What is subrogation in a health insurance plan?
The term, ‘subrogation’, refers to the legal right of insurers to recover costs following claim coverage from the third party that caused injury to the insured.
Most people are unaware that the principle of subrogation exists in all indemnity policies—yes, it is part of your health insurance plans as well. Therefore, if you own an indemnity policy of any kind, it is important for you to understand the concept of subrogation. At this point, it would be a good idea to read the fine print in your health insurance policy document carefully in order to understand how and why subrogation could affect you in the future.
Applies only in the case of third-party injury
The point of insurance is to compensate the insured in the case of loss. In the area of health insurance, the insurer protects you from the financial burden of hospitalization, diagnostic tests, visits to the doctor, medicines and so on. In return for this service, you pay an insurance premium each year. Let us now assume that you are injured in an accident. The insurer will pay for your medical treatment costs (to the extent of the coverage available), even if the accident occurred due to, for example, the negligence of a third party.
Ideally, the third party should pay for these costs. Thus, in the case of car insurance, for instance, your insurer will follow-up with the insurer of the at-fault party. Negotiations will go on behind the scenes and your insurer will attempt to recover the amount that was paid to you as a claim. In this case, your insurer acts on your behalf and pursues the third party (or his insurer) to recover the claim amount.
Although most subrogation-related negotiations take place behind the scenes between insurers, things could work a little differently in the case of health insurance. You might pursue a legal suit against the at-fault party. Assuming that you eventually won the suit and received compensation, your insurer would then seek to recover the claim amount directly from you.
The rationale behind the concept of subrogation
You might question why the insurer should at all seek a share from your legally won compensation; after all, you are paying an annual premium for the policy. But this is not a situation of your insurer being greedy. As mentioned above, the purpose of insurance is to indemnify you against the extent of loss, and nothing more. Thus, if you are receiving compensation from the third party, it is no longer a loss, and the insurer now has every right to demand the amount that was paid to you as claim settlement for the same loss at an earlier date. Receiving compensation for the same loss twice—once from the insurer, once from the third party—leads to a profit, and that is not the aim of insurance.
Waiving the subrogation
At times, the insured may sign a subrogation waiver, whereby he gives up all rights of recovering incurred losses against the at-fault party. But before taking this step, find out if your insurance policy allows it. Moreover, it might be helpful to contact a lawyer if conversation about a subrogation waiver comes up, and the other party should waive their rights against you as well.