A fundamental component of utilizing your health insurance benefits is that first step – actually filing a claim. On its surface, filing a claim seems simple, but the complexity ramps up quickly when other factors are involved – particularly factors like subrogation and workers’ compensation.
What exactly is subrogation, and how does subrogation work? How is that different from workers’ compensation? How do employees, employers and business owners keep these policies and systems straight? How does subrogation work with my health insurance? Have no fear, this guide is designed to handle your questions: fitting the pieces of subrogation into the larger employee benefits puzzle. We will discuss how to maximize your outcomes – financial and otherwise – and help you understand what subrogation in healthcare truly means.
What is Healthcare Subrogation?
Subrogation is the legal process through which an insurance carrier pursues reimbursement for claims paid that should ultimately be the responsibility of another. Where an individual’s healthcare claims are caused by a third party, and the individual’s health plan or insurance company pays those claims, the insurance company/health plan has equitable rights to recover the amounts paid on those claims from the party responsible for causing those claims to be incurred in the first place. That responsible third party may be a group or an individual.
Insurance carriers generally initiate subrogation procedures after conducting an investigation to ascertain the circumstances in which claims were incurred. If that investigation indicates that the ultimate responsibility for paying the claims in question should fall on the party whose actions triggered the claims (by causing the accident, injury or damages), and all the necessary legal ducks are in a row, then the insurance carrier will initiate the formal subrogation process.
There are four main parties involved in typical subrogation proceedings:
- The insured/policyholder: The insured, or policyholder, is the individual actually experiencing the accident, injury or sustained damages. The insured holds a policy with their insurance carrier (or is a covered individual under their group health plan), who files a claim for benefits under their policy/plan for coverage of their costs related to the accident, injury or damage.
- The tortfeasor/liable party: The individual or party whose actions caused the accident, injury or damages sustained by the insured/policyholder.
- The insurance carrier: The insurance carrier or the health plan receives a claim from the insured/policyholder and then proceeds down one of two paths for subrogation: 1) the carrier may accept the claim and cover the costs, then seek reimbursement from the tortfeasor/liable party after the fact; or 2) the carrier may wait for the insured/policyholder to receive direct reimbursement from the tortfeasor/liable party, and then facilitate the transfer of those funds from the individual policyholder back into its own insurance funds. These paths will be discussed in more detail below.
- Third party subrogation consultants/investigators: In some cases, a third-party contractor or vendor may be brought in to consult, oversee and even execute formal subrogation investigations, letting the insurance carrier know when they may have a viable subrogation scenario. Consultants may also be utilized to facilitate, document and negotiate throughout the subrogation process.
Examples of Subrogation Claims
Healthcare subrogation claims arise in a myriad of situations, and subrogation claims are sometimes necessary to coordinate payments or reimbursements. Such situations include, but are not limited to:
- Slip and Falls: Slips and falls that strike at work and are found to be the fault of a third-party property owner or individual are common subrogation cases
- Workers’ Compensation: Instances where a worker seeks reimbursement for an injury or accident that occurred “on-the-job,” but the accident was truly the fault of a third-party-owned machine, tool, vehicle or equipment – these situations frequently fit into the healthcare subrogation process.
- Health-Related Product Recalls: Product or material recalls due to verifiable health issues are another common case for healthcare subrogation claims.
- Work-related Automobile Accidents: Car or automobile accidents or malfunctions may also qualify for healthcare subrogation where injuries are sustained by an employee; however, to successfully subrogate in such a situation, other criteria must be met, including that sole, undeniable fault for the accident rests with the tortfeasor. These extra criteria can complicate subrogation attempts, and the assistance of a healthcare subrogation consultant or specialist can be invaluable in these situations.
- Miscellaneous Scenarios: Any other situation where a relevant third party has been deemed responsible for the accident, injury or damages sustained by the insured/policyholder.
The fundamental concept underpinning subrogation rights is that of one party standing in for another. Grasping this concept is key to untangling the ultimate goal of subrogation; how to negotiate subrogation claims and how subrogation is used to mitigate costs. It is also the reason why, when discussing subrogation claims, we often say that the insurance carrier is “stepping into the shoes” of the policyholder.
In insurance law, subrogation is rooted in fundamental principles of fairness and equity, which is what permits such stand-ins and transfers of rights to take place. Healthcare subrogation is rooted in these same equitable principles and is used to shift the liability of an expense onto the proven instigator or responsible party (that is, the third-party tortfeasor).
