Health insurance companies pay the claims filed by their policyholders regardless of the cause of any injuries suffered. If those claims came about because of injuries caused by someone else, the insurance company has the right to try to recover its costs from that party, under a legal concept called subrogration.
Technically speaking, "subrogation" is the substitution of one group or person by another in order to pursue debts or insurance claims. For example, if you’re a passenger in a car that’s in an accident caused by someone else and you’re injured, you may find it more convenient to file a claim with your own health insurance company. After paying your medical bills, your insurance company will essentially take your place in seeking reimbursement for its costs from the responsible party or the appropriate insurance company.
In some cases, even if your health insurance company pays your medical bills, you may wind up filing a lawsuit against the responsible party. If you win the lawsuit, and your health insurance company has not recovered its costs, it may seek to recover them from the settlement amount or award under the theory of “unjust enrichment,” that is, you should not receive payment from two different sources for the same injury.
Health insurance companies also seek to recover claims costs by seeking refunds of overpayments. They review groups of claims filed by a single health care provider and seek patterns among certain billing codes, and then examine the individual claims. In those cases where there has been an overpayment, often as the result of the wrong billing code being used on the claim form, the health insurance company requests a refund from the provider. In most states, health insurance companies have only a limited period of time during which they can claim such refunds.
From an accounting perspective, any recovery of claims paid is treated as additional profit. This has led to some inequitable outcomes in which health insurance companies have recovered amounts they paid for claims from damages won by their own beneficiaries. A famous example involved a woman who was severely injured in an auto accident. Her health insurance company paid her medical bills, which amounted to nearly $475,000. When she won a lawsuit over the accident, her health insurance company recovered the entire amount from her, leaving her and her family to rely on taxpayers to provide the round-the-clock care she needs as a result of the accident. Thus, while subrogation is a useful tool to help health insurance companies recover claims paid for injuries caused by another party, it can sometimes have an adverse impact on a health insurance company’s own policyholders.
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