Subrogation is the technical name for the legal right an insurer has to recover money from a settlement when it already paid for treatment, repairs, or other costs. If your health insurer pays $15,000 for treatment after an accident, and you later settle a personal injury case, your health insurer can claim a portion of that settlement to recoup what it paid.
The rules differ depending on who paid. ERISA-governed self-funded health plans have strong reimbursement rights and rarely negotiate. Fully-insured state-regulated plans are typically more flexible. Medicare and Medicaid have statutory subrogation rights that must be honored.
In a typical PI settlement, subrogation claims are negotiated at the end of the case. A skilled attorney can sometimes reduce the lien substantially. The amount that remains comes out of the settlement before the client's net recovery is calculated.