Protecting a Settlement from Your Health Insurance Provider
Many people reading the title of this article will wonder, "Why on earth would I have to worry about that?" Unfortunately, because of the deep discounts that HMOs have all but forced on hospitals and clinics, and their reluctance to pay many claims, these medical care providers are scraping for every penny. Some hospitals are laying claim to part of their patients' liability settlements to collect what patients owe them. However, some are reaching further than that.
How do health care providers overreach?
The basics of medical insurance payments are really quite simple. A health insurance company will contract with a hospital to pay a certain percentage or certain fixed amount for each type of charge. For example, a hospital's normal charge for a chest x-ray may be $150. The insurer may contract to cap the total payment due for a chest x-ray at $100. In turn, the insurer's contract with its customers may require the insurer to pay 70 percent of the cost of x-rays. Therefore, if a patient receives a chest x-ray, the insurer will pay $70 (70 percent of the $100 agreed cost), and the patient will have to pick up the remaining $30. Who is on the hook for the additional $50 of the hospital's regular charge? Nobody. The hospital's contract with the insurer effectively resets the price of the x-ray for the insurer and its policyholders.
When a patient is in an accident, he or she may require extensive medical services. The amount that is left over after an insurer pays its portion can be very high. The patient legitimately owes this money, and the hospital legitimately can collect it from the proceeds of the accident settlement. However, sometimes hospitals will try to get a second slice of the pie by billing the patient not only for the portion he owes after the insurer has paid its part, but also the difference between the charge contracted with the insurer and its regular charge. In our chest x-ray example, that means that the hospital would try to claim $30 plus the discounted $50 from the patient's injury settlement. This can add up quickly! This practice, known as "balance billing," is illegal in some states. However, some hospitals are apparently ignoring the law where auto insurance liability settlements are involved.
How does a hospital make a claim on a settlement?
The easiest way to explain how a hospital can claim part of a settlement is by giving an example. Jane Driver was admitted to a hospital after receiving some substantial injuries. She has health insurance through an HMO, and gives that information to the hospital, but also tells the hospital that she was injured by a defective product. Hospitals, without a patient's permission, may file a lien on an accident insurance settlement within a certain period (often between ten and thirty days) after they have provided care. The hospital files a lien against any settlement Jane receives.
The insurer settled with Jane for $10,000. Her hospital bills amounted to $5,000, 70 percent of which ($3,500) was paid by her health insurance. The amount she owed personally was $2,500. However, rather than collecting $2,500 through the lien, the hospital collected $5,000-the $2,500 Jane owed plus $2,500 that it would have charged if not for the discount contracted between it and Jane's insurer. In many places, the hospital broke the law.