After A Bicycle Crash: Should Your Health Insurer Pay Your Bills?

You've been in a bicycle crash with a motor vehicle.  You've got your wits about you and you've done all the right preliminary stuff and gotten yourself to the hospital.  Luckily you have health insurance, but hospital personnel are asking you, Who do you want us to bill for your care:  Your health insurer or the at fault driver's auto insurer? You haven't a clue what the right answer is.  Not only are you distracted by your physical discomfort, you have never had the occasion to consider such a choice.  You fall back on reason:  Why should my insurer have to pay?  Bill the SOB driver's insurance.  This is his fault.    

Wrong answer.

If you are injured in a crash, direct health care providers, i.e. hospitals, physicians, etc., to bill your health insurer.

If you later bring a claim or lawsuit against the at fault driver you will substantially increase your net monetary recovery if your own health insurer paid your bills.  Here's why:  In a negligence lawsuit the injured party (the plaintiff) is entitled to, among other things, full compensation for his or her medical bills.  The plaintiff is entitled to compensation for the amounts actually billed by health care providers, not merely what insurance paid, or for co-pays.  The plaintiff is entitled to the full "sticker price" of his or her bills.  If the matter were to proceed to trial, jurors would never hear that the plaintiff had health insurance that paid the bills.  Jurors would only be informed as to what the bills were.  Auto insurance companies understand this, so in negotiating resolution of a claim the full amount of billed charges is considered in coming to a settlement figure.  This is a very substantial benefit to those fortunate enough to have health insurance.  Health insurers, in exchange for the premium you or your employer pay, satisfy the medical bills you incur.  But they do not pay the health care provider's "sticker price" for those services, at least not to providers within the insurer's health care network.  Instead, at least with large providers, they pay a reduced rate that may be a fraction of the billed amount.  Providers generally agree to this arrangement because by being a part of the insurer's network they get lots and lots of patients.

Regardless of who initially covers your care and treatment costs your claim against the at fault driver will be liened for those costs.  In other words, either your health insurer or the care provider will serve you or your attorney with notice that once the case resolves, e.g. via settlement, it is to be reimbursed for the cost of your care and treatment.  A lien directly from the care provider will be for the full sticker price billed.  A lien from your health insurer (known as a subrogation claim) will only be for the amount it paid which, as noted above, will be for an amount substantially less than the care provider's sticker price.  Paying your health insurer's lien rather than the care provider's lien means less money is subtracted from your gross settlement, thereby increasing your net.

But wait, there's more.  

Not only will a lien from your health insurer be lower than a care provider's lien, under Illinois law it can be reduced even further, generally by one-third.  This is due to something called the common fund doctrine.  Under that rule, your attorney is entitled to be paid a fee from your health insurer under the circumstance I have been describing.  The logic behind this is that but for the attorney's effort to bring a claim against the at fault driver, the health insurance company would not receive any reimbursement for what it paid.  An ethical attorney will not, however, keep that fee but will instead pass it on to his or her client.  On the other hand, pursuant to a case decided last year by the Illinois Supreme Court, Wendling v. Southern Illinois Hospital Services, 242 Ill.2d 261 (2011), the common fund doctrine does not apply to health care provider liens.  So, there can be no reduction of liens that come directly from your care provider.  (But under Illinois law all provider liens together cannot exceed 40% of the settlement or judgment.)

Let's take a look at a hypothetical to see how all of this may work:

You are cruising along on your bike in a dedicated bicycle lane when suddenly a driver parked along the curb opens her door into your path causing you severe injuries.  You spend some time in the hospital and incur a $70,000 hospital bill.  You have health insurance and direct your insurer to pay the bill.  It does, satisfying the charges by compensating the in network hospital $11,000 pursuant to their agreement.  The hospital looks to you for a co-pay which amounts to a few hundred bucks which you happily pay out of pocket.  At the same time you hire a wonderful attorney to bring a claim against the driver that caused your injuries.  This very competent, not to mention handsome, attorney works diligently and settles the case for $200,000.  (Luckily the driver had lots of insurance.)  The attorney's fee is one-third of the settlement and the law firm's out-of-pocket expenses are $500.  He negotiates reduction of your health insurer's lien down by one-third, from $11,000 to $7,332.60.  Your net from the settlement, therefore, is $125,500.73.  Had your health insurer not paid the bill, the hospital likely would have sent your attorney a lien for the entire $70,000.  Your net from the same settlement would be $62,833.33, a nearly 50% reduction.  There are ways to try to force a care provider to reduce its lien, but they are far from certain, expensive and time consuming.

These lien issues are indeed tricky business.  Frankly, the need to deal with health care liens and subrogation claims is one reason you may wish to consider consulting with an experienced attorney following a crash.