In reading a blog the other day, I was reminded how little many people understand about their health insurance (or any insurance), particularly how personal insurance works when injuries or damages are caused by a person or company with legal responsibility for those injuries or damages. Insurance is a subject that for most of us, causes great pain and consternation; we don’t get it, our eyes roll back in our heads and our brains go into explode mode if we have to read an insurance contract. More often than not, we just rely on the agent or claims person to explain to us. (I understand that- because that is how I felt before I actually went to work in the insurance industry.)
Who Pays What and When
Most of us think that if we get sick or injured, we go to the doctor or hospital, pay our co-pay or deductible, and are good to go. For your average illness, or accidental injury, that is the case. However, in certain circumstances, this does not hold true. For example, if you are injured as a result of your job, you may be covered under Workman’s Compensation, and your health insurance is not responsible for your medical care and bills. Or, if you are in an auto accident and if you did not cause the accident, then the auto insurance of the person who caused it is responsible for your medical expenses. Your health insurance is only responsible for any cost above the amount of the limits that driver’s insurance policy, and/or any amount that is paid under your own uninsured/underinsured motorist coverage on your own auto policy, if you have one.
Medical Adverse Events or Injury Claims
In the case of injury/damage from a medical device or a negligent physician, your personal health insurance is not responsible for the cost of your medical care that results from that damage. And that is the issue I’d like to discuss today- the medical/negligence issues. If you suffer from injuries that are the result of a faulty device, a reaction to a medication, a negligent doctor, etc., your insurance company will generally initially cover your bills, but if you go to court, and it is determined that another person or manufacturer are actually at fault in causing your injuries, and therefore legally responsible for what happened to you, then your health insurance policy is not responsible for any of your care that is a result.
So, how does it work? In most cases, the actual cause of the injury/damage is not known at the time you begin to seek medical treatment, and your insurance is covering those expenses. But once it has been determined in court that there is a party that is legally responsible for the injuries, then your health insurance company is not held responsible. Even though they did pay at first, the party that has been found responsible, whether a company or an individual, is now responsible for all of the medical costs associated with the cause of the injury/damage. As a result, the insurance company must be reimbursed for the payments they made on your behalf.
This is covered under the law by what is called “Double Indemnity”. This means that one cannot be recompensed twice for the same loss. So, for example, in a car accident, if you are not at fault, you can’t get payment of the cost to replace your car from both your insurance company and the insurance company of the other party. You can’t have the same medical bill paid by both your insurance and the other party’s insurance. You can’t purchase 2 insurance policies to cover the same item, or risk (such as health insurance). And in the case of product liability or negligence, you cannot be paid twice for the cost of your medical care. When settlement is paid, it includes the cost of the medical care. If you were the one who originally paid the full amount for the medical care, you keep the money.
If your insurance company paid for the medical care. You must pay them back.
Now in settling these cases, there may be multiple types of payment ordered to the injured party, which can include medical expenses, lost wages, cost of any home health or general care required as a result of the injury, and there can also be additional payments for pain and suffering, loss of companionship suffered by one’s spouse, loss of care to one’s children, etc. On top of that, depending on the individual case, there may be punitive damages that the party responsible must pay. (This is most frequent in a case against a corporation found to have been willfully negligent).
Usually, you will receive a check from the company/individual for the full amount of the settlement, and you are then responsible for reimbursing the insurance company from the settlement amount you received. In a few cases, the court may direct the responsible party to make payment directly to the insurance company for the portion of the award that covers those expenses, with the rest to the injured party, but most often, the injured party receives the entire sum and must reimburse the insurance companies themselves. Here is where it sometimes gets confusing for the injured party.
Class Actions are Different
Now, a caveat is in order here. The above describes what will generally happen in the case of an individual personal lawsuit. Levels of responsibility and damages awarded will vary in individual cases, but will generally address the actual expenses of the individual plaintiff, and settlements are awarded on that basis. There is, however, another type of case that many victims of medical malfeasance may become involved in, and that is the “Class Action Lawsuit”. Unfortunately, in a class action lawsuit, the amount of the award that goes to any individual plaintiff may not cover all of the individual’s medical expenses. In a class action suit, each individual agrees to accept a specific percentage of the aggregate award, after attorney’s fees are deducted from the award, regardless of their individual expenses.
An individual plaintiff’s award may not be enough to cover either real expenses or pain and suffering, yet due to the finding of liability on the part of the third party, the plaintiff may still be held responsible for reimbursement of the insurance company.
This is actually a subject for a more in-depth article in the future, but in the mean time, you should know that participating in class action suit may not yield a financial award sufficient to cover your medical expenses.
How Insurance Rates are Determined
I would just like to add a note regarding the determination of the cost of individual health insurance policies and how rates are determined. (This actually applies to all catastrophic insurance policies as well, including auto and homeowner liability). Rates are set based on projections of how much an insurance company can be expected to pay for casualty losses of ALL their customers in a given time frame, and for losses that are not the result of negligence or intent by a third party. This is because of the liability laws that can hold a third party financially responsible for damage to another that is the result of negligence or malice. If the insurance companies were required to pay for losses to their customers that were caused by a third party, either intentionally or due to negligence, then rates would have to be factored to include those costs as well, and costs would skyrocket to the customer.
What this Means for You and Yours
The cause of illness or injury may not always be clear when it first occurs. And of course, the initial action taken should be to consult your physician, or in the case of emergency get to a hospital. Your personal health insurance will generally be the first source of payment. Should it turn out to be the potential liability of a third party, whether a person or a company, when consulting an attorney regarding a lawsuit, it is important to discuss with them the specific details regarding what sort of judgment is expected. Some basic questions to consider may include the following: Can you expect that all of your actual expenses (medical losses, loss of wages, any home health or household assistance, loss of future income if one is long-term or permanently disabled, etc) will be covered? Can you ask for punitive damages? How will attorney fees and other legal fees be charged (Can the defendant be expected to pay, or will they deducted from your award)? This can help prevent surprises, and unexpected costs once the case is settled.