To review, so far:
- Subrogation is an action based in principles of equity, whereby insurance carriers “step into the shoes” of the policyholder to seek financial reimbursement for claims paid from a responsible third party or tortfeasor. In this legal situation, the third party must be deemed liable for subrogation to occur.
- These losses sustained by the insurance carrier came about as a result of covering a policyholder’s claim for injuries sustained due to the malfeasance of the tortfeasor.
- When initiating subrogation, the insurance carrier “steps into the shoes” of their policyholder, and now possesses the same legal rights and standing as the policyholder. In the eyes of the law, the insurance carrier takes the place of the policyholder.
- Subrogation is only permitted within the confines of existing state and federal law. For example, if the policyholder does not have a legal basis to sue a third party/tortfeasor in the first place, then the insurance carrier would be barred from suing as well.
- Outside subrogation and claims negotiation experts can step in to assist in gathering and reviewing relevant documentation, and facilitate dialogue, negotiation and payment between the parties. Such consultants can be of particular help by drafting subrogation releases and can be a key part of maximizing the reimbursement totals for a company or insurance carrier.
Two Methods of Healthcare Subrogation
There are two main avenues for healthcare subrogation:
- Tortfeasor reimburses the carrier directly: In the majority of subrogation cases, the tortfeasor is responsible for reimbursing the insurance carrier directly. These subrogation cases involve the insurance carriers’ legal counsel who will liaise and negotiate with the tortfeasor and their legal counsel.
- Policyholder reimburses the carrier: In a minority of cases, insurance carriers will seek reimbursement from the policyholder for claims paid on their behalf. This happens only when the policyholder has first received reimbursement from the tortfeasor or another third party.
To help illustrate a typical case of healthcare subrogation, avenue one above, consider this example:
- While driving to work, an employee is involved in an accident where another car ran a red light at an intersection. The employee’s car is totaled, and the employee is severely injured.
- The employee files a claim with their insurance company to receive reimbursement for their totaled car, which is covered under their vehicle insurance policy.
- Upon reviewing the claim, the insurance company launches an investigation, finding that the accident and injuries were caused by the other driver (the tortfeasor) who ran the red light. The insurance company then initiates a subrogation claim against the tortfeasor, stepping into the shoes of the employee, and seeking reimbursement for the claims paid.
The Goal of Healthcare Subrogation
The ultimate goal of subrogation is one of equity and responsibility – where a third party is the cause of an accident, injury or damage that require the payment of healthcare claims, the liability for paying those claims should be shouldered by the party that caused them. For the carrier (or a health plan), this can involve recovering the value of payments made to or on behalf of a policyholder after that policyholder is compensated for that loss by another source. The intent is to ensure that both the policyholder and the carrier are made whole after claims are paid.
In that vein, the goals of negotiating subrogation claims are similar:
- To recover money from the appropriate party: Both insurance carriers and employees themselves have financial stakes in subrogation, which provides a path to recover the monies spent after dealing with the consequences of the tortfeasor’s actions.
- To maintain healthcare premium levels: By shifting reimbursement liability onto the tortfeasor, insurance policy premiums are better maintained. This helps to stabilize both traditional premium payments made by individuals, as well as those pooled under a self-funded plan.
How Healthcare Subrogation Works
Putting aside the “legal-ese” and speaking plainly, the subrogation process is relatively straightforward:
Consider Potential Third Parties
Healthcare subrogation begins where an injury occurs as a result of third-party negligence. There must be a possible third-party liable for a subrogation claim to be viable – if there is no third party, there is no one to subrogate against. For this reason, the very first step is to investigate the claims to ascertain if and how any third parties were involved, and whether their actions were the cause of the accident, injury or damages.
Most commonly, these third-party liability inquiries are launched in two primary types of cases:
- Motor vehicle accidents, and
- Personal injuries or accidents.
Once the employer and a legal authority identify a liable third party, the subrogation process may formally begin.
- Initiate the Investigation
Investigating healthcare subrogation claims is often a detailed and time-consuming process. Not only must the investigation show that a potential third party exists, but also that they are ultimately responsible; all while navigating the interests of the policyholder, the insurer and the employer.
These investigations involve a number of moving pieces, such as:
- Interviews with potential witnesses;
- Follow-ups and coordination with first responders and taking field testimony;
- Cross-referencing all information and testimony with available litigation documents and databases;
- Checking for other sources of potential information, like social media;
- Additional investigative techniques and processes administered by the insurance company and/or their investigators.
