One of the reasons that it is so important to fully compensate injured people is that the injured person may have a lot of financial responsibilities from the incident that you may not be aware of.
For example, after the injured person's attorney reaches a settlement with an at-fault driver, most members of the public assume that the money, minus attorney fees and costs, goes straight to the injured victims. But very often, the wreck victim still must pay back the costs of their medical treatment to an insurance company or the government.
If a health insurer, Medicare, or Medicaid paid for the initial treatment, there is generally a requirement to repay these insurers for the costs of treatment. This is called "subrogation." In the case of the health insurer, this is part of the contract between the person and the company. For Medicare and Medicaid, it is part of the law that created these programs. There are some exceptions to when an injured party must repay the cost of treatment, but these exceptions are limited.
What any insurer can do, however, is voluntarily waive or reduce the amount they will accept. Part of our job for our clients is to obtain these reductions whenever possible. It's important. Some insurers and state Medicaid programs routinely do this in cases where it will be a severe hardship, while other insurance companies take a hard line. Which brings me to a case that recently came to my attention.
Debbie Shanks, who lives in Missouri, was a married mother of three who was severely injured in a crash with a tractor trailer. Mrs. Shanks was severely brain damaged and requires constant care. Mrs. Shanks was awarded nearly $1 million following a lawsuit against the trucking company. Of this, $417,000 was put into a trust for her health care. But instead of having this money to care for her in the future, Wal-Mart’s health insurance plan insisted it should have the money - all of it. Every penny of it. Wal-Mart was her employer at the time of the wreck. Mrs. Shanks was insured through the retail giant’s plan. Wal-Mart had paid $470,000 for her care and wanted to be repaid.
The Wal-Mart plan’s contract language stated that the company was first in line to be paid in the event she sued someone else and won. Wal-Mart’s plan gives no credit to the employee or her attorney for the expense and effort of bringing a lawsuit to recover money for Wal-Mart. Her attorney explained the extreme circumstances to Wal-Mart, but they insisted that they would not make an exception. Their reason: it wouldn’t be fair to the other employees, who pay health care premiums. Wal-Mart sued to recover the money paid and won, although the court limited its recovery to funds actually in the health care trust. The Shanks appealed the decision as far as they could, but on March 17, 2008, the U.S. Supreme Court declined to hear their appeal.
As I wrote this blog post, I found that Wal-Mart gave the Shanks a too-late surprise. After fighting the Shanks all the way to the Supreme Court, after the Shanks divorced to increase her Medicaid eligibility, after wasting years and years in litigation, Wal-Mart on April 1 announced that it had decided to do what it had the option to do from the very beginning: not take the money from this innocent woman. It even offered this apology: “We are sorry for any additional stress this has put on the Shank family.”
Thanks to cnn.com and the Wall Street Journal for reporting.
Continue reading "The Wal-Mart "Subrogation" Case - or Why Much of the Verdict and Settlement Funds May Not End Up Going to the Victim" »