Currently, as a general rule in personal injury cases neither party can present any evidence regarding payments made to compensate the injured person from any other party besides the defendant. These third party payments are called “collateral source” payments. The “collateral source rule” has been the law in Wisconsin since 1908. Simply put, the rule allows an individual with health insurance to recover the reasonable value of the medical treatment he received after an accident without regard to whether he received payments from a collateral source such as his health insurer.
The rationale of the collateral source rule is threefold. First, the rule seeks to deter a tortfeasor’s (wrongdoer) negligent conduct by placing the full cost of the wrongful conduct on the tortfeasor. Simply stated, when a person is negligent and injures someone the rule requires that she pay the full cost of her actions. Second, the rule serves to fully compensate the injured person. From the injured person’s perspective, she expects to receive compensation to cover all of the costs and expenses thrust upon her by the negligent party. Finally, the rule ensures that injured people receive the benefit of the premiums paid for insurance coverage that they had the foresight to purchase.
A simple example demonstrates how the collateral source rule operates in practice. Assume Jack is injured in a car accident because Sidney ran a red light and smashed into him. Jack receives medical treatment and incurs $10,000 in medical bills. Thankfully, Jack had health insurance at the time of the accident and had been paying monthly premiums for the last ten years. Jack’s health insurer negotiates a deal with his medical provider and settles Jack’s medical bills for $5,000. Applying the collateral source rule, Sidney would be required to pay the full $10,000 and would be prohibited from arguing that the true value of Jack’s medical care was only $5,000 because that is the amount that his health insurer paid. The remaining $5,000 would go to Jack as compensation for his injuries and reimbursement towards his prior insurance premiums.
Recently Wisconsin legislators have proposed legislation that would effectively eliminate the 100 year old collateral source rule. The bills have been introduced in both the Senate (SB-22) and Assembly (AB-29) and referred to the Senate Judiciary and Labor Committee and the Assembly Judiciary Committee. Hearings have not been scheduled in either committee as of the time of this blog post.
If the bill becomes a law the collateral source rule would allow a judge or jury to consider collateral source payments when determining the reasonable value of the health care services provided to the injured person. Proponents support the bill for three main reasons. First, proponents claim that eliminating the collateral source payment rule would prevent a “windfall” to the injured victim. Using the above example, the “windfall” would be the $5,000 payout to Jack after deducting for medical expenses.
Second, proponents argue that the collateral source rule results in “inflated judgments,” which causes increased insurance rates. Finally, proponents claim that there is a regional, if not a national, trend towards eliminating the collateral source rule.
Again, a simple example will demonstrate the practical effect of this proposed legislation. Assume that Jack has health insurance and is severely injured by a drunk driver. Jack receives medical care and incurs $50,000 in medical bills. Jack’s health insurer negotiates directly with the medical provider and reaches an agreement to settle Jack’s medical bills for $10,000. At trial, the drunk driver argues that the true value of Jack’s medical care was $10,000 not the full $50,000. Assume the jury accepts that argument and values Jack’s medical care at $10,000. Thus, the drunk driver receives the benefit of a $40,000 discount on the amount of damage he inflicted upon Jack. Advocates for injured persons describe this scenario as the drunk driver “stealing” the injured person’s health insurance premiums.
I strongly urge readers to contact their respective state representatives and voice opposition to this proposed legislation. First, the collateral source rule does not result in a “windfall” to an injured person as anyone who has been seriously injured in an accident can attest to. The injured person has very likely paid thousands of dollars in health insurance premiums. Thus, the current law is a common sense way to both prevent a person from being penalized for buying health insurance and prevent someone who injures another from benefiting from the injured person’s foresight in purchasing health insurance. A quick example illustrates this point. Again assume Jack was severely injured by a drunk driver and incurs $50,000 in medical bills. However, Jack did not have health insurance at the time of the accident. In the first example above, the proposed change to the collateral source rule would allow the car insurance company to argue that Jack is only entitled to $10,000 for his medical bills because that is what his health insurance company paid. However, under the scenario where Jack was uninsured, he would be entitled to the full $50,000 for his medical bills because he did not have any health insurance. Thus, the legislation penalizes Jack for working hard to buy health insurance and rewards uninsured persons for not purchasing health insurance.
Second, I am unaware of any supporting authority for the proposition that there has been a rash of “inflated judgments” during the course of the last 100 years when the collateral source payment rule has been in effect. Simply put, this argument lacks merit and is mere propaganda. Finally, if we follow the regional trend and pass legislation similar to Indiana, Minnesota, and Ohio, then we will very likely see a rise in auto insurance premiums as has been the case in those states.
Thankfully, there is still time to make a difference and oppose this legislation. I urge all readers to contact their elected representatives and ask them to vote against this bill. You can verify the contact information for your elected representatives by visiting here.