Can You Profit from Health Care? Part 2

A couple weeks ago WhatIf explored whether the U.S.’ largest industry – health care – is recession-proof. It seems health insurance companies’ profits are starting to slip. Rising health care costs means that insurers must pay out more to cover health services, which means they raise the price of their policies to recoup these costs. As a result, the number of employers purchasing insurance is decreasing.

Even so, the nation’s largest publicly-traded health plans say they will continue to raise premium prices and reduce provider payments in order to please Wall Street. “We will not sacrifice profitability for membership,” WellPoint President and CEO Angela Braly said recently.

“Subrogation:” Ethical vs. Legal?

Another way health plans can make back some of their profits – to the tune of $1 billion a year – is through subrogation, a legal right that allows them to regain whatever they paid out if another party is held to be responsible for whatever caused the medical expenses. For example if you’re injured somehow due to someone’s fault or negligence, that person or company or their insurance can later be made to pay back the cost of your medical bills.

The compensation awarded in a civil injury lawsuit is typically supposed to also make up for these costs as well as for your pain and suffering, lost wages, and future health care needs. Does the insurer have the right to first dibs on those awards? And what if the victim was the one who paid for the lawsuit?

Both employers and health insurers argue that subrogation allows them to make sure “medical expenses aren’t paid twice” and that, by “recovering those costs from someone who’s been compensated elsewhere, … they’re saving money for everyone on the plan.”

It is reasonable and lawful to expect that insurers should be paid back for whatever money they paid out in medical care if someone else is to blame. The injury was not their fault and the point of insurance is just to cover the costs of fixing things when they’re damaged – your car, your house, your body. We shouldn’t expect our insurer to also cover the cost of converting a damaged Chevy into a Cadillac, or of helping you make improvements to your house above and beyond what it takes to repair it.

But is health insurance really just like auto or home insurance? Is it just about money? A car and house can be made good as new, but can a body?

A prime example of how difficult – and necessary – it is to address these questions involves Wal-Mart, which filed a lawsuit in 2005 against an injured employee on the basis of the company’s health policy language and the legality of subrogation. The country’s largest employer had first helped the family of Deborah Shank, a former shelf-stocker who was brain damaged in a car accident, by covering nearly half a million dollars of Deborah’s medical bills.

Once her husband won $417,477 from the other driver – through a lawsuit he paid for – to be placed in a Medicaid health care trust fund for Deborah’s future health care needs, Wal-Mart sued to force Mr. Shank to pay back every penny the company had spent on her care, as well as interest and the legal fees of their lawsuit.

Is Wal-Mart outside the norm? A Supreme Court ruling last year reportedly paved the way for increases in subrogation. Previously, insurers rights to collect on their costs were assumed but hadn’t been widely tested. Now it is becoming standard among large company health plans to make this legal language explicit. Meanwhile, a whole industry has sprung up to try to help health insurers, employers, and union-administered plans recover the 1%-3% in health care spending that is legally theirs.

• Companies can get back on average $12 and $15 per health-plan member a year (which adds up to millions) either through an injury settlement and/or by denying coverage until legal promises of such awards are made.
• Improved efficiencies in the system mean even low-dollar claims are now being submitted for such examination.

The answer to our question “Can you profit” in the case of injury, then , is – no. In some catastrophic cases, you probably can’t even make back the cost of your treatment or enough to cover future needed care if your employer or health insurer decided to make good on its legal right of first dibs.

Subrogation is also effecting whether lawyers recommend their clients to pursue malpractice cases. Why go through the stress, cost and effort of suing a drug company for injury if the health insurer is going to claim the reward?

But maybe it also depends on who “you” are.

The companies who handle these claims of course get their share, and their profits aren’t always public.

• Crawford & Company was the largest independent claims manager in the country when it was bought in 2007 by Trover Solutions, the largest subrogation specialist. Trover designed software to facilitate claims investigation and opportunities for subrogation.
• Trover was itself acquired by Tailwind Capital Partners, a private equity firm, in 2004. Trover Solutions’ name is taken from “a legal action to recover the value of property wrongly withheld from its owner.” (The firm apparently has no relation to Trover Health System, a network of health care providers also in Kentucky.)

P.S. While health plans figure out to how put their needs first and subrogation specialists profit from helping them, there is good news. Despite multiple court rulings in Wal-Mart’s favor, the super store dropped their lawsuit last month after public outcry.

CNN had covered the Shanks’ story, which had only grown more heartbreaking. A week after losing an appeal on the case in 2007, the Shanks’ son died in Iraq. Because of Deborah’s brain injury she has no short-term memory. She constantly asks about her son and on learning of his death each time feels the pain and shock anew.

Fortunately, her husband can now be assured that the money they were ethically, if not legally, entitled to will be theirs – to care for her special needs for the rest of her life. And now that their limited resources aren’t being stretched beyond capacity, perhaps Deborah’s other son can fulfill his dreams of going to college.