MEDICAL PAYMENTS COVERAGE: FREE MONEY OR CRASH & BURN?

By: Matthew B. Drexler*
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Being injured in a motor vehicle accident is scary enough. Trying to sort out the complicated insurance regulations and policy language just compounds your experience. You may have heard that insurance companies have to offer you “Med Pay” to cover medical expenses resulting from an accident. This article provides pertinent information about Med Pay and the interplay between Med Pay benefits and common health insurance policies.

Med Pay is short for “Medical Payment Coverage” and is offered by automobile insurance companies as part of an automobile insurance liability policy. Med Pay funds are intended to pay for medical expenses stemming from an automobile accident. Med Pay, however, is not a replacement for health insurance. Med Pay and Health Insurance can be used, in tandem, to compensate an injured driver or passenger for medical expenses and injuries occurring after a serious automobile accident.

To be clear, Med Pay benefits are available to anyone in your vehicle, not just the named insured driver or owner. Med Pay benefits are also available regardless of who may be at fault for the accident.

By law (effective January 1, 2009) insurance companies offering Colorado insurance policies are required to offer at least $5,000 in Med Pay coverage. However, Med Pay is available in larger amounts. For example, a policy holder can obtain $100,000 coverage (per person) in Med Pay benefits to protect the policy holder and passengers in the event of a serious accident. Med Pay benefits can also be declined by a policy holder; however, such a waiver must be in writing. Even then, it is the insurance company’s responsibility to produce the documentation verifying a waiver of Med Pay. Otherwise, the insurance company may still be liable for payment of $5,000 towards medical expenses regardless of whether the insurance company received the associated premium.

By law, an automobile insurance company is required to set the minimum $5,000 benefit aside for thirty days to pay claims made by trauma care treatment providers (e.g. ambulance, trauma physicians) who provided treatment after an automobile accident. Clearly, Colorado’s Med Pay requirement (codified at C.R.S. § 10-4-635) is intended to protect emergency medical treatment providers; however, Med Pay benefits can be a substantial resource for an insured involved in a serious auto accident. After the thirty day period expires, the $5,000 benefit becomes available to pay other medical bills incurred. If a policy holder opts for higher Med Pay benefits, the policy holder may be entitled to the immediate use and disbursement of proceeds over the required set-aside. In other words, a policy holder who purchases a policy with $35,000 in Med Pay benefits may be able to access the additional $30,000 beyond the initial $5,000 to cover medical bills. The more serious an accident, the more important Med Pay becomes as a financial planning tool to cope with the increasing costs of medical care related to automobile accidents.

Here’s an example of how Med Pay benefits works: You and your passenger are injured in a serious auto accident. Your medical expenses, to date, total $50,000. Your passenger is more fortunate with $10,000 in medical expenses. If you maintain a $50,000 Med Pay policy, then you would have adequate coverage limits to cover both you and your passenger. Obviously, the more insurance you carry, the more protection and peace of mind you afford yourself.

While we recommend obtaining as much Med Pay coverage as possible, the decision often comes down to personal risk tolerance and practical financial limitations. Some folks rationalize that purchasing Med Pay is cheaper and therefore forego purchasing health insurance. This may make sense for automobile accidents; however, Med Pay benefits are not available for any other type of injury or accident (e.g. slip and fall, household accidents).
A colleague of mine refers to Med Pay benefits as “free money!” She’s right. Section (3)(a) of C.R.S. § 10-4-635 expressly provides:

An insurer providing benefits under medical payments coverage in the amount specified in this section or in a greater amount than the amount specified in this section shall not have a right to recover against an owner, user, or operator of a motor vehicle, or against any person or organization legally responsible for the acts or omissions of such person, in any action for damages for benefits paid under such medical payments coverage. An insurer shall not have a direct cause of action against an alleged tortfeasor for benefits paid under medical payments coverage.


Accordingly, if you end up obtaining a judgment against (or settling your case with) a negligent or at-fault driver, you do not have to pay back or reimburse those healthcare treatment providers who accepted Med Pay benefits.
By contrast, if your private health insurance company (e.g. a health plan available through an employer) covers the cost of medical expenses related to an automobile accident, the insurance company would be entitled to reimbursement of funds from a judgment or settlement, which right is referred to as subrogation.

Bear in mind that most health insurance companies (including military Tricare) require that any settlement agreement be approved prior to entering into a settlement with an at-fault party. After all, accepting a settlement may interfere with your health insurance company’s right to recover funds the insurance company has already paid out for your benefit. Most, if not all, insurance policies require you to inform them of any settlement activity and most require that you contractually agree to the insurance company’s subrogation right.
An experienced attorney familiar with subrogation (and artful negotiation strategy) may achieve an agreement with a health insurance company to accept less than the full amount of a reimbursement or subrogation interest that must be re-paid to the health insurance company.

It is often difficult for a client facing significant or catastrophic injuries to determine how to best utilize health insurance benefits and Med Pay benefits. For example, a client facing long-term treatment may desire for her health insurance company to pay the major expenses related to medical treatment while utilizing Med Pay benefits to cover the costs of ever-increasing co-pays and out-of-pocket deductibles. Of course, the health insurance company would then have a right to seek reimbursement (i.e. subrogation) for the costs of medical treatment whereas the costs paid under Med Pay would not be subject to reimbursement. In another case, a passenger with relatively minor injuries may choose to apply Med Pay benefits towards all of his medical bills and later pursue a claim against the at-fault driver free from the worry that the insurance company would demand reimbursement from the judgment or settlement proceeds.

The coordination of Med Pay and insurance benefits can be especially tricky and the advice of an attorney familiar with insurance, Med Pay and subrogation is critical. THE GASPER LAW GROUP assists our clients in determining the best allocation of Med Pay and insurance benefits. While insurance laws and insurance policy language can be confusing, the attorneys at THE GASPER LAW GROUP are committed to explaining difficult insurance practices in a way we can all understand. If you have recently been injured in an automobile accident or are unsure which benefits may be available to compensate you for your injury or accident, do not hesitate to contact THE GASPER LAW GROUP to arrange for a free consultation.

* Matthew B. Drexler is a Partner practicing in the Civil Litigation Division at THE GASPER LAW GROUP, PLLC located in Colorado Springs, Colorado. Mr. Drexler can be reached at (719) 227-7779 for more information.