Medical Liens and Subrogation: Who Gets Paid From Your Settlement

You were hurt, your claim is settling, and letters are arriving from your health plan, Medicare or Medicaid asking to be paid back. Here’s the plain answer. Whoever paid for your injury care may have a legal right to be repaid from your settlement. That right is called a lien, or subrogation or reimbursement, and it’s paid from your share, after the lawyer’s fee and case costs. How much each payer can take depends on who it is. Medicare’s claim is usually cut by its share of the fee and costs. Medicaid can take only money meant for medical care. An employer plan’s own terms usually control. And many claims can be checked, disputed or reduced before the money goes out.

This guide is part of our complete guide to personal injury claims. If your claim hasn’t settled yet, see who pays your medical bills while it’s pending.

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What are medical liens and subrogation?

A lien is a legal right in property, here your settlement, until a debt is paid (Cornell LII). With subrogation, an insurer that paid for your injury steps into your shoes to recover that money from whoever caused it (Cornell LII). A reimbursement term in a plan requires you to repay the plan from what you recover (Montanile v. Board of Trustees, 2016).

People call all three “liens.” What limits each one depends on who paid:

In what order is a settlement paid out?

Settlement money often goes to your lawyer, who holds it in a client trust account and pays out, in order: the case costs the lawyer advanced, the fee your written agreement sets, the liens, and then you. Liens aren’t subtracted before the fee is figured, so they come out of your share. That’s also why a lawyer’s published results don’t show what clients took home. For the fee math, see how personal injury lawyers get paid.

How much will Medicare take from your settlement?

When a liability insurer or other payer is responsible for your care, Medicare may pay first so you aren’t stuck with the bills. These “conditional payments” must be repaid when a settlement comes through (42 CFR 411.21; CMS). Whoever receives the money must repay Medicare within 60 days, and Medicare can recover from anyone who received it, including you and your lawyer (42 CFR 411.24(g), (h)).

How the process works

According to the Centers for Medicare & Medicaid Services (CMS), the case is reported to Medicare’s Benefits Coordination & Recovery Center (BCRC, 1-855-798-2627). It sends a conditional payment letter listing the payments it thinks are related, and you can dispute unrelated charges. After you settle, you report the date, the amount, and the fees and costs you paid, and Medicare sends a demand letter. A Medicare Advantage plan seeks repayment itself, with the same recovery rights (42 CFR 422.108(f); CMS).

How your fees and costs reduce the claim

If the claim was disputed and you paid the costs of getting the settlement, Medicare’s recovery is reduced (42 CFR 411.37(a)). When Medicare paid less than the settlement, divide your total fees and costs by the settlement, then multiply Medicare’s payments by that ratio. That’s Medicare’s share of the costs, and it comes off Medicare’s claim (42 CFR 411.37(c)). When Medicare paid as much as or more than the settlement, it recovers the settlement minus all fees and costs, which leaves you nothing (42 CFR 411.37(d)).

Interest, appeals and waivers

The regulation lets CMS charge interest when Medicare isn’t repaid within 60 days after it learns that another payer has paid or could pay (42 CFR 411.24(m)). CMS says that in practice:

• Interest accrues from the demand letter’s date and is charged if the debt isn’t resolved in the time the letter allows. It keeps running during an appeal or waiver request unless you pay, and you get a refund if you win.
• You can appeal within 120 days of receiving the demand if you think the amount or the debt itself is wrong.
• You can ask for a waiver if you weren’t at fault for the conditional payments and repaying would cause financial hardship or be unfair.
• An unpaid debt can be referred to the U.S. Treasury for collection about 150 days after the demand.

As of September 2026, Medicare doesn’t seek repayment from a physical-trauma liability settlement of $750 or less (42 U.S.C. 1395y(b)(9); CMS). If such a settlement is $10,000 or less, you may be able to pay Medicare a flat 25% of it instead, giving up appeal and waiver rights (CMS).

