The July issue of SmartMoney may cause readers to read the fine print in their insurance polices, looking for the word subrogation, a process that allows a health plan get reimbursed for its costs if members collect on personal-injury suits. In "Adding Insult to Injury," Michelle Andrews reveals how health plans and hospitals are claiming big parts of victims' settlements.

Jim Ridler of Minnesota wishes he had scanned his policy's boilerplate before he suffered major injuries as the result of a head-on collision with a mini-van while riding his motorcycle. Although he eventually won a settlement of $450,000 from the driver of the minivan that struck him, Ridler's health plan collected $406,000 through a clause in the contract's fine print: subrogation. "I feel like I was raped by the system," said Ridler.

Hospitals have jumped into the game as well, using state statutes that allow them to place liens on an injured person's recoveries. Pam Henline of San Diego became painfully familiar with this tactic after a collision with a tow truck that partially severed her spine. She sued and won $2.5 million in various settlements related to the accident. She was still a patient at Scripps Memorial Hospital in La Jolla, California when she received her first lien notice from the hospital. Even though her health plan had paid her bill, the hospital was demanding an additional $16,000 to cover what it claimed was its actual costs. When Henline refused to pay, the hospital continued to send her notices at one point allegedly threatening to ruin her credit rating. Eventually, a judge ruled that the hospital had no right to pursue a lien on her settlement. "It's as if a paramedic saved your life but then stole your wallet," commented Henline's attorney.

Lawmakers are slowly beginning to react to this second victimization of accident sufferers. "When they (HMOs) go after compensation in excess of their costs, they're depriving victims of revenues that may be very necessary to help them recover," said California state senator Adam Schiff. As chairman of the state's Senate Judiciary Committee, he proposed a bill this year that would prohibit managed-care companies in California from collecting more than they spend on a member's care.

In Maryland, an appeals court ruled that the state's HMO Act prohibited managed-care companies from pursuing subrogation at all. "An HMO, by its definitions, provides health care services on a prepaid basis," the court said. "A subscriber has no further obligation ... beyond his or her fee." Other states are following suit.

Recent higher-court rulings in Arizona, New Mexico, Texas and Wisconsin have struck down the right of hospitals to recover additional money once they've been paid by insurers. In Georgia, a state representative introduced a bill last year to eliminate hospital liens altogether in that state.