Medical expenses are one of the most important elements of damages that are recovered in a personal injury case. With the passage of Section 41.0105, of the Texas Civil Practice and Remedies Code (“CPRC 41.0105”) in 2003, the Texas legislature greatly affected the way medical expenses are recovered and the way settlement funds are distributed among the client and the medical providers. This is because the new law essentially dispensed with the “collateral source” rule with regard to medical bills that are paid by health insurance or other health programs such as Medicare and Medicaid.
Anyone who carries health insurance probably knows that the amount that is actually billed by the doctor is not the amount that is actually paid by the insurance company. That is because the health insurance company creates provider networks and negotiates contract rates with these network providers. For instance, if you visit your doctor and the doctor charged $200, then your insurance company may pay $60 and the doctor must write-off (also known and “adjusting”) the remainder. Likewise, if you were injured in an accident and have total medical charges of $5,000, then your health insurance company might have paid $2,000, and the providers adjusted off the balance based upon their contractual agreement with the insurance company.
Prior to CPRC 41.0105, if you hired a personal injury lawyer and pursued a claim against the responsible party, you were entitled to submit and recover the total charges for your medical treatment and not just the amount actually paid or owed to the health care providers. This was known as the “collateral source” rule. The theory behind the collateral source rule was that the legally responsible party causing the injury should not benefit by the health insurance that was acquired and paid for by the injured party. Likewise, if your health care providers charged $5,000 for treatment of your injuries that you sustained in a car accident, slip and fall, etc., then you were entitled to collect $5,000 as your recoverable medical expenses.
Since the passage of CPRC 41.0105, this has all changed. An injured party can now only recover the amount that has been “actually paid or incurred by or on behalf of the claimant.” Therefore, if your medical providers in your personal injury case charged $5,000 for your treatment, but contractually adjusted off $3,000 per your health plan, then the injured party may only recover the $2,000 actually paid or owed to the providers. It goes without saying that this can drastically reduce the amount that can be recovered by an injured person and can drastically reduce the amount owed by the negligent party. This irony is further highlighted by the fact that a legally responsible defendant is now getting a break because of health benefits that the injured party acquired for their own protection.
While the Texas legislature was obviously accommodating the insurance lobby, somebody forgot that this new legislation actually hurts health insurance companies. Once a health insurance company pays for the injured person’s medical treatment, the insurance company becomes subrogated to the injury claim. This means that the insurance company is entitled to be reimbursed for the medical expenses it paid in the event there is any settlement on the personal injury claim. Therefore, it is easy to conclude that the less the injured party recovers, then the less money will be available to reimburse to the health carrier after accounting for the attorney’s fees, expenses, lost wages, pain and suffering, and other personal injury damages. Likewise, health carriers now find themselves in the unfavorable position where they must consider taking substantial reductions in their subrogation recovery in order to prompt the injured party to agree to a settlement of the underlying injury claim.