How Does Health Insurance Affect Your Personal Injury Claim

When a person files a personal injury lawsuit one of the primary damages a party seeks to recover is their paid medical expenses. This process is relatively simple for parties that are uninsured, or do not have health insurance coverage. An uninsured Plaintiff will typically obtain medical care on a lien basis. Essentially, a doctor or medical provider will not require the patient to pay for the treatment up front, rather the doctor or medical provider will treat the patient right away and wait to be paid after the personal injury case is completed. In exchange, the patient will grant the doctor a lien against the recovery in the personal injury case pursuant to N.C.G.S. §44-49. Quantifying damages based on medical liens is straight-forward, and only requires that the care was reasonable and necessary, and the charges were reasonable. Subsequently, the entire medical bill will be presented at trial because it is a liability that the Plaintiff incurred due to the fault of the tortfeasor(s). Ultimately, if the Plaintiff is successful, the medical bills will be paid by the person who is at fault, or their insurance carrier.

Recovering medical bills is slightly different for a Plaintiff whose medical expenses were paid through health insurance or some other insurance plan. An insured Plaintiff is typically only responsible for a copayment or deductible. As such, when an injured party submits an insurance claim, their insurance carrier will cover the cost of the medical expenses initially, before any fault is determined. When health insurance pays for medical expenses, two important issues arise as to the amount a Plaintiff in a personal injury lawsuit is entitled to: subrogation and “paid or incurred” rule.

In a health insurance plan policy, there is probably a provision or clause titled “Subrogation.” The purpose of a subrogation clause to ensure the policy-holder that in the event of an accident, the health insurance plan will pay for any medical care that the policy-holder incurs as a result of their injuries. However, if the policy-holder seeks to recover damages for medical expenses against a third-party, in a settlement or lawsuit, the health insurance company is entitled to the proceeds to reimburse the health insurance company back the amount the insurance company paid. So a Plaintiff can recover the medical expenses in a personal injury lawsuit, but depending on the Plaintiff’s health insurance policy, he/she may have to use the proceeds to pay the health insurance company back.

Naturally, an opposing party in a personal injury lawsuit usually seeks to have the medical expenses excluded from the damages award because the medical bills were paid by a health insurance policy.  However, Courts have frequently stated that a person who has invested years of insurance premiums to assure his medical care should receive the benefits of his thrift. Further, a Defendant, or tortfeasors, should not garner the benefits of the victim by reducing his/her obligation to a victim based upon their foresight of purchasing health insurance. In North Carolina, this is known as the “collateral source” rule. The collateral source rule simply states that damage awards shall not be reduced by the amount the plaintiff has received as compensation for his injuries from other sources, such as insurance. It follows, evidence of such payments is inadmissible at trial. The collateral source rule provides a mechanism to transfer risk from the insurance carrier to the at-fault party in a personal injury lawsuit.

The next issue that arises is known as the “paid or incurred” rule. As anyone who has submitted an insurance claim knows, health insurance carriers almost never pay medical bills in full. Oftentimes, a rate reduction is negotiated by the carrier with the doctor, hospital, or other medical providers. As a result, a procedure that may cost a person without health insurance may be priced at $5,000, but a health insurance company may be able to negotiate a price of $4,200 for the same procedure done. Therefore, when a policy-holder gets the procedure done, the bill will be for $5,000, but there will be a contractual adjustment of $800, and the health insurance company will only have to pay $4,200 to pay for the procedure in full.

Traditionally, the rule was the at-fault party should not receive any sort of benefit from a party that purchased health insurance. As such, a case that goes to trial would ask the jury to award the full value of the procedure, which, in the example above, would be $5,000. The jury would not be informed that the health insurance policy paid for the medical bills or that there was a rate reduction. In response, the legislature in 2003 adopted a rule that stated “recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.” Here, paid would certainly mean the discounted rate, however, incurred would be understood to mean the full amount of the bill. With the language of “paid or incurred” being contradicting, a questioned arose as to whether the Plaintiff could recover the lesser of the amount paid or incurred, or the greater of the two amounts.

In 2011, speaking directly to the issue, Rule 414 of the North Carolina Rules of Evidence resolved the confusion.

Rule 414 states: “Evidence offered to prove past medical expenses shall be limited to evidence of the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied. This rule does not impose upon any party an affirmative duty to seek a reduction in billed charges to which the party is not contractually entitled.”

Rule 414 is “intended” to prevent Plaintiffs from being overcompensated, however, it may have an impact on the value a Plaintiff can recover in a personal injury claim. Excluding evidence of the amount the Plaintiff was billed for medical treatment can prevent the jury from assessing the full value of the treatment, and more importantly, the severity of the Plaintiff’s injuries. Typically, the billed amount helps the jurors to determine the amount to award the Plaintiff for pain and suffering. Understanding the intersection between personal injury lawsuits and health insurance policies is useful when building your claim.

Contact the personal injury attorneys at Rosensteel Fleishman Car Accident & Injury Lawyers to evaluate your case.  You will speak with an attorney who can answer your questions and go over your options.  There is no fee for the initial consultation.