Negotiating Tips for Health Insurance Liens in Personal Injury Cases

If you have followed the suggested steps of How to Approach Liens in Personal Injury Cases, you may be at the point where you want to negotiate liens, and need to figure out what are the best ways to reduce the lien claim. Getting lien claims reduced will result in a greater amount for your client, and as a result, will make them very happy.

This article will provide some useful tips on how to negotiate health insurance liens in personal injury cases. Note that there are many types of lien claims out there, and this discussion is limited to health insurance liens.

As advised in the How to Approach Liens in Personal Injury Cases article, make sure to negotiate lien claims BEFORE you finalize the third party settlement. Reiterate that everyone needs to get on board so that the settlement offer can work, and everyone can get paid something. Remember, after the settlement is finalized, you have lost your leverage to gain significant reductions.

Tip #1: Read the Contract

Obtain a copy of the contract language and read it carefully. If the contract is governed by ERISA, stop now, and read the article on ERISA. This is a totally separate beast.

If the lien claim is from a health insurance company with a plan not governed by ERISA, such as an HMO or PPO, then proceed to follow these tips.

Tip #2: Narrow the Claim

When you read the contract language, determine the parameters of the health insurance company's claim for reimbursement.

First, make sure they have a right to the claim that they are making.

Second, know what settlement funds the plan can go after. Most contract language limits recovery to 3rd party cases, and insurers do not have a right to settlement funds from Uninsured Motorist cases or Underinsured Motorist cases (1st party claims). However, note that some insurers do include recovery from all sources, so be sure to check what they are entitled to under the contract.

Additionally, the contract language will reveal whether the insurer has contracted around certain defenses, such as the "made-whole" or common fund doctrines. These points are discussed below in more detail, but it's important to be aware, at the outset, whether these arguments are going to be available to you.

If the contract does not allow for make whole or common fund, do not despair. All is not lost, but it may be more of an uphill climb getting the claims settled.

Tip #3: Reduce for Unrelated and Unreasonable Charges and Obtain Credit for Co-pays

Generally, health insurers use a third party collection company to recover amounts they claim are due to them under the health insurance policy. Nine times out of ten, they will contact you first, but often you will need to contact them to provide you with an itemization of their claim for reimbursement.

Review the itemization of charges for any unrelated charges or double billing, and have these charges removed.

Also, review the charges to make sure that the charges are reasonable. This may be difficult, considering that most charges on any medical bills seem exorbitant these days. However, after reviewing a slew of medical bills, you will start to get a feel for the pricing of certain services in the geographical area that you practice. When it comes time to negotiate, raise the issue of reasonableness, and if the defendant in your case is also raising the issue, advise of that as well.

Importantly, be sure to obtain a credit for co-pays made by your client. These should be subtracted from the total lien claim of the health insurer.

Tip #4: Reduce for Actual Recovery of Medical Bills

It may seem obvious, but if certain medical bills are not part of the settlement offer, argue that they should not be included in the lien claim.

Additionally, if you have a case where the policy limits are smaller than the value of your case, and the amount of wage loss exceeds or makes up a large portion of the policy limits, or the limits are so small that the amount is less than the value for pain and suffering, make the argument that some, if not all, of the medical bills have not been recovered, and therefore the lien claimant cannot seek reimbursement for the same.

See, Arkansas Dept. of Health and Human Services v. Ahlborn, 126 S. Ct. 1752 (2006), "The statute does not sanction an assignment of rights to payment for anything other than medical expenses -- not lost wages, not pain and suffering." While this case involved a Medicaid case, the rationale is compelling as an equitable argument. That is, the lien claimant cannot seek reimbursement for money obtained for items other than the medical bills it paid for.

Tip #5: Reduce to the Statutory Cap

If there is a statutory scheme for reducing health insurance liens, follow the language of the statute.

For example, in California, under Cal. Civil Code section 3040, liens can be no more than the cost to perfect the lien and the amount actually paid for non-capitated charges, and 80% for capitated charges (i.e. Kaiser, a system in which a medical provider is given a set fee per patient). Note that if you have a provider like Kaiser who pays the ambulance bill, and also has charges for services at a Kaiser facility, the ambulance bill will not be subject to the 80% reduction, but the Kaiser charges will be.

Next, there may be a statutory ceiling on the lien claim. In California, Cal. Civil Code section 3040(c)(2) provides that if the insured (your client) retains an attorney, the lien claim cannot exceed "one-third of the moneys due to the enrollee or insured under any final judgment, compromise, or settlement agreement." I read this statement to refer to the amount DUE the insured, after reductions for costs and attorney's fees (i.e. take one-third of the net to the client, not one-third of the gross settlement).

This position is often met with resistance from lien claimants, who take the position that they are entitled to one-third of the gross settlement. Cite Gilman v. Dalby (2009) 176 Cal.App.4th 606 (stating that the amount recovered by the plaintiff in a personal injury lawsuit always goes first to satisfy the attorney lien for fees and costs before it is used to satisfy medical liens), which I believe strongly supports the position that attorney's fees and costs must be taken out first before determining the statutory cap on the lien. This may be a point of contention in your negotiations, but I think one that is well worth making.

