Who gets repaid out of your recovery: health plans, hospitals, and subrogation

Several parties have a claim on the money before you see it, and each one operates under a different statute with different limits. Minnesota caps some of them. Federal law removes the cap from others entirely.

The number in a settlement is a gross number. Between it and the person who was hurt sit a series of repayment rights, each created by a different statute, each with its own rule about whether attorney fees come off first and whether the injured person has to be made whole before anyone else is paid. There is no single Minnesota answer, and treating one statute’s rule as the general rule is how people end up surprised at the end of a case rather than at the beginning.

Health plans: what Minnesota requires the clause to say

Minnesota does not regulate what a health carrier may collect. It regulates what the contract is permitted to contain in the first place. Section 62A.095, subd. 2:

No health plan described in subdivision 1 shall contain a subrogation, reimbursement, or similar clause that provides subrogation, reimbursement, or similar rights to the health carrier issuing the health plan, unless:

(1) the clause provides that it applies only after the covered person has received a full recovery from another source; and

(2) the clause provides that the health carrier's subrogation right is subject to subtraction for actual monies paid to account for the pro rata share of the covered person's costs, disbursements, and reasonable attorney fees, and other expenses incurred in obtaining the recovery from another source unless the health carrier is separately represented by an attorney.

… For the purposes of this section, full recovery does not include payments made by a health plan to or for the benefit of a covered person.

The last sentence does more work than its length suggests. A carrier cannot argue that its own benefit payments helped make the person whole and therefore that full recovery has been achieved. Where the carrier is separately represented, the same subdivision lets the parties agree on allocation by their attorneys and sends them to binding arbitration if they cannot agree. Subdivision 3 bars applying a newly added or amended subrogation clause to the disadvantage of a covered person as to a condition that originated before the change.

Section 62A.096 imposes a duty running the other way, and attaches an unusual consequence to skipping it:

A person covered by a health carrier who makes a claim against a collateral source for damages that include repayment for medical and medically related expenses incurred for the covered person's benefit shall provide timely notice, in writing, to the health carrier of the pending or potential claim. Notwithstanding any other law to the contrary, the statute of limitations applicable to the rights with respect to reimbursement or subrogation by the health carrier against the covered person does not commence to run until the notice has been given.

Not notifying the carrier does not run out its clock. It keeps its clock from starting.

The federal exception that removes the state limits

The Supreme Court applied that structure to a state anti-subrogation statute, in a case that arose from an auto crash. In FMC Corp. v. Holliday, 498 U.S. 52 (1990), the plan was self-funded and contained a reimbursement clause; Pennsylvania law barred subrogation or reimbursement out of a claimant’s tort recovery in actions arising out of the maintenance or use of a motor vehicle. The Court held the state statute preempted as applied to that plan, and stated the operating rule:

Our interpretation of the deemer clause makes clear that if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer's insurance contracts; if the plan is uninsured, the State may not regulate it.

Whether an employer’s plan is self-funded or insured is a question about how the employer funds it. The card in the wallet frequently carries the name of a large insurer either way, because a self-funded plan commonly hires that insurer to administer claims.

The same preemption reaches into Minnesota’s collateral source statute. The Revisor’s note to § 548.251 records that subdivision 1, clause (3) — the clause capturing group contracts to pay for health care services — “was found preempted by the federal Employee Retirement Income Security Act (ERISA) as applied to ERISA benefits plans in Koch v. Mork Clinic, P.A., 540 N.W.2d 526 (Minn. Ct. App. 1995), rev. denied (Jan. 12, 1996).”

Medicare

Federal law puts Medicare in a secondary position and gives the government an independent reimbursement right. 42 U.S.C. § 1395y(b)(2)(B)(i) authorizes the Secretary to pay conditionally where a primary plan has not made or cannot reasonably be expected to make payment promptly, and conditions that payment on reimbursement. Clause (ii) then states who owes it:

Subject to paragraph (9), a primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan's responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan's insured, or by other means.

“An entity that receives payment from a primary plan” is a category that includes the injured person. Responsibility may be demonstrated by a release “whether or not there is a determination or admission of liability,” so the standard settlement language disclaiming liability does not avoid the obligation. If reimbursement is not made within 60 days after notice or information about the primary plan’s responsibility is received, the Secretary may charge interest from the date of receipt. Paragraph (3)(A) creates a private cause of action for double damages against a primary plan that fails to make primary payment or appropriate reimbursement.

