Med-Pay, Health Insurance, and Subrogation: Why Which Insurer Pays Your Crash Bills First Matters (Laboy v. Grange)

Published September 21, 2015 · Ohio Supreme Court

Here is a question almost nobody asks in the week after a car crash, and it can be worth hundreds or thousands of dollars at the end of the case: when the hospital asks for your insurance information, which card do you hand them? A decision from the Supreme Court of Ohio last month, Laboy v. Grange Indemnity Insurance Co., 2015-Ohio-3308, shows exactly how the answer changes what you keep from a settlement.

Three kinds of insurance, three sets of rules

Start with the players.

Medical-payments coverage ("med-pay") is an optional part of your own auto policy. It pays medical bills for you and your passengers after a crash, regardless of fault, up to a limit that is often $1,000 to $10,000. It pays fast and without argument about who caused the collision.

Health insurance pays your medical bills too, but under a contract with the hospital or doctor that sets discounted rates. A $1,500 bill may be satisfied by a payment of $600, with the rest written off.

Subrogation is the right of an insurer that paid your bills to be repaid out of the money you later recover from the driver who hurt you. Both med-pay carriers and health insurers typically have subrogation clauses. We explained the health-insurance side, and Ohio's "make-whole" protection, in last year's post on subrogation.

Put those together and a trap appears. The more an insurer pays your providers, the more it takes back from your settlement. If one insurer pays full price while another would have paid a discounted rate, the difference comes out of your pocket.

What happened to the Laboy family

The facts come from the Supreme Court's opinion. The Laboys were hurt in a May 2006 crash. Their Grange auto policy included $5,000 per person in med-pay. They submitted some of their bills to Grange and to their health insurer, Medical Mutual.

For one set of charges, providers billed $1,535. Grange paid $1,441.36, using the modest discounts it had access to through a bill-review company. Medical Mutual's contract rate for those same services was only $648.32. When the Laboys settled with the at-fault driver, Grange exercised its subrogation right to be repaid what it had spent. The family argued that if Grange had paid the health insurer's rate, Grange's subrogation claim would have been $793.04 smaller, and they would have kept that money.

The Laboys pointed to language in the Grange policy promising to pay the lesser of reasonable expenses or "any negotiated reduced rate accepted by a medical provider." They argued the health insurer's rate was a negotiated reduced rate, so Grange should have paid it.

What the Court held

The Supreme Court ruled unanimously for Grange. It held that the only reasonable reading of the policy is that "any negotiated reduced rate" means a rate Grange itself was contractually entitled to pay. Grange was not a party to Medical Mutual's contracts with hospitals and had no right to demand those prices. The Court noted that the Laboys had not asked Grange to reimburse the health insurer and apparently had not told Grange that some of the same bills had gone to Medical Mutual; they submitted the bills to Grange first, and Grange paid as its contract required. The Court also declined to impose a duty on auto insurers to ask their customers whether cheaper rates might be available through other coverage.

I will be direct: this is a disappointing result for injured people. It means the burden of coordinating insurance falls entirely on the crash victim, who is the person least equipped to carry it in the days after a collision.

The practical lesson

The lesson is not to avoid med-pay. Med-pay is valuable, and I recommend carrying it. The lesson is about sequencing and about getting advice before you use it.

Run bills through health insurance first where you can. Your health insurer pays discounted rates, so the bill is satisfied for less and any subrogation claim is correspondingly smaller. In the Laboy example, the family would have been several hundred dollars better off, on roughly $1,500 in charges, had the health insurer paid. On a serious injury with $50,000 in bills, the difference can be many thousands.

Use med-pay strategically. Med-pay can cover what health insurance does not: deductibles, co-pays, co-insurance, treatment your plan excludes, and bills for a passenger who has no health coverage. Some med-pay carriers will reimburse the patient directly for out-of-pocket costs. That is often the best use of a limited med-pay fund.

Read the subrogation language in both policies. Some med-pay provisions and some health plans have no subrogation right at all, or limit it. Many self-funded employer plans under federal law have very strong subrogation rights; Ohio's make-whole rule may not protect you from them. Which policies you have determines the best order of payment, and no two families' situations are the same.

Tell each insurer about the other. The Court faulted the Laboys, fairly or not, for not informing Grange that bills had also gone to Medical Mutual. Coordination avoids double payment and avoids the argument later.

Keep every explanation of benefits. The amount actually paid, as opposed to the amount billed, matters at the end of a case for other reasons as well, which we covered in our post on the collateral-source rule.

Where this fits in a serious-injury case

In a case where the at-fault driver has limited liability coverage, or none, these dollars matter even more. Every subrogation claim is paid before you are, and in an underinsured-motorist claim against your own carrier, the policy may also give the insurer credits and setoffs. Managing med-pay, health insurance, and UM/UIM coverage together, from the start, is one of the ways a lawyer adds real value to a case even when fault is not disputed.

What this means for you

If you have been in a crash in the last few weeks, pause before submitting bills to your auto insurer's med-pay. Ask what your health insurance will pay, what each policy says about subrogation, and where med-pay will do the most good. If bills have already gone to med-pay, it is not the end of the world, but let your lawyer know so the subrogation claims can be negotiated. Insurers are entitled only to what their contracts give them, and those contracts are often more generous to you on close reading than the adjuster's letter suggests.