The right of an insurer or health plan that paid your bills to be repaid out of your settlement - the reason a recovery is often smaller than it looks.
Subrogation is the principle that someone who pays a loss caused by another may step into the shoes of the person they paid and pursue the party at fault. In everyday practice most people meet it in the related form of reimbursement: your health plan paid for treatment after an accident, you later recover from the person who caused it, and the plan asserts a right to be paid back out of that recovery.
This matters because it operates on the settlement rather than on the wrongdoer, and it is why a headline settlement figure and the amount a person actually receives can differ dramatically. A recovery is typically reduced by attorney fees, by case costs, and then by whatever liens and reimbursement claims attach - health plan, hospital, Medicare, Medicaid, workers' compensation, sometimes medical payments coverage from an auto policy. Two doctrines can reduce what a plan collects: the made-whole rule, under which a plan may not be reimbursed until the injured person has been fully compensated, and the common fund rule, under which a party benefiting from a recovery obtained by someone else's lawyer contributes proportionally to the fees. Both can be modified or excluded by policy language in many circumstances.
The most consequential distinction is what kind of plan is asserting the claim. Health coverage that an employer self-funds is governed by federal ERISA law, and the Supreme Court has held that such a plan can enforce the reimbursement terms of its own written plan document - potentially displacing state-law protections an insured policy would be subject to. Whether that recovery can reach a settlement fund the beneficiary has already dissipated is a separate question the Court has also addressed. The practical translation: two people with apparently identical health insurance can face very different reimbursement obligations, and the answer is in the plan document rather than in general law.
Government payers occupy their own category and should never be treated as an afterthought. Medicare has a statutory right of recovery against a primary payer with substantial enforcement powers, and reporting duties fall on the insurer and self-insured parties as well as on the beneficiary. Medicaid has a federal recovery mandate as well, subject to Supreme Court decisions limiting the state to the portion of the settlement attributable to medical expenses. Resolving these interests correctly before disbursing a settlement is standard practice, and failing to do so can leave the injured person - and sometimes their lawyer - personally exposed.
The question worth asking at the very start of an injury claim, not at the end, is what will have to be repaid out of anything recovered - because that number determines whether a claim is worth bringing and what a settlement has to be to be worth accepting. Ask specifically whether your health coverage is self-funded by your employer, since that single fact can change the analysis entirely, and ask whether Medicare or Medicaid paid anything. Reimbursement amounts are frequently negotiable and frequently reduced, both by proportional attorney fee contributions and by direct negotiation, and that reduction is real money that goes to the injured person. Never disburse or spend a settlement while a government payer's interest is unresolved.
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