Hospital liens are narrower than the phrase suggests

Minnesota’s hospital lien statute is short. Section 514.68:

Any person, firm, or corporation operating a hospital in this state shall have a lien for the reasonable charges for hospital care of an injured person upon any and all causes of action accruing to the person to whom such care was furnished, or to the legal representatives of such person, on account of injuries giving rise to such causes of action and which necessitated such hospital care, subject, however, to any attorney's lien.

Perfection is time-bound and specific. Section 514.69, subd. 1 requires the operator, before or within ten days after the patient is discharged, to file a verified written statement with the county office assigned the duty under § 485.27 in the county where the hospital is located, setting out the patient’s name and address as it appears on the hospital’s records, the hospital’s name and location, the operator’s name and address, the admission and discharge dates, the amount claimed, and, to the best of the claimant’s knowledge, the names and addresses of everyone claimed to be liable. Within one day after filing, a copy must be mailed to each of those parties. The filing is notice to all persons liable for the damages whether or not they are named.

Section 514.71 supplies the teeth, and the paragraph a settling party has to know about:

No release of such causes of action, or any of them, or of any judgment thereon shall be valid or effectual as against such lien unless such lienholder shall join therein, or execute a release of such lien … Such action shall be commenced within two years after the filing of such lien.

Medical Assistance

Section 256B.042, subd. 1 gives the state agency a lien for the cost of care “upon any and all causes of action or recovery rights under any policy, plan, or contract providing benefits for health care or injury,” and defines “state agency” to include prepaid health plans under contract with the commissioner and county-based purchasing entities. Subdivision 2(a) directs the agency to perfect and enforce by the § 514.69, § 514.70, and § 514.71 procedures, and provides that the section does not affect the priority of an attorney’s lien.

Subdivision 4(c) places a notice duty on everyone, not only on the injured person:

A party to a claim upon which the state agency may be entitled to a lien under this section shall notify the state agency of its potential lien claim at each of the following stages of a claim:

(1) when a claim is filed;

(2) when an action is commenced; and

(3) when a claim is concluded by payment, award, judgment, settlement, or otherwise.

The same paragraph defines “party” to include the injured person, the plaintiff, the defendants, and persons alleged to be responsible for compensating the plaintiff, “regardless of whether the party knows the state agency has a potential or actual lien claim,” and provides that notice by one party is deemed given by all — but that if nobody gives it, all parties are deemed to have failed.

Subdivision 5 sets the waterfall and the floor:

Upon any judgment, award, or settlement of a cause of action, or any part of it, upon which the state agency has filed its lien, including compensation for liquidated, unliquidated, or other damages, reasonable costs of collection, including attorney fees, must be deducted first. The full amount of medical assistance paid to or on behalf of the person as a result of the injury must be deducted next, and paid to the state agency. The rest must be paid to the medical assistance recipient or other plaintiff. The plaintiff, however, must receive at least one-third of the net recovery after attorney fees and other collection costs.

The Revisor’s note to the section limits its reach: it records that § 256B.042 “was preempted by federal law to the extent that it allows a lien for medical assistance paid to be placed on a medical assistance recipient’s cause of action before the recipient’s death,” citing Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1 (Minn. 2002).

Workers’ compensation

Where the injury happened at work and a third party caused it, § 176.061 governs the split. Subdivision 5(b) makes the employer or the special compensation fund subrogated to the employee’s rights once benefits are received or proceedings to recover them are instituted, “regardless of whether such benefits are recoverable by the employee or the employee’s dependents at common law or by statute,” and permits intervention or a separate action.

Subdivision 6 divides the money:

(a) The proceeds of all actions for damages or of a settlement of an action under this section … shall be divided as follows:

(1) after deducting the reasonable cost of collection, including but not limited to attorney fees and burial expense in excess of the statutory liability, then

(2) one-third of the remainder shall in any event be paid to the injured employee or the employee's dependents, without being subject to any right of subrogation.

Paragraph (b) then reimburses the employer out of the balance, reduced by the employer’s proportionate share of the collection costs, and paragraph (c) turns any remainder into a credit against future benefits. Paragraph (d) forecloses reimbursement or credit for interest or penalties.

