Medical Liens After a Colorado Accident: ERISA, Medicare, and Medicaid Explained
You’ve been injured in an accident. Your health insurance paid your medical bills. Now you’re settling your injury claim—and suddenly everyone wants a piece of your settlement.
Medical liens and subrogation claims are among the most complex and least understood aspects of personal injury law. They can significantly reduce what you actually take home from a settlement. Understanding them before you settle is essential.
This guide explains how medical liens work in Colorado, the different rules for different types of health coverage, and what you need to know to protect your recovery.
What Is a Medical Lien?
A medical lien is a legal claim against your injury settlement or judgment. When someone else pays your medical bills—whether it’s your health insurer, Medicare, Medicaid, or a hospital that treated you—they may have a right to be reimbursed from any money you recover from the at-fault party.
The theory is straightforward: if someone else caused your injuries and pays for them, your health insurer shouldn’t bear that cost. The responsible party (or their insurance) should pay. When you recover money for medical expenses, part of that recovery “belongs” to whoever already paid those bills.
But the rules governing these liens vary dramatically depending on who paid your bills.
Types of Liens and Subrogation Rights
| Payer Type | Governing Law | Reduction Possible? |
| ERISA Plans | Federal ERISA | Depends on plan language |
| Medicare | Federal MSP Act | Limited; procurement costs |
| Medicaid | Federal + State law | Yes; Ahlborn limits |
| Private Insurance (non-ERISA) | Colorado state law | Often negotiable |
| Hospital Liens | CRS 38-27-101 | Sometimes negotiable |
ERISA Health Plans: The Toughest Liens
If your health insurance comes through your employer (or a family member’s employer), it’s likely governed by the federal Employee Retirement Income Security Act—ERISA. This matters enormously for subrogation.
ERISA preempts state laws that might otherwise limit subrogation. This means Colorado laws protecting injury victims from aggressive lien enforcement often don’t apply to employer-sponsored health plans.
What ERISA Plans Can Do
– Recover 100% of what they paid, regardless of your total recovery
– Enforce “first dollar” recovery (taking their share before you get anything)
– Ignore the “made whole” doctrine that applies under state law
– Refuse to reduce their claim for attorney fees
The specific language in your plan document controls. Some ERISA plans are more aggressive than others. A careful review of the plan’s subrogation and reimbursement provisions is essential before settling.
Strategies for ERISA Liens
While ERISA plans have significant legal advantages, negotiation is still possible in many cases. Plans administered by third parties may have flexibility. Procedural errors in how the plan asserted its lien can create leverage. And some plans will reduce their claims when faced with evidence that the injured person will otherwise receive little or no recovery.
Medicare: Federal Rules, Serious Consequences
If Medicare paid any of your accident-related medical bills, they have a statutory right to reimbursement under the Medicare Secondary Payer Act (MSP). This isn’t just a contract right—it’s federal law with serious consequences for non-compliance.
How Medicare Liens Work
Medicare is a “secondary payer” when someone else (like a liability insurer) is primarily responsible. After you settle or win a judgment, Medicare is entitled to recover what it paid—called a “conditional payment.”
Before settling any claim where Medicare paid benefits, you must:
1. Notify Medicare of the claim and the settlement
2. Obtain a final demand letter showing the amount owed
3. Satisfy Medicare’s lien from the settlement proceeds
Consequences of Ignoring Medicare
Failing to properly address Medicare’s interests can result in personal liability for the full amount of Medicare’s payments—plus double damages. Attorneys, insurers, and even defendants who participate in settlements without protecting Medicare can be held liable.
Reducing Medicare Liens
Medicare will reduce its recovery by a proportionate share of procurement costs (attorney fees and litigation expenses). If your attorney took 33% of your settlement and incured $5,000 in costs, Medicare’s lien is reduced by approximately that same percentage.
Additional reductions may be possible through the Medicare appeals process, particularly when the settlement doesn’t fully compensate you for your damages.
Medicaid: The Ahlborn Limitation
If Medicaid paid your medical bills, they also have a right to reimbursement—but with important limitations following the U.S. Supreme Court’s decision in Arkansas Department of Health & Human Services v. Ahlborn.
Under Ahlborn, Medicaid can only recover from the portion of your settlement that represents compensation for medical expenses—not from amounts allocated to pain and suffering, lost wages, or other damages.
This creates significant room for negotiation. If your settlement represents only partial compensation for your total damages (as most settlements do), Medicaid’s recovery should be proportionally reduced.
Colorado Hospital Liens
Under CRS 38-27-101, Colorado hospitals have a statutory right to place liens on personal injury claims for the reasonable value of services provided. These liens apply when the hospital hasn’t been paid and the patient has a potential claim against a third party.
Requirements for Valid Hospital Liens
To be enforceable, a Colorado hospital lien must:
– Be filed within 90 days of discharge
– Be recorded with the county clerk and recorder
– Be served on the liable party or their insurer
– Contain specific information required by statute
Procedural defects in any of these requirements can invalidate the lien.
Limits on Hospital Liens
Colorado hospital liens are limited to 50% of the net recovery (after attorney fees) and cannot exceed the reasonable value of services rendered. These statutory limits provide leverage for negotiation.
How Liens Affect Your Settlement
Here’s a simplified example showing why liens matter:
– Your settlement: $100,000
– Attorney fees (33%): $33,000
– Costs: $5,000
– Health insurance lien: $40,000
– Your take-home: $22,000
Without addressing the lien, nearly 80% of your settlement goes to someone other than you. This is why lien negotiation is so critical.
Protecting Your Recovery
Liens require careful attention throughout your case—not just at settlement. Key steps include:
Identify all liens early. Know what you’re dealing with before you negotiate settlement.
Understand the governing law. ERISA, Medicare, Medicaid, and state-law liens each follow different rules.
Negotiate before settling. You have more leverage before money changes hands.
Document everything. Allocation of settlement proceeds matters for Medicaid and Medicare.
Get Help Navigating Medical Liens
Medical liens are one of the most technically complex areas of personal injury practice. The rules are different for every type of lien, and mistakes can cost you thousands of dollars—or create legal liability.
If you’re dealing with an injury claim and concerned about medical liens, call Flanagan Law at 720-928-9178. We understand lien law and can help ensure you keep as much of your settlement as legally possible.
Frequently Asked Questions
Can I just ignore liens and keep all my settlement?
No. Valid liens are legally enforceable. Ignoring them can result in lawsuits, collection actions, and (for Medicare) significant penalties. Your attorney has ethical obligations to ensure valid liens are satisfied from settlement proceeds.
Do liens reduce my attorney’s fee?
Attorney fees are typically calculated on the gross settlement before liens are paid. However, some fee agreements provide for different calculations. Review your fee agreement carefully.
What if liens exceed my settlement?
This situation requires careful analysis. Some liens (like Medicaid) are limited to the actual recovery. Others (like some ERISA plans) can theoretically demand more than you received. Negotiation is essential, and sometimes claims must be disputed or appealed.
How do I find out what liens exist?
Review your Explanation of Benefits statements from your health insurer. Check with Medicare and Medicaid if applicable. Search county records for hospital liens. Your attorney should conduct a thorough lien search as part of your case.
Sources
Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq.
Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)
Arkansas Dept. of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006)
Colorado Revised Statutes § 38-27-101 (Hospital Liens)
CMS Medicare Secondary Payer Recovery Portal