Can Medicaid take money from your settlement?

Only part of it. Federal law requires state Medicaid programs to seek repayment from anyone legally responsible for an enrollee’s care, when the expected recovery exceeds the cost of collecting it, and enrollees assign the state their rights “to payment for medical care from any third party” (42 U.S.C. 1396a(a)(25), 1396k(a)(1)(A)). But federal law also bars liens on a living enrollee’s property for Medicaid benefits, with narrow exceptions (42 U.S.C. 1396p(a)(1)). Three Supreme Court cases draw the line:

• Arkansas DHHS v. Ahlborn (2006). Medicaid paid $215,645.30 for a crash victim’s care, and her claim settled for $550,000. The state agreed that only $35,581.47 of the settlement represented medical expenses, and the Court held that was all it could claim (547 U.S. 268).
• Wos v. E.M.A. (2013). A North Carolina law let the state take up to one-third of any injury recovery, with no chance to show that less was for medical care. The Court held that federal law overrides that “irrebuttable, one-size-fits-all statutory presumption.” A state may take only the share that’s for medical expenses, and if the enrollee and the state can’t agree on it, a court or agency decides (568 U.S. 627).
• Gallardo v. Marstiller (2022). A state may also seek repayment from the part of a settlement allocated to future medical care. The line is between medical and nonmedical expenses (596 U.S. 420).

So Medicaid can’t be repaid from money for pain and suffering or lost wages, and the medical share of a settlement matters. Ahlborn said it can be agreed with the state in advance or, if needed, decided by a court.

Does your employer’s health plan get paid back?

It may. Health plans set up by private employers are generally governed by a federal law, the Employee Retirement Income Security Act (ERISA). Government employers’ plans aren’t, and church plans aren’t unless they elect to be (29 U.S.C. 1003). A self-funded plan pays claims from the employer’s own money and isn’t treated as an insurer under state insurance laws (29 U.S.C. 1144(b)(2)(B)). An insured plan buys a policy, and state insurance laws still reach it through that policy, as they do a policy you buy yourself. State rules on repayment vary. In FMC Corp. v. Holliday (1990), the Supreme Court held that a Pennsylvania law barring reimbursement from car-crash recoveries couldn’t be applied to a self-funded plan (498 U.S. 52).

Two later cases matter:

• US Airways v. McCutchen (2013). The plan’s terms govern, and rules against double recovery can’t override clear plan language. But if a plan says nothing about attorney fees, the “common-fund” rule applies, so the plan shares the cost of the lawyer who won the money. McCutchen’s plan claimed all $66,866 it had paid from a recovery that left him $66,000 after his lawyer’s fee, which, the Court noted, would leave him worse off for suing (569 U.S. 88).
• Montanile v. Board of Trustees (2016). If a plan member has spent the whole settlement on things that can’t be traced, the plan can’t sue under ERISA (29 U.S.C. 1132(a)(3)) to reach his other assets instead (577 U.S. 136).

To check your plan’s rights, read its summary plan description. It must explain when the plan can recover benefits “by exercise of subrogation or reimbursement rights” and whether an insurance company guarantees the benefits (29 CFR 2520.102-3(l), (q)). Ask the plan administrator in writing for it and the plan document; the administrator must provide them (29 U.S.C. 1024(b)(4)).

Does workers’ comp get paid back from an injury lawsuit?

If someone other than your employer, such as a driver or an equipment maker, caused your work injury, you may have a claim against that “third party” too. State workers’ comp laws decide how much of that recovery goes back to the employer or its insurer. See when you can sue after a workplace injury.

What if you were hurt in a car crash?

Your own auto policy’s medical payments (MedPay) or personal injury protection (PIP) coverage may have paid some bills. Depending on your policy and your state’s law, that insurer may be able to recover what it paid, from your settlement or from the at-fault driver (Cornell LII). Michigan works differently.

Can a lien be reduced?

