Who Gets Paid From Your Settlement: Liens, Subrogation, Medicare

When you were treated after the crash, someone paid. Perhaps your health insurer paid the hospital, or Medicare did, or your own auto insurer's medical payments coverage, or the hospital treated you and has not been paid at all. Each of them, by contract or by statute, has a right to be reimbursed from any recovery you obtain from the at-fault driver. The reasoning is that the at-fault driver should bear the cost, not the insurer, and that you should not be paid twice for the same bill.

The right is called subrogation when an insurer steps into your position to recover what it paid, and a lien when a provider or program has a direct legal claim on the settlement funds. The terms are used loosely and the practical effect is the same: a portion of the settlement is owed to someone else, and the person distributing the money, usually your attorney, must satisfy those claims before paying you.

This is why a settlement figure is not what you take home. Attorney fees and case costs come out, and then the liens. A $100,000 settlement with $35,000 in liens is a very different outcome from the same settlement with $8,000 in liens, and the difference is often the result of negotiation rather than law.

Medicare's right of recovery comes from federal law and takes priority. If Medicare paid any crash-related bills, the settlement cannot be finalized without reporting it to Medicare, obtaining a conditional payment letter listing what Medicare paid, and resolving that amount. Medicare reduces its claim by a share of the attorney fees and costs, and will consider further reduction in hardship cases. Paying you before Medicare is paid exposes you, your attorney, and even the insurer to liability.

Medicaid also has recovery rights, administered by each state's program, but the Supreme Court has limited Medicaid to the portion of the settlement that represents medical expenses, not the whole recovery. State rules vary on how that portion is calculated, and some states apply a formula while others require a hearing.

If you are a Medicare beneficiary, or expect to become one within 30 months, a larger settlement for a permanent injury may also raise the question of a Medicare set-aside, an amount reserved for future crash-related treatment so that Medicare does not pay for it. Set-asides are required in workers' compensation cases and are a developing area in injury settlements; an attorney should address it before settlement.

Health insurance subrogation depends on what kind of plan you have. A self-funded employer plan, governed by federal law, can often enforce its reimbursement clause fully, including a clause that disclaims the usual equitable reductions. An insured plan, a marketplace plan, or an individual policy is governed by state law, and many states limit subrogation, require the insurer to share the cost of recovery, or prohibit recovery until you have been fully compensated. Finding out which kind of plan you have is the first step in negotiating.

Your own auto insurer has subrogation rights for what it paid under medical payments or PIP coverage, and in some states for collision. Some states bar auto insurers from recovering med-pay from your injury settlement; others allow it. Uninsured motorist payments are generally not subject to subrogation against you, since the insurer is standing in for the at-fault driver.

Hospital liens are different in character. In most states a hospital that treated you for crash injuries can file a statutory lien against your claim, often for the full billed amount rather than the discounted rate an insurer would have paid. Lien statutes typically have notice and filing requirements the hospital must meet, and a lien filed improperly can be challenged. Hospitals also commonly negotiate, particularly when the settlement is limited by policy limits.

Suppose your claim against the at-fault driver settles for $90,000, the driver's policy limit. Your attorney's contingency fee is one third, $30,000, and case costs are $2,000. Your health insurer paid $28,000 toward crash-related treatment under an employer self-funded plan and asserts the full amount. A hospital filed a lien for $6,000 in treatment the health plan did not cover.

Without negotiation, the liens total $34,000, and you would receive $90,000 minus $30,000 minus $2,000 minus $34,000, or $24,000. Your attorney writes to the health plan noting that the settlement was capped by policy limits, that the plan's recovery should be reduced by its share of the attorney fees and costs under the common-fund principle, and that you were not made whole. The plan agrees to accept $17,000. The hospital, shown that the settlement was limited and that its billed rates exceed what any insurer pays, accepts $3,000.

The liens are now $20,000, and you receive $38,000 instead of $24,000. Nothing about the underlying settlement changed. All figures are hypothetical, but the pattern, where lien negotiation adds more to the net than a further round with the insurer would have, is common in policy-limits cases.

Liens are easier to manage when they are identified early and documented, and hardest when they surface after a settlement is signed.

• List every payer from the first day: health insurer, Medicare or Medicaid, auto med-pay or PIP, workers' compensation, and any provider you have not paid.
• Find out whether your health plan is a self-funded employer plan or an insured plan; the plan documents or your HR department will say.
• If you have Medicare, report the claim to Medicare early so the conditional payment amount is known before settlement talks.
• Keep every explanation of benefits and bill so lien amounts can be checked against actual crash-related treatment; unrelated charges are routinely included and should be removed.
• Ask hospitals for the itemized bill and the rate your insurer would have paid, which is the basis for negotiating a lien.
• Do not accept a settlement until the lien totals are known and a net figure has been calculated.
• Get every lien resolution in writing before funds are distributed.

The made-whole doctrine, under which an insurer cannot recover until you have been fully compensated for your injuries, is the law in many states but not all, and self-funded employer plans can often contract around it under federal law. The common-fund doctrine, requiring a lienholder to share the cost of obtaining the recovery, is widely applied to health insurers and Medicare but is disclaimed by some plans. Whether these doctrines apply to a given lien is the central negotiating question and varies by state and plan type.

Hospital lien statutes exist in most states with different rules on notice, filing, and what percentage of a settlement a hospital may take. Some states cap hospital liens at a share of the recovery or require them to be reduced for attorney fees. A few states have no hospital lien statute at all, in which case the hospital is an ordinary creditor.

Auto insurer subrogation for med-pay and PIP is permitted in some states and barred in others. No-fault states such as Florida, Michigan, New York and New Jersey generally restrict the PIP insurer's ability to recover from the injured person's settlement, though they may recover from the at-fault insurer directly. In every state, the deadline to settle or sue the at-fault driver runs regardless of lien negotiations: one year in Tennessee and Kentucky, two in Texas, California, Florida and Georgia, three in New York and North Carolina.

Lien resolution is a substantial part of what an attorney does in an injury case, and it is largely invisible until the settlement statement arrives. The difference between a lien paid in full and a lien reduced under the right doctrine is money that comes to you, and the rules for each lienholder are specific enough that most people cannot work them out alone. Most personal injury attorneys work on contingency and handle liens as part of the representation.

Ask Legal Matters is a free claim-review request service, not a law firm. Requests may be shared with independent attorneys and legal services partners who handle inquiries in your state, and an attorney must evaluate the facts before anyone can say what the claim is worth or what the net recovery would be. If you have a claim and are not sure who will be paid from it, you can request a free claim review.

• Car Accident Claims in the United States: The Complete Guide
• Truck Accident Claims: Liability, Federal Rules and Compensation
• Medical Malpractice Claims: Standard of Care, Deadlines and Damages
• At Fault in a Car Accident? Comparative Negligence Explained
• What Is the Average Car Accident Settlement? What Sets the Value
• Back and Neck Injury Settlement After a Car Accident: Factors
• Bicycle Accident Claim: Hit by a Car While Riding
• Can I Sue for a Slip and Fall? Premises Liability Explained
• Can I Sue My Employer for a Work Injury? Workers' Comp vs Lawsuit

Need local rules? Choose your state from the injury law guides hub or read the statute of limitations by state.