Evil Insurance (Part 6): Subrogation

Try to bear with me though the complicated beginning of this post, because the end contains the thing that is, for me, the biggest outrage and the most important lesson in all of this insurance crap.

Auto insurance is regulated at the state level, so laws vary depending on where you live. That said, most states have laws similar to what I’m about to describe. Oregon law mandates that all drivers carry auto insurance that includes the following:

• Personal Injury Protection (PIP) covers medical expenses and loss of earnings for all parties involved in an accident. In Oregon, the minimum coverage amount is $15,000 per person.
• Bodily Injury covers medical expenses, lost wages, and pain and suffering you cause in an automobile accident. In Oregon, the minimum coverage amount is $25,000 per person and $50,000 per accident.

I just want you to think about those minimum levels in the context of an elderly driver plowing through a crowded crosswalk, or any serious accident for that matter. Insurance companies would have you believe that the minimum levels are set so low because they want to keep premium costs down for their customers. But the uptick for them is that they never have to fully compensate victims for catastrophic losses.

Naively, I assumed that things would break down like so:

Seamus and Eric’s health insurance would cover the bulk of the medical expenses, which ended up being around $180,000. Our out-of-pocket medical expenses would be covered by the driver’s PIP.  Eric and Seamus’ estate (that’s me and Eric) both would receive Bodily Injury settlements as “pain and suffering” compensation – this would be our starting over money.

Here’s how it works in reality:

Our auto insurance PIP paid for the first $30,000 of Eric and Seamus’ care. After the PIP was exhausted, our health insurance did indeed kick in. A few weeks after the accident, though, we received a scary letter in the mail letting us know that we had a lien against us for medical care provided to Seamus. We soon learned that our auto insurance and our health insurance were legally entitled to reimbursement for their accident-related expenses out of our Bodily Injury settlement. It’s a nasty little thing called subrogation.

As Oregon law sees it, the health insurer is a victim in the accident just like we were. So much so that they deserve compensation for their losses before the actual person who was hit by the car. When a large settlement is at stake, here is the order of priority for who gets paid:

1. The victim’s lawyer typically is entitled to 30-40 percent of the settlement (and even though our attorney worked for free, I don’t begrudge them their fees at all because you just can’t navigate this system without them.)

2. Our auto insurance gets reimbursed the $30,000 they paid out for medical care for Seamus and Eric.

3. Our health insurance company would have to be paid back for the $150,000 or so they spent on Seamus’ hospital stay.

4. We get whatever is left over. (Remember the minimum coverage amounts – for most people there is nothing left over)

Had our situation played out differently, Eric or Seamus may have ended up with long-term care needs. In that scenario, our “starting over” money would have been set aside for ongoing care and maybe to retrofit our home to accommodate their new physical limitations. But we could have been left with nothing but a stack of bills. The horror of what could have been still causes the bile to rise in my throat.

A handful of states have laws in place to protect consumers against unfair subrogation practices. Colorado, for instance, recently enacted their version of the “Make Whole Doctrine,” which says that health insurers are not entitled to collect money out of these settlements until the victim is “made whole.” It doesn’t mean that the insurers are not entitled to recover their losses, it just means that the order of priority above gets shifted so that the actual injured party moves up to #2 on the list.

I’ve been wondering if such a law is possible in Oregon. My anger is coalescing around this issue and someday I’ll be ready to take action. I’m not sure what that will look like yet – maybe I’ll just write a few letters, try to get my state legislator to take up the issue. Maybe I’ll try to find some allies in the bicycling lobby here in Portland. Maybe I’ll (gulp) go to the local media. I’m still percolating, and I would love to hear from anyone who has ideas, experience or connections.

Lastly, I want to remind everyone that our case ended favorably, and I’ll describe the how’s and why’s in a future post