In previous posts, we discussed how the Affordable Care Act may be the death knell of the common law collateral source rule, which prevents defendants from introducing evidence that a plaintiff's future medical expenses will be covered by insurance. At a minimum, the ACA undercuts the main rationale for the rule-that tortfeasors should not benefit from a plaintiff's responsible choice to purchase insurance-because nearly every billed expense is more than the actual amount paid and because a plaintiff is almost guaranteed to have some coverage.
In this post, we review the Supreme Court's recent decision in King v. Burwell (June 25, 2015) discussing the ACA and, briefly, a perceptive article on the topic by Ann S. Levin available here: http://www.uclalawreview.org/the-fate-of-the-collateral-source-rule-after-healthcare-reform/.
King v. Burwell and Health Insurance Reform
Early in the Majority's opinion (6-3), Chief Justice Roberts provided a brief history of health insurance reform, which ultimately provided the justification for how the Court interpreted the disputed provisions of the Affordable Care Act. Roberts writes that, in the 1990s, the States began experimenting with ways to provide more access to insurance coverage. Two requirements became popular: a "guaranteed issue" requirement that barred insurers from denying coverage because of a person's health and a "community rating requirement" that barred insurers from charging a person higher premiums for the same reason.
However, many states that adopted such reforms went into an economic "death spiral" as the reforms encouraged people to wait until they were sick to buy insurance, forcing many insurers out of business. For example, in Washington, it only took six years for 17 out of 19 of the State's private insurers to leave the market after the adopted reforms put them in economic straits.
In 1996, Massachusetts adopted the guaranteed issue and community rating requirements, but added two reforms in 2006 that ultimately reduced the uninsured rate to 2.6%, the lowest in the nation. The 2006 reforms were (1) requiring individuals to buy insurance or pay a penalty, and (2) giving tax credits to certain individuals who could not afford insurance.
The Supreme Court's Decision
Writing for the majority, Roberts concludes that the Affordable Care Act was intended by Congress to mimic the reforms in Massachusetts. It was also meant to adopt the guaranteed issue and community rating requirements and combine them with the penalties and tax credit requirements. Roberts states these reforms would not work without each other, which is why they were adopted on the same day, January 1, 2014. Ultimately, Roberts denied the petitioners' claim that Virginia's Exchange was not "an Exchange established the State" under 42 U.S. §18031 and thus the petitioners were required to purchase insurance or pay a penalty.
Because the Supreme Court in King so heavily emphasizes that States need all of the Act's reforms to properly run a health care system, the Court undercuts the central rationale behind the collateral source rule. The collateral source rule, according to plaintiffs, prevents the Defendant from benefiting from the Plaintiff's choice to purchase insurance.
But if some individuals are given tax credits for their insurance and others given penalties for not complying with the ACA, courts should not analyze that the Plaintiff's choice to purchase insurance in a vacuum. The "community rating" requirement-stipulating that insurers can no longer individualize a Plaintiff's premiums through claim and personal health history-seems to presume that insurance should be equally shouldered by all and equally provided to all. And because insurers can no longer deny a person coverage under the "guaranteed issue" requirement, the meaningfulness of a Plaintiff's choice to purchase insurance is null.
Furthermore, the ACA provides that insurance plans offer certain minimum benefits that will largely offset a Plaintiff's costs:
All insurance plans under the ACA must provide certain required benefits, including ambulatory patient services, emergency services, hospitalizations, mental health care, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, chronic disease management and other services that would subsume most if not all of plaintiffs' future medical-care cost.
Bruce G. Fagel, The Collateral Source Rule under the Affordable Care Act: The Need to Prevent a Double Discount of Plaintiff's Future Medical-Care Cost Damage, available at http://www.fagellaw.com/documents/The-Collateral-Source-Rule-article.pdf.
The Future of Future Medical Expenses
Already, some states have adopted reforms to allow defendants to introduce evidence that the plaintiff's future medical expenses should be offset by the costs covered by insurance. As Ann S. Levin points out, there would be several methods for calculating such expenses, which the courts might adopt: (1) the amount billed (the "collateral source" rule), (2) the negotiated reimbursement rate-the amount actually paid by the insurance company to satisfy the bill; (3) the negotiated reimbursement rate plus premiums-the negotiated rate plus a portion of the premiums that the Plaintiff paid to the insurance company to make that rate possible.
Of these alternatives, the last is likely the most reasonable. Plaintiffs should not get a double-recovery when they are involved in an accident, but defendants should also pay a court-determined portion of the premiums that would compensate the plaintiff for the premiums she paid. Defense counsel should argue, and be mindful that, these reforms will benefit the practice of law.