Tip #6: Reduce for Proportionate Share of the Statutory Cap Where Appropriate

If you have multiple lien claims, particularly when you have a limited 3rd party policy from which to recover funds, it can be more beneficial to figure out a proportionate share of the statutory cap for each lien claim.

Many of us entered the legal profession to avoid math, but the best way to illustrate this concept is by example:

Say you have a proposed settlement for policy limits of $15,000.00. Your attorney fees are one-third, or $5,000.00. To keep it simple, let's say that the costs for the case are $500.00. Your client would due $9,500.00. I would take the position that the health insurer's claim can be no more than one-third of that figure, that is, $3,166.67.

In this hypothetical, say the health insurer with whom you are negotiating has a claim of $5,000.00, and the total lien claims are $10,000.00.

Therefore, the analysis of the health insurer's lien claim would be:

GROSS RECOVERY:                                   $15,000.00
Less: Attorney Fees & Costs of Recovery $ 5,500.00
NET RECOVERY                                           $ 9,500.00

Amount Subject to Liens (1/3 x $9,500.00) = $3,166.67

CLAIMS (50% ($5,000.00/$10,000.00)
x amount subject to liens $3,166.67 = $1,583.33

As you can see, we figured out what proportion the health insurer's lien claim is to the total lien claims. In this example, it is 50% ($5,000.00 claim divided by the total claims of $10,000.00). Next, you use that 50% number and multiply it by the amount available under the cap. Here, that is $3,166.67.

So, 50% of $3,166.67 brings us to the $1,583.33 amount to offer to the health insurer as their proportionate share, before taking into account any applicable further reductions discussed below. Right there, you have reduced their lien claim by 68.3%.

Tip #7: Reduce for Comparative Fault

If the settlement was reduced because the plaintiff was at fault for a percentage of their damages, use this to negotiate the lien down.

In California, Cal. Civil Code section 3040(e) provides for a reduction for the percentage of comparative fault on the part of your client, if certain conditions are met:

"Where a final judgment includes a special finding by a judge, jury, or arbitrator, that the enrollee or insured was partially at fault, the lien subject to subdivision (a) or (b) shall be reduced by the same comparative fault percentage by which the enrollee or insured's recovery was reduced."

This can also be used simply as a negotiating tool, even if you do not have a finding by a judge, jury or arbitrator. However, it will be useless if you try after finalizing a settlement. You must use this tool before you finalize the third party settlement.

If the lien claimant pushes back on this, you can ask the third party's adjuster or counsel to put in writing that their settlement offer reflects the percentage of fault assigned to your client.

The Ahlborn case, supra, 126 S. Ct. 1752 (2006) is also helpful in making this argument. There, the court reduced the lien claim to one-sixth of the amount because the recovery by the plaintiff in that case was only one-sixth of the value of the case due to plaintiff's comparative fault, as evidenced by the stipulation of the parties.

Tip #8: Reduce for Made Whole

The made whole rule basically states that a lien claimant (i.e. health insurer) cannot assert its contractual right to repayment from the insured's recovery against the third party tortfeasor if the total amount available from the insurance and the third party is insufficient to compensate the full loss suffered by the insured. See, Sapiano v. Williamsburg National Insurance Company 28 Cal.App.4th 533 (1994).

Thus, if the third party has a limited policy, and your client is not going to be made whole by the settlement, make the argument to the lien claimant that the settlement does not fully compensate your client for their injuries or damages.

As stated above, there are some policies that specifically waive any rights to argue the make whole doctrine. Even if a policy includes this language, many insurers will consider the equities of the situation, so make the argument regardless of whether it is allowed by the policy or not.

Tip #9: Reduce for Common Fund

Finally, the common fund doctrine allows for reduction for attorney's fees and pro rata share of costs. That is, the lien claims must be reduced by the same percentage for attorney fees as the client is being charged, and the lien claimant must reduce for their proportionate share of the costs incurred by your client.

In California, this reduction is reflected in California Civ. Code section 3040(f) which states: A lien subject to subdivision (a) or (b) is subject to pro rata reduction, commensurate with the enrollee's or insured's reasonable attorney's fees and costs, in accordance with the common fund doctrine.

Tip #10: Common Sense and Courtesy Should Prevail

I find that a little knowledge and a lot of common sense and courtesy go a long way in this area of law. Innovative legal theories and arguments can take you part of the way, but some of my best results in lien negotiations came because I built rapport with the lien claimant, and appealed to their common sense. Generally, people recognize that getting paid something now is much better than risking it all and ending up with nothing.

For further discussion on liens, please see:
1. The FindLaw Guide to Negotiating Liens in Personal Injury Cases
2. Negotiating Tips for Hospital Liens in Personal Injury Cases
3. Negotiating Tips for "Med Pay" Claims for Reimbursement
4. Tips for Negotiating ERISA Liens in Personal Injury Cases
5. 7 Steps to Approaching Lien Claims in Personal Injury Cases
6. How to Deal with Medicare Liens in Personal Injury Cases
7. Negotiating Tips for Health Insurance Liens in Personal Injury Cases
8. What US Airways v. McCutchen Means for Your Personal Injury Cases
9. State Medicaid Liens Limited by US Supreme Court in Wos v. E.M.A.

Anne O'Donnell is a recovering litigator who is now currently a Senior Writer for legal professional content at She practiced for 10 years in civil litigation in San Francisco.