Beware Umbrella Policy Exclusions
Redact Trial Exhibits on your Computer

Example of How SEHP Lien Operates

When the Governor Signs[ed] the Bill, How will [does] it Work?

The Legislature has passed a revision to the State Employee and Teachers Health Plan lien and has sent that bill to the Governor for signature.  Refer to this post for the text of the bill.

Up until now, the SEHP limited itself to no more than 50% of a gross settlement.  Now the lien law limits SEHP to 50% of the settlement AFTER attorney fees have been paid.  The Amendment to the original legislation allows a reduction for "reasonable attorney fees" but leaves the decision regarding "reasonableness" in the sole discretion of the SEHP.

EXAMPLES of how the "old" lien and the "new" lien operate:

The current law which is not followed (Actual "old" SEHP lien law says this):

          Assume SEHP claims $20,000 lien
30,000 settlement
10,000 Attorney fees
20,000 SEHP lien  (paid $20,000)
$0        Client

NOW, before the "new" bill is in effect: (Note, new bill signed on August 31, 2006 and applies retroactively)

          Assume SEHP claims $20,000 lien
30,000 settlement
10,000 Attorney fees
15,000 SEHP paid in full  (50% of 30,000, reducing $20,000 lien by $5,000)
5,000 CLIENT

THE "NEW" Lien Law when signed by the Governor:

(NOTE:  This haexamples below were edited on 9.6.06 because the previous post was incorrect.  What is below is now correct.)

Example 1:  Lien exceed 50% of the settlement

30,000 settlement
-10,000 Attorney fees
$20,000 Subject to SEHP lien
SEHP can take no more than 50% AFTER attorney fees, so
$20,000 > $10,000 (1/2 after attorney fees), thus
-$10,000 SEHP Lien ($20,000 reduced to 50% of 20,000 after atty fees)
$10,000    To CLIENT

Example 2:  Lien does NOT exceed 50% of the settlement

          Assume SEHP claims Lien of $9,000
30,000 settlement
-10,000 Attorney fees
$20,000 Subject to SEHP lien
SEHP can take no more than 50% AFTER attorney fees, so
$ 9,000 < $10,000 (1/2 after attorney fees)
$11,000    To CLIENT

As you can see, the Amendment increases the client's recovery when the lien exceeds half of the recovery AFTER attorney fees. The old law was working with 50% of the GROSS recovery and now the formula works with (essentially) the NET recovery.  Also, this Amendment provides an excellent reason for the client to hire you because the "attorney fee" cut is not available to unrepresented SEHP members.

Below is a quick review of the application of the lien:

For payments made from January 22, 2003 to July 20, 2004, the SEHP claims a right of equitable subrogation.  The SEHP has not done much to enforce this, sending a few notice letters out on cases where they thought there was third party insurance, mostly car wrecks.

The SEHP, to my knowledge and by all reports, has not litigated the equitable subrogation right.  I do not think that a right of equitable subrogation is recognized by North Carolina law.

If payments were made for related health care after July 22, 2004, then I think you must request a statement of the lien, which may prompt the SEHP to claim the equitable subrogation for payments made before July 2004.

There is also a good argument that for equitable subro to even exist, there must be direct notice of the claim to the lawyer or client.  There does not need to be "notice" for the lien arising after July 2004.

If you do get caught up in the equitable subro claim because of post July 2004 payments, the SEHP has significantly negotiated on the equitable subro claims.

Also, the date that the SEHP uses to determine the lien is the date of their payment, not the date of service.  The lien does not apply to UM or UIM recoveries.

If you have questions, please email Chris Nichols.

Chris Nichols 1.800.906.5984


Feed You can follow this conversation by subscribing to the comment feed for this post.

David Vtipil

How is the state lien handled if it is greater than 50% and there are other lienholders?

Chris Nichols

Well, the statute does not speak to pro-ration, but I think (hope) that SEHP will recognize the competing claims of others. We are hoping that the SEHP lien will follow the NC Medical provider lien statute which provides for a pro-ration of the lien with other liens. Thus, if the SEHP lien is in competition with unpaid medical providers, the lien should share pro-rata within the 50% of gross limitation. Likewise, the medical providers should also share in the same way.

The SEHP lien does claim to be "first pay", meaning that it thinks it should get paid before other providers, but I think that the lien will operate like another medical provider lien. Here is what it says: "The Plan has the right to first recovery on any amounts so recovered, whether by the Plan or the Plan member, and whether recovered by litigation, arbitration, mediation, settlement, or otherwise."

If there are outstanding liens from Medicare, Medicare will probably take first, and I would argue that Medicare would take "from" the 50% maximum recovery of the SEHP.

Medicaid should share pro-rata (as the Medicaid statute states) with SEHP. Of course, Medicaid never gets more than 1/3 of the settlment amount (which is almost the equivalent of the new SEHP language).

We don't know exactly how the SEHP will interpret the new language, but the above is how I suggest presenting it to them.

I also suggest this: Apply all pro-rations first. Then determine SEHP's share, then take the attorney fees out of their share. We don't want SEHP to think that you take the attorney fees first, and then see if that is more than 50% of the gross settlement. That is the same argument we had with Medicaid last year, and ultimately they accepted our interpretation.

I will post a more in-depth version of this as a Blog entry in the future.

Great question David!!

The comments to this entry are closed.