Sometimes. Before you sign a release, ask your lawyer to check for:

1. Unrelated charges on Medicare’s list or in Michigan Medicaid’s itemization (CMS; MCL 400.106(10)(a)).
2. Cost sharing that Medicare owes (42 CFR 411.37), as does an ERISA plan whose terms are silent on attorney fees (McCutchen).
3. Legal limits, such as Medicaid’s bar on reaching nonmedical damages (Ahlborn; Wos).
4. Waivers and compromises. Medicare can waive recovery for hardship or unfairness (CMS), and Michigan Medicaid can agree to take less (MCL 400.106(8)).
5. The plan’s actual language, which you can request (29 U.S.C. 1024(b)(4)).

Is a personal injury settlement taxable?

For a physical injury, usually not. Damages received by lawsuit or settlement “on account of personal physical injuries or physical sickness” aren’t income, except punitive damages. Emotional distress alone isn’t treated as a physical injury, except for damages up to what you paid for medical care for it (26 U.S.C. 104(a)). The IRS adds (Publication 4345):

• A physical-injury settlement is fully non-taxable if you didn’t deduct related medical expenses in earlier years. The part covering medical expenses you did deduct is taxable, to the extent the deduction gave you a tax benefit.
• Emotional distress damages that stem from a physical injury are treated like the injury itself.
• Interest is generally taxable, and punitive damages are taxable even in a physical-injury case.

Tax results depend on your facts, so ask a tax professional.

How much would you take home? A worked example

These numbers are made up to show the math. They aren’t typical and don’t predict any case’s value or costs. (For what drives value, see how to evaluate a personal injury case.)

Say you’re on Medicare and your disputed injury claim settles for $120,000. Your lawyer advanced $12,000 in case costs, and the fee is one-third of what’s left after costs, the most allowed in a Michigan injury case (MCR 8.121). Medicare’s related conditional payments total $20,000.

The fee is one-third of $108,000, or $36,000. Your fees and costs total $48,000, which is 40% of the settlement, so Medicare’s share of them is 40% of $20,000, or $8,000 (42 CFR 411.37(c)).

• Medicare’s reduction is worth $8,000 to you. Without it, you’d keep $52,000.
• If Medicare had paid $130,000, more than the settlement, it would recover $120,000 minus the $48,000 in fees and costs: $72,000, everything that was left (42 CFR 411.37(d)). You’d keep nothing, which is when a waiver request matters.

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What to do next

1. List everyone who paid for your care, and keep every letter they send.
2. Get a free case review. Tell us what happened in four quick questions. In Michigan, you can also compare injury lawyers near you.
3. Make sure payers are notified early, such as Medicare’s BCRC or Michigan’s MDHHS, and ask a job-based plan in writing for its plan documents.
4. Before you accept a settlement, get a written estimate of your net, listing each lien, any reduction and anything disputed.
5. Check the closing statement against that estimate, and keep proof of every lien payment.

What waiting can cost

• A lost reduction. If you don’t answer Medicare’s conditional payment notice within 30 calendar days, CMS says the demand issues automatically, with no reduction for fees or costs: $8,000 in the example.
• Missed Michigan Medicaid notices. The state or its health plan can sue to recover, and a lawyer who knowingly skips a notice can be fined $1,000 per violation (MCL 400.106(6), (7)).
• Filing deadlines, which keep running while you sort out liens. See every Michigan injury deadline in one place.

What a good outcome looks like

Before you sign, you know every claim on your settlement and what each payer can legally take. Unrelated charges are gone, the required reductions are applied, and any split between medical and other damages is agreed or decided. Disputed amounts wait in trust while the rest is paid promptly. Your closing statement lists each lien and who was paid, and you know what, if anything, is taxable.

Updated September 25, 2026

This guide is general information, not legal advice, and laws change. For advice about your situation, talk to a lawyer licensed in your state. Reading this page or contacting us does not create an attorney-client relationship.