If you're about to settle your personal injury claim, or you've just settled it, you should be aware of any lien holders. A lien holder is an individual or organization to whom you legally owe part of your settlement compensation.
There are several types of legitimate lien holders in personal injury claims. They include:
If you were injured and didn't have the money to pay your medical bills, and someone advanced either the money or the health care services you needed, you probably have a duty to pay them back. If you're in this situation, there's a good chance there's one or more liens against your settlement proceeds.
Each state has its own laws and regulations governing how a lien must be "perfected," or legitimized, by a lien holder. If your health insurance company paid your medical bills while your personal injury claim was in process, or a medical provider treated you without requiring immediate payment, they may have a legitimate lien against your settlement.
Federal and state law supports these liens and your duty to pay, or "satisfy" them. A lien holder must advise you of their intent through a Letter of Protection, or other legally acceptable form of notification. You should set aside money from your settlement proceeds to satisfy any unpaid services. If you don't, you could be sued by the lien holder(s).
Doctors, hospitals, and clinics can legitimize their liens by either having you sign a Letter of Protection before treating you, or by exercising their lien rights under state law. Sometimes they do both. A Letter of Protection (LOP) is a signed agreement stating you will pay the health care provider from your settlement proceeds.
The LOP is a contract between you and the health care provider. If you fail to honor that contract, the provider has the right to sue you. If that happens, you may be responsible not only for the money you owe them, but also for their attorney's fees and court costs.
Failure to pay a medical bill can also go against your credit rating, which will cause a serious decline in your credit score.
State Lien Laws
Letters of Protection are helpful, but a provider doesn't necessarily need one to be financially protected. Many states have laws protecting health care providers who advance treatment to patients. In the states that don't require LOPs, a lien is enacted when the provider simply sends a certified letter notifying the patient of their lien.
States give health care providers these financial protections as a matter of public policy. Without some sort of a guarantee of payment, many providers would refuse to treat patients. At a minimum, state lien laws help assure that injury victims will be stabilized before leaving the hospital.
If Medicaid or Medicare paid for your medical treatment, they likely have a statutory lien against your settlement proceeds. The federal law controlling personal injury and wrongful death compensation liens is U.S. Code, Title 42, § 1395y.
The process of reimbursing Medicaid and Medicare is referred to as "subrogation." It's administered by the Centers for Medicare and Medicaid Services (CMS). If there is a CMS lien on your settlement proceeds, it takes precedence over all other liens. You don't have to pay CMS back unless they ask you to, but they have a six year statute of limitations period for reimbursement.
CMS is part of the federal government, and as such, it can move slowly. It may be several months before you receive a notice to reimburse. It's a good idea to set that money aside from your settlement, so you have it available when they send the notice.
If you received Veterans Administration (VA) benefits from the federal government, you will also have to satisfy their statutory lien before all others. The Veterans Administration's lien law is found under U.S. Code, Title 38, § 1729.
Both CMS and VA liens are often referred to as "super liens" because of their precedence over all other liens. If they are not paid, you will be subject to penalties under federal law. The penalties can be as severe as requiring you to pay back double the original amount of the lien.
If you receive workers' compensation benefits for an on-the-job injury, you normally won't have to reimburse the workers' comp insurance company. There's an exception, however, if you file a claim against anyone other than your employer. If you win compensation from a third-party, you will have to pay back workers' comp for the treatment they provided.
For example, if you were injured while on the job, in a car accident caused by someone else, and you sue that third-party, you'll likely have to reimburse workers' compensation for the money they paid for your treatment. This will come from your settlement proceeds.
Workers' compensation liens are statutory, which basically means they're automatic. At the same time, you aren't required by law to pursue a third-party claim. If you decide just to be treated for your on-the-job injuries, without suing the at-fault party, workers' comp won't have a lien. There won't be any settlement proceeds to recover from.
Your private health insurance company may also have the right to place a lien on your personal injury compensation. If your insurance paid some or all of your medical bills prior to settling your claim, you'll probably have to reimburse them from your settlement proceeds.
Insurance companies want to make sure you don't "double dip" (get paid twice for the same treatment). It's very likely they have the right to recover what they paid on your behalf. Read your policy carefully. Although policies differ in the way they handle this issue, there's probably a clause stating your health insurance carrier can place a lien on your settlement.
Your car insurance policy likely has a similar clause. Check your policy for language detailing how and when your auto insurance company can establish a lien on your settlement proceeds.
PIP and UIM Coverage
Traditionally, insurance companies could not establish liens on personal injury settlement proceeds when their insured purchased a separate policy rider for Personal Injury Protection (PIP) or Uninsured/Underinsured (UIM) coverage.
Many states are now passing legislation allowing insurance companies to put liens on the amounts paid out under those policy riders. Make sure you check your PIP and UIM policy language carefully.
Unlike the federal government, which has six years to pursue a lien, individual states' insurance laws and workers' compensation laws govern how long other liens remain valid.
If you haven't heard from worker's comp, or your health or auto insurance company within six months, there's a chance they may have waived their claim against your settlement proceeds. Regardless, it's a good idea to put any amount you might owe in a separate savings account.
If it's been six months since you settled your claim, check your state insurance laws and regulations. Most can be found online. If the statutory lien period has expired, you can safely keep the money. If not, keep it in the savings account earning interest until you're absolutely sure you're in the clear.
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