These investigations are an ideal time to bring in a consultant or healthcare claims expert. As outside parties, these individuals provide objective and impartial oversight across the investigation and can offer additional tools and resources to review healthcare subrogation claims and provide the strongest possible arguments to suit the interests of the parties involved.
- Subrogation Letters
Once an investigation finds that a third party is indeed responsible for the claims, the insurance carrier’s next move is to send out formal subrogation letters.
Policyholders will often receive an early subrogation letter. These request additional details and information about the accident. The letters may also seek to discern whether the policyholder is contemplating further legal action, and request contact information for the policyholder’s legal counsel. They will also inquire about anything the policyholder can provide regarding the at-fault third party’s own legal and insurance information.
- Launch Subrogation Claim
Once coordinated, insurance carriers will officially seek reimbursement from the at-fault tortfeasor. At this stage, the carrier utilizes all the information gleaned through the investigation and will attempt to negotiate reimbursement from the tortfeasor themselves, or the tortfeasor’s insurance company.
- Sign Subrogation Releases
Subrogation releases signal that the claims process is nearing its end. These releases outline many of the details: that the policyholder no longer has the right to file claims to receive coverage for the claims involved, or to file for any other claim for damages from the third party. Instead, these rights roll over to the insurance company – the insurance company has officially “stepped into the shoes” of the policyholder.
From this point, the subrogation process is relatively straightforward and hands-off for the policyholder. Going forward, negotiations and any further details are handled by the insurance carrier.
Why Should You Care About Healthcare Subrogation?
All working professionals should be aware of their rights during healthcare subrogation. Understanding the purpose and process of subrogation sets the appropriate expectation that both the insurance carrier and the policyholder expect to be made whole in the wake of an injury or accident.
Misunderstanding subrogation rights can lead policyholders to misunderstand what is actually happening with their healthcare claims and who bears the responsibility for paying whom. It can appear that healthcare subrogation results in the carrier receiving compensation, rather than the policyholder. Educating policyholders so that they understand the underlying equitable principles, the fundamental nature of subrogation rights and what it means for the insurance company to “step into their shoes” is key to ensuring all parties involved are on the same page, and will encourage their participation in the subrogation process.
For business owners, healthcare subrogation is essential from a risk and cost-management perspective. Whether you offer employees a traditional healthcare pan with premiums or a self-funded health insurance plan using pooled resources, you must understand who can file subrogation claims, when and why.
Consider these additional benefits of familiarizing yourself with the basics of healthcare subrogation:
- Subrogation affects a carrier’s premiums – and profits: Insurance carriers make money primarily in three ways – charging premiums, investing their funds, and through subrogation reimbursements. During periods of market volatility, premiums and subrogation form the bedrock of those profits. It quite literally pays to understand a carrier’s history and propensity for subrogation and to see the extent to which subrogation claims underpin their financial portfolio. The more money a carrier can recover through subrogation proceedings, the less money it loses through paid claims, thus reducing the carrier’s need to increase premiums year over year. Accordingly, an insurance carrier that aggressively subrogates claims can offer some of the best value to policyholders.
- Subrogation can put money back in your pocket: Successful subrogation proceedings benefit more than just the carrier. In fact, they often enable the carrier to reimburse deductibles and return similar out-of-pocket expenses to their policyholders.
- Subrogation lets you avoid future risks: Given their in-depth investigations, subrogation reports provide keen insight into the underlying causes of accidents and injuries. Your business can avail itself of this invaluable information to improve equipment and machinery policies, work protocols, environmental safety rules and third-party partnerships.
Understand your Healthcare Subrogation Rights
Whatever type of healthcare plan your company offers – subrogation is an essential tool for maintaining the financial integrity of that plan. Conceptually, subrogation can be difficult to understand in the wake of a traumatic accident or injury, which is why informing and educating employees about the subrogation process, and their role in it, is so important.
Have confidence that you and your employee’s rights are protected and fully utilized by partnering with a healthcare cost-containment expert and consultant like The Phia Group, LLC. Our skilled team sifts through the legal and administrative noise to ensure funds are recovered and restored to where they are needed. What’s more: we make sure that our clients only pay those claims that they must pay to ensure equitable, just and profitable insurance management.
See if your health insurance offerings can benefit from Phia’s recovery and subrogation reviews and services.