Republican Ohio Governor John Kasich sure doesn’t act like a Republican. When a 2012 ruling by the U.S. Supreme Court made it relatively simple for states to reject Obamacare’s costly expansion of Medicare on the backs of state taxpayers, many governors took advantage of the opportunity. Not Governor Kasich. Despite emphasizing opposition to Obamacare in his campaign, Governor Kasich crumbled under pressure from hospital lobbyists and endorsed the expansion and, in an act of executive overreach, he bypassed the legislature and accomplished the expansion through a separate panel. Support for Common Core, expanding Ohio’s sales tax to include a huge list of transactions previously exempt, and opposition to religious freedom legislation has not helped his image.
Fast forward three years and we find that Governor Kasich has once again shed his conservative stripes and gone on the attack against the insurance industry. On July 1, 2015, Governor Kasich sided with trial lawyers and approved an omnibus amendment as part of the state budget which detrimentally affects Ohio’s small businesses and the valuable subrogation rights of health plans by curtailing their right to reimbursement of medical expenses paid as the result of a tortious act by a third party. This subrogation-damaging amendment was introduced under the cover of darkness and without opportunity for public debate. The bill repeals current § 2323.44, the statute that created the Ohio Subrogation Rights Commission, and creates a new § 2323.44 that significantly changes Ohio’s subrogation laws. Trial lawyers care more about the size of their attorney’s fees than the financial health of Ohio, and Governor Kasich apparently agrees with them. The new law is set to go into effect on September 28, 2015.
Governor Kasich’s attack on subrogation is a big deal for Ohio insurance companies and health plans struggling to keep premiums low for Ohio residents. Subrogation is a word foreign to even the most savvy politicians and lawyers. In the context of Ohio businesses, subrogation is the ability of an employer, insurer, or health plan to step into the shoes of an injured individual or employee with respect to a potential lawsuit. When an individual is injured due to the negligence of another and an insurer or health plan pays potentially unlimited medical expenses, Ohio law provides that when the injured individual hires a lawyer and sues the person or company that caused the injury, the insurer has the right to be reimbursed out of any tort settlement for any medical expenses it has paid. This right is specifically and clearly written into the terms of the plan which the injured party accepts. The purpose of subrogation is to return the excess, duplicative proceeds of a recovery in a lawsuit to the insurer who can then recycle them in the form of lower insurance premiums. Instead of the injured party recovering medical expenses twice – once from the health plan and a second time from the tortfeasor. Subrogation allows the health plan to be reimbursed the medical expenses it has paid and serves as a key mechanism by which insurance premiums are kept in check and held to a minimum. It is a reality of insurance that benefits small employers throughout Ohio, as the cost of health insurance continue to spiral out of control.
Ohio has always had and has always enforced an equitable rule known as the Made Whole Doctrine. Under this doctrine, an insurer’s subrogation interest will not be given priority where doing so will result in less than a full recovery to the insured. However, the Made Whole Doctrine in Ohio could always be disclaimed by the policy terms or plan language in exchange for lower premiums, thereby avoiding the harsh application of the Made Whole Doctrine. The ability to contract around the rule prevents injured employees from recovering more than 100% of their economic losses in cases where a health plan and a lawsuit recovery both compensate the employee. It has always held that cases of contractual interpretation should not be decided on the basis of what is just or equitable, even where a party has made a bad bargain. Until now, in order to avoid the default “Make-Whole Doctrine,” the agreement, plan, or policy had to clearly and unambiguously establish both:
- that the insurer has a right to a full or partial recovery of amounts paid by it on the insured’s behalf; and
- that the insurer will be accorded priority over the insured as to any funds recovered.
Governor Kasich’s actions outlaw for the first time the right of an insured and insurer to contract for such terms, and will result in happier trial lawyers, but higher insurance premiums. While Governor Kasich did utilize his line item veto to strike a common fund provision (requiring the subrogated health plan to contribute a pro rata share of legal costs necessary to prosecute the third-party lawsuit and effect a recovery), and a confusing provision which provided that a tort action subject to subrogation would be “controlled solely by the injured party”, the new law overrules a long line of Ohio case decisions which refuse to re-write insurance policies.
The right of subrogation reimbursement exists and works effectively in order to hold down one of the largest expenses for small businesses – health insurance premiums. The amendment does not technically codify the Made Whole Doctrine in Ohio. Instead, it drastically changes the long-established procedures for distributing tort recoveries by mimicking its neighbor to the west and legislating that a health insurer’s right of subrogation will be diminished in the same proportion that the insured’s claim is diminished if the insured is unable to collect full value “resulting from limited liability insurance or any other cause.” In Indiana, a similar statute is known as the “Lien Reduction Statute.” Experience tells us that accident victims and their lawyers rarely admit that they have been “made whole” or agree to a dollar threshold for same. The new law will therefore lead to decreased subrogation recoveries and increased litigation over the value of claims, particularly where non-economic damages are involved.
To make matters worse, the expansive new trial lawyers’ initiative signed by Governor Kasich appears to apply even to small employers struggling to make mandated workers’ compensation premiums. Workers’ compensation subrogation occurs when the employee is injured at work and workers’ compensation pays for lost wages and unlimited medical expenses. In return, Ohio law provides that when the injured employee files suit against the person responsible for the injury and makes a significant recovery, the employer is entitled to this right of reimbursement. Being made whole is a very rare occurrence as history has proven. Ohio is developing a reputation as being a very unfriendly place for insurers and small businesses, and its economy will pay the price.
If only Governor Kasich had allowed some time for public debate on the hastily-added amendment to the budget bill, he might have learned something about the valuable role subrogation plays in the Ohio economy.
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at [email protected].