What’s fair policy for medical liens?

In the December 21 issue of Michigan Lawyers Weekly, we’re featuring a story about a recent U.S. District Court decision involving a conflict that can occur in a third party auto case – who pays the medical bills when an ERISA plan asserts its contractual lien against the non-economic loss settlement?

The plan has a right of reimbursement that attaches to an entire settlement no matter whether its for medical expenses or not. The auto insurer has a coordinated benefits policy that states it’s secondary to the health plan.

What struck me as interesting in researching the subject of medical liens is that not all medical liens have the same rights.

There are several types of medical liens. Medicare, Medicaid and  ERISA are three of them. Each has a right of recovery that Congress or the U.S. Supreme Court has granted or identified, but not all have the same rights.

Medicare: As discussed in the December 14 issue (subscription needed), Medicare liens are statutory. Both the plaintiff and defendant have a duty to repay related medical bills from any settlement. Starting in January, reporting entities (insurers/insureds) can be fined $1,000 a day for each settlement it fails to report to the Center for Medicare and Medicaid Services (CMS).

Medicaid: Medicaid liens are also statutory, but through state law, so the rights of recovery can vary from state to state. In Michigan, Medicaid has first right of recovery from a settlement, but it can only collect as much as the injured party does. (Essentially, the settlement becomes a three-way split between the attorney, the client, and Medicaid. See paragraph 5).

However, under the U.S. Supreme Court’s decision in Arkansas Dept. of Health and Human Services, et al v Ahlborn,* a Medicaid plan is entitled to reimbursement from the economic damages portion of any settlement only.  The settlement has to itemized to show how much of the settlement is economic versus non-economic damages.

ERISAAs discussed in the November 30 issue (subscription only), ERISA plans rights of recovery depend on the contract.  But since the U.S. Supreme Court’s decision in Seraboff v Mid-Atlantic Medical Services,* a plan’s contracted right of recovery is pretty standard: it’s automatic and it extends to the entire amount of the settlement. Also, because Michigan is in the Sixth Circuit, the attorney can be responsible for a percentage share of the lien if the settlement check is deposited into his trust account and dispersed to the client without resolving the lien.

So, of the three, Medicare has the greatest right of recovery as it is absolute, and parties are penalized not only for not reporting the settlement, but it is fined for each day after the date of settlement that it does not report it. ERISA is close behind with only difference being the fine for late reporting. Medicaid is far behind because of the limitation on the type of settlement from which it can collect, and, in Michigan, the limitation on what percentage it can take versus the plaintiff’s share.

The question for you, Reader of Michigan Lawyers Weekly is this: which of these policies is most fair for the plan/fund, the attorney and the injured party? Or, if none are fair, how do you think it should be handled.

Feel free to discuss it in the comments.

* Another interesting point is this: Both Seraboff and Ahlborn were unanimous decisions — and only one year apart — yet one gives private health insurers extreme contractual power to recover from entire settlements, regardless of whether medical expenses were claimed or not, and the other only allows state government funds to collect from economic damages.