New Texas Law Requires Health Plans To Cut Claims

Finally some good news from our state legislature: the amount of money that health insurance companies can be reimbursed from third party recoveries will be limited. The new law takes effect on January 1, 2014, although which event triggers this date is not clear as the law is written.

A new chapter of the Texas Civil Practice & Remedies Code (140) sets out a formula for the first time that restricts their claims to the lesser of:

(1) One-half of the gross recovery, less attorney’s fees and procurement costs; or
(2) The total cost of benefits paid, provided, or assumed by the health plan, less attorney’s fees and procurement costs.

How does this work? Assuming a settlement or verdict is obtained for the standard liability limits of $30,000.00, the subrogation amount is $8,000.00, fees are the standard one-third, and costs are $500.00, under the first formula the amount is reduced to $4,500.00 and under the second, it is a negative $2,500.00, so the lesser of the two is $0.00. Of course, other numbers will result in other calculations.

So H.B. 1869 caps a health plan’s claim for reimbursement when the recovery is insufficient to make the plaintiff whole. This is a major victory for plaintiffs in light of the Texas Supreme Court’s decision in Fortis Benefits v. Cantu, 234 S.W.3d 642 (Tex.2007), which allowed health plans to be repaid if the insurance contract language clearly granted them subrogation rights, despite the “made whole doctrine.”

At the present time, insurance companies can usually demand full repayment of the amount of money they have expended for their policyholders’ medical expenses, so this is certainly a victory for injured persons.

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