Health insurance liens and reimbursement

When your health plan pays for treatment after a crash and you later recover from the person who caused it, the plan usually wants that money back. How much it actually gets — and whether it gets anything — turns on what kind of plan it is. Getting these claims reduced is one of the highest-value parts of resolving a case, because it comes straight off what reaches you.

It is general information, not legal advice. Medi-Cal and Medicare are different and are covered on Medi-Cal and Medicare liens.

Why the plan has a claim at all

Almost every health plan contract includes a "subrogation" or "reimbursement" clause: if the plan pays for care that someone else is legally responsible for, the plan can recover what it paid out of your recovery from that third party. The idea is that the wrongdoer, not the plan, should ultimately bear the cost. The clause is standard; the question is how far it reaches.

The two kinds of plan

Self-funded ERISA plans

Many employer plans are "self-funded" — the employer pays claims from its own money and hires an insurer only to administer them. These plans are governed by the federal Employee Retirement Income Security Act (ERISA), which overrides state insurance law. A self-funded ERISA plan can generally enforce its written reimbursement terms as written, including terms that wipe out the made-whole rule and the common-fund reduction. The plan document, and a specific identifiable fund (your settlement), are what it relies on.

Which is why the plan document is worth reading rather than assuming. The terms control only as far as they go. Where the plan says nothing about who bears the cost of producing the recovery, the common-fund doctrine fills that gap, and the plan takes a share of the attorney fees rather than collecting off the top of work it did not pay for. That is how the plan member won in McCutchen — the plan was silent. Silence in the document is worth finding.

Sources: Sereboff v. Mid Atlantic Medical Services, Inc. (2006) 547 U.S. 356 (an ERISA plan may enforce an equitable lien by agreement against an identifiable settlement fund); US Airways, Inc. v. McCutchen (2013) 569 U.S. 88 (plan terms control over equitable defenses, but where the plan is silent on attorney's fees the common-fund doctrine applies as a gap-filler).

Fully insured and non-ERISA plans

A plan you buy on the individual market, a fully insured employer plan (the employer pays premiums to an insurer that bears the risk), and government and church plans are subject to California law, principally Civil Code section 3040. It is a hard cap, not a general "be reasonable" standard:

• A one-third / one-half ceiling. The plan's lien may not exceed one-third of the money due you under the settlement or judgment if you retained an attorney, or one-half if you did not.
• Comparative-fault reduction. The lien is reduced in proportion to your own percentage of fault (subd. (e)).
• Pro rata common-fund reduction. The plan bears its share of the attorney fees and litigation costs that produced the recovery (subd. (f)).
• The made-whole rule. Separately, a California equitable doctrine holds that the plan is not reimbursed until you have been fully compensated for your total loss — which often applies when the at-fault coverage was too small.

Section 3040 does not reach a Medi-Cal lien, a workers' compensation lien, or a hospital lien under the Hospital Lien Act (subd. (g)), and it does not override ERISA preemption for a self-funded plan (subd. (h)).

Sources: Civ. Code, § 3040 (statutory cap on a health plan's reimbursement from a personal injury recovery — the one-third / one-half ceiling; the comparative-fault reduction in subd. (e); the pro rata common-fund reduction in subd. (f); the exclusions for Medi-Cal, workers' compensation, and Hospital Lien Act liens in subd. (g); the ERISA carve-out in subd. (h)).

Hospital liens

A hospital that treats you for accident injuries can file its own lien against your recovery from the at-fault party under California's Hospital Lien Act, separate from anything your health plan does.

• The lien attaches to the settlement or judgment from the party who caused the injury — not to your other property or to a first-party payment like med-pay.
• It covers the reasonable and necessary charges for the care the hospital provided, and it is capped: the lien can take no more than half of what is due under the judgment, compromise, or settlement, counted after any prior liens are paid. That ceiling is measured on the recovery itself, not on what is left after your attorney fees and costs.
• The hospital must give timely written notice of the lien to the injured person and to the party or insurer paying the claim; without proper notice the lien is not enforceable against them.
• A hospital that was in-network with your health plan generally has to bill the plan and accept its contracted rate. A lien for the full chargemaster amount stacked on top of that is often improper and gets challenged.

Because hospital liens sit outside section 3040's cap and run under their own rules, they are evaluated and negotiated separately from the health plan's claim.

Sources: Civ. Code, §§ 3045.1–3045.6 (Hospital Lien Act); § 3045.4 (the lien reaches only so much as can be satisfied out of 50 percent of the moneys due under any final judgment, compromise, or settlement agreement after paying any prior liens).

How this plays out at settlement

Well before the case resolves, the plan or its recovery vendor is contacted, an itemized ledger of what it paid is requested, and every charge is checked — unrelated treatment, duplicate entries, and charges the plan discounted but is trying to recover at full billed rate all come off. Then the claim is negotiated: identifying the plan type, applying the statutory cap or the ERISA plan terms, and arguing the made-whole and common-fund reductions. A reduced lien is the norm, not the exception, especially in a case where the coverage was limited.

What to do

• Use your health insurance for crash-related care; do not let providers steer you onto a lien instead.
• Keep the explanation-of-benefits statements — they show what the plan actually paid, which is often far less than the billed amount.
• Find out whether your plan is self-funded (ask HR for the plan document or the summary plan description).
• Do not sign anything from a recovery vendor without a lawyer looking at it.

Common questions

Does my health insurance get paid back from my settlement?

Usually a private plan has a contractual right to be reimbursed from a third-party recovery for the crash-related bills it paid. How strong that right is depends on whether the plan is a self-funded ERISA plan or a state-regulated plan.

What is the difference between an ERISA plan and a regular plan?

A self-funded ERISA plan — usually an employer that pays claims from its own funds — is governed by federal law that overrides most state protections and enforces the plan's written reimbursement terms. A fully insured or government or church plan is subject to California reimbursement limits and equitable doctrines.

What is the "made-whole" rule?

A California doctrine that a health plan cannot be reimbursed until the injured person has been fully compensated for the loss. It often applies when the at-fault insurance was too small to cover everything. A self-funded ERISA plan can contract around it.

Can the reimbursement be reduced?

Frequently. For a state-regulated plan, Civil Code section 3040 caps the lien at one-third of your recovery when you have a lawyer, or one-half if not, and then reduces it further for your share of fault and for the plan's pro rata share of the fees and costs. Even a self-funded ERISA plan will often negotiate a reduction rather than hold up a settlement.

The hospital filed its own lien. Is that separate from my health plan?

Yes. Under the Hospital Lien Act (Civ. Code, §§ 3045.1–3045.6) a hospital can lien your recovery for its accident-related charges, independent of anything your health plan does. Hospital liens are not subject to section 3040's cap and run under their own rules.