injury (usually orthopedic injuries). Thus, if you break a bone in a car accident, and don’t report it, you will probably receive a letter at some point asking if you have had a personal injury, and, if so, asking for the details of the claim. You must comply with this request. If you fail to respond to this request, you could jeopardize your eligibility for future health insurance, Medicare, or Medicaid benefits.
Health insurers do not pay the face amount of the medical bills. They have contracts with most, if not all, health care providers that state the amount that they will pay for any given treatment. Depending on the provider and the treatment, the health insurer could pay anywhere from 25% to 100% of the face amount of the bill. Medicare and Medicaid have similar procedures. So, for example, if you have $25,000 of medical bills, the insurer might have paid only $13,000 to the various health care providers. In that case, the health insurer would only seek $13,000 in reimbursement from you when your case settles.
The health insurer’s lien is contractual. The lien language comes from your health insurance policy. That means that, if your lawyer settles your case, the lawyer cannot disburse any money to you until he or she reimburses the health insurer out of the settlement proceeds first. In some states, your health insurer is entitled to a 100% payback for what it has paid. In other states, the health insurer will reduce its lien by the percentage of the settlement that you have to pay your lawyer (usually one-third), plus a pro rata share of the legal costs and expenses.
The Medicare lien comes from federal law. It is an automatic lien. But the effect is the same; if your lawyer settles your case, he or she cannot disburse any money to you until Medicare is reimbursed out of the settlement proceeds. For further information on Medicare repayment procedures, see Paying Back Medicare After You Win Your Personal Injury Case.
If you are receiving health insurance benefits through a state agency, that is most likely a Medicaid claim. Federal and state law gives the state agency the same automatic lien on your case as Medicare has.
Ignoring a lien from a health insurer, Medicare, or Medicaid is a bad move. You and your lawyer will probably be sued, and your rights to future health insurance, Medicare, or Medicaid benefits will be jeopardized. Ignoring a Medicare or Medicaid lien may even be a criminal offense. Bottom line: Don’t ignore the lien.
The health insurer will sometimes agree to negotiate the amount of the payback with your lawyer. Because the health insurer only gets repaid if you get money from your case, its financial interests are often aligned with yours. If you go to trial and lose, then the health insurer doesn’t get repaid. It wants to avoid that result if possible. If your lawyer can convince the insurer that you do not have a strong case, it may be willing to accept less than it is owed. But if you have a very strong case, the health insurer will probably insist on receiving the full amount of its lien.
You must reimburse Medicare for all medical bills that it paid on your behalf if you settle a personal injury claim or win at trial. Federal law prevents Medicare from accepting a negotiated amount in all but the most unusual situations. You should assume that there is no chance of getting Medicare to agree to reduce its lien.
State agencies will sometimes negotiate the amount of their lien, and some agencies are more willing to negotiate than others. Again, if you have a very strong case, the agency will probably insist on receiving the full amount of its lien.