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Coordination of Benefits

Health insurance policies and managed care plans virtually always contain provisions addressing the insurer’s payment obligations when an insured has under more than one plan. Think of these coordination of benefits provisions as comparable to other insurance clauses in homeowners or auto policies.

Arbitration

Health insurance policies sometimes contain mandatory arbitration provisions applicable to disputes over the recoverability of benefits. Federal law, the Federal Arbitration Act (9 USC Sec. 1 et seq.) and many states’ laws establish a public policy in favor of arbitration of disputes and generally serve as a basis for enforcement of contractual arbitration provisions. Arbitration provisions have been held generally not to constitute an impermissible infringement of an insured’s right to a jury trial. Arbitration can only be reversible on judicial review if the arbitrator exceeds his or her authority under the arbitration clause—in other words, if he or she decides an issue not within those expressly stated in the clause to be subject to its provisions. Notwithstanding the foregoing, arbitration clauses must be prominently disclosed in the policy or plan documents and must be stated in clear and understandable language.

Right to Recover Clauses

Most health insurance policies and managed care plans contain provisions governing the health insurer’s right to recovery if an insured for whom covered medical care is provided suffers illness or injuries caused by a third and sues the third party for damages and obtains a judgment or settlement. Such provisions appear in the policy or plan documents under one or more of the following headings:

  • Reimbursement;
  • Subrogation;
  • Liens;
  • Third Party Clauses

There are some limitations on the insurer’s or plan’s right to recovery. The general rule is that an insurer is not entitled to recovery from a third party on a subrogation theory until the insured has been made whole. Arguably, this means that the health insurer in this context would not be entitled to recovery until the insured has been made whole for his or her payment of deductibles and copayments and any other medical or similar expenses incurred as the result of the third party but not covered by the policy or plan.

This is an equitable principle that can be waived or modified by contract. When, however, such a contractual waiver or modification of this general rule exists, the insurer must pay the insured for a pro-rata share of the attorneys’ fees incurred by the insured’s lawyers in the insured’s damages suit against the third party. If the insured’s lawyers are representing the insured on a contingent fee basis, the insurer is bound by that agreement.

Thus, if the insurer had paid 80% of the insured’s medical care costs and the insured had paid 20% through deductibles and copayments, the insurer would be for payment of 80% of the attorneys’ contingent fee allocable to the medical expense portion of the damages recovery. (The insurer would have no interest in, and no right to recover for damages awarded to the insured for pain and suffering or lost wages, and would have no liability for that proportion of the attorneys’ fees attributable to such damages.)

In addition, a health insurer or medical care plan is not entitled to subrogation for benefits paid with respect to any portion of a damages award an insured recovers against a physician in a medical malpractice action.