The Collateral Source Rule and Medical Expenses: Anticipated Effects of the Affordable Care Act and Recent State Case Law on Damages in Personal Injury Lawsuits

Article excerpt

THE UNITED STATES Supreme Court's 5-4 decision in National Federation of Independent Business v. Sebelius (1) was one of the most anticipated Supreme Court decisions in recent years. The primary issues--the breadth of the commerce clause, the necessary and proper clause, Congress's taxing power, and the expansion of Medicaid--involve significant constitutional questions and consequences for the health care industry in the United States. But the effective result of "universal coverage" may, and should, have significant consequences for another industry--personal injury lawsuits--where a significant driver of verdicts and settlements is the amount of medical expenses that are legally recoverable and admissible as evidence. The most recent study by the U.S. Department of Justice, Bureau of Justice Statistics reported that personal injury plaintiffs filed approximately 15,624 personal injury lawsuits in the state courts of the 75 most populous counties in the country in 2005, (2) with a median recovery of about $33,000. (3) The most recent study of federal courts reports that 1,464 personal injury lawsuits were tried before a judge or jury in federal courts in the 2002-2003 fiscal year (4) with an estimated median recovery of $150,000-200,000. (5) As 96% of personal injury suits never reach trial, (6) it is immediately apparent that a tremendous amount of money is paid for medical expenses in personal injury verdicts and settlements.

With President Barack Obama's reelection, the future of the Patient Protection and Affordable Care Act, the centerpiece legislation of his first term, now appears secure. The Act, signed into law in March 2010, includes a number of provisions intended to make insurance more accessible to currently uninsured Americans. Provisions including the individual mandate (the legal requirement that an individual purchase health insurance or be taxed for the failure to do so), and the requirement for insurers to offer the same premiums and coverage to all similarly-situated applicants despite preexisting conditions, as well as the establishment of health insurance exchanges and federal subsidies, are aimed at reducing the number of uninsured residents by as much as 30 million by 2019. (7) If these estimates prove accurate, the total percentage of American residents who use health insurance to pay their medical expenses will increase to 93%. (8)

As the number of uninsured residents in the United States declines, and as payment for health care services becomes almost exclusively the territory of health insurers, and not patients, a number of traditional and more recent tort rules are likely to be, and should be, impacted. More specifically, the collateral source rule, which disallows a tortfeasor from reducing his damages liability when the injured party's medical expenses are covered by insurance or another collateral source, may become almost a mere truism because virtually everyone will be covered. Even when the collateral source rule is not directly implicated, the presentation of evidence and award of damages in personal injury suits are likely to be impacted. As health insurance becomes not just common, but the exclusive method of transacting for health care services, the relevance of the "list price" of health care services could dwindle to almost nothing. This is especially true in the world of personal injury lawsuits and medical expenses, which constitute a large percentage of the damages for those suits and serve as gauges for settlements of these claims. As health insurance becomes almost universal, the so-called "list price" of health care services should not be the gauge of damages awarded for past or future medical expenses for much longer.

I. Health Care Insurance and the Collateral Source Rule

A. Historical Evolution of Health Care Insurance

Before 1920, health insurance as we would recognize it today did not really exist in the United States. In 1929, the precursor to Blue Cross was founded in Dallas, Texas, when a group of teachers contracted with Baylor University Hospital to pre-pay for hospital services. …