Subdivision 8a is the one that reaches settlements directly: a settlement between the third party and the employee “is not valid unless prior notice of the intention to settle is given to the employer within a reasonable time,” and where the employer has paid compensation and is subrogated, “any settlement between the employee or the employee’s dependents and the third party is void as against the employer’s right of subrogation or indemnity.”

The Minnesota Supreme Court identified a path through that in Naig v. Bloomington Sanitation, 258 N.W.2d 891 (Minn. 1977): an employee may settle only those claims not subject to the employer’s subrogation, and the employer cannot credit that settlement against compensation, so long as the employer is notified of the negotiations in time to appear or intervene and the employee demonstrates that the settlement concerns only damages not recoverable under workers’ compensation, or allocates the settlement between recoverable and nonrecoverable claims. The court was equally clear about the price: “By pursuing this course, however, the employee waives his statutory right to one-third of the employer’s net recovery from the third-party.”

The no-fault insurer’s own limited rights

The No-Fault Act deliberately narrows what a reparation obligor may claim back. Section 65B.53, subd. 2 subrogates the obligor to an economic-loss claim only where the negligence occurred in another state; subdivision 3 subrogates it to claims based on an intentional tort, strict or statutory liability, or “negligence other than negligence in the maintenance, use, or operation of a motor vehicle.” Both are limited to the extent benefits were paid or payable and to the extent recovery would otherwise duplicate the same loss. Subdivision 6 closes the drafting route around those limits: “No reparation obligor shall contract for a right of reimbursement or subrogation greater than or in addition to those permitted by this chapter.”

Subdivision 8 conditions enforcement on fee sharing:

Notwithstanding any law to the contrary, in any action brought for the recovery of damages allegedly caused by the negligent operation, ownership, maintenance or use of a motor vehicle or motorcycle where the right of subrogation is claimed or may be claimed under this section … the right of an insurer to be subrogated to all or a portion of the claim of an insured, whether the right to subrogation arises from contract, statute or any other source, shall be enforceable against the insured only if the insurer, upon demand by the insured, agrees to pay a share of the attorney fees and costs incurred to prosecute the claim, in such proportion as the insurer's subrogated interest in the claim bears to any eventual recovery on the claim.

Separately, and not as a lien at all, § 65B.51, subd. 1 requires the court in a motor vehicle negligence action to deduct from any recovery “the value of basic or optional economic loss benefits paid or payable, or which would be payable but for any applicable deductible.” That is not a repayment to the insurer. It is a subtraction from the verdict, which is why it does not appear on a lien list and still changes the number.

Collateral sources, and the order the reductions happen in

Section 548.251 handles a different overlap: benefits already paid from the sources it lists, where nobody has asserted a subrogation right. Subdivision 2(1) directs the court, on a timely motion, to determine “amounts of collateral sources that have been paid for the benefit of the plaintiff or are otherwise available to the plaintiff as a result of losses except those for which a subrogation right has been asserted,” and subdivision 2(2) to determine the premiums and contributions the plaintiff or the plaintiff’s immediate family paid to secure those benefits over the two years before the action accrued and until judgment. Subdivision 3(a) reduces the award by the first and offsets that reduction by the second.

Two sequencing rules are easy to miss and change the arithmetic materially. Section 548.251, subd. 3(c): “In any case where the claimant is found to be at fault under section 604.01, the reduction required under paragraph (a) must be made before the claimant’s damages are reduced under section 604.01, subdivision 1.” Section 65B.51, subd. 1 says the same about the no-fault deduction. Both subtractions come off the gross figure first; the comparative fault percentage is then applied to what is left.

Subdivision 4 governs fees on the reduced number and imposes a sharing rule: where the fee is a percentage of the award, “the percentage must be based on the amount of the award as adjusted under subdivision 3,” and “Any subrogated provider of a collateral source not separately represented by counsel shall pay the same percentage of attorney fees as paid by the plaintiff and shall pay its proportionate share of the costs.” Subdivision 5 keeps all of this away from the jury: “The jury shall not be informed of the existence of collateral sources or any future benefits which may or may not be payable to the plaintiff.”

What this page is not

It is a map of the repayment rights Minnesota and federal law create and of the limits each one carries. It does not identify which of them exist in any particular case, and it cannot: whether a health plan is self-funded, whether a hospital perfected within ten days of discharge, and whether the state agency was ever notified are facts about documents, not conclusions available from a page.