Wednesday, February 3, 2016

Collateral Source Rule and Benefits to Injured Citizens

Legislators have again proposed changes to the Collateral Source Rule in Wisconsin.  This evidentiary rule has been in place in Wisconsin for over 100 years.  The rule protects innocent, injured citizens of Wisconsin in their ability to fully recover sums of money they are legally entitled to for their injuries.  The changes would do away with that, and allow a wrongdoer to benefit from the fact that the injured party had the foresight to buy health insurance to help cover medical costs.  This would be a "windfall" for the wrongdoer and his or her liability carrier.

Below is the letter I sent to Senator Vukmir.  I encourage all of you to use this as a template and contact your representatives and oppose changes to the Collateral Source Rule.  The proposed changes negatively impact hard working citizens who have paid insurance premiums in order to help with medical costs, especially in the event they are injured by a wrongdoer.

February 3, 2016

Senator Leah Vukmir
131 South, State Capitol
P.O. Box 7882
Madison, WI 53707-7882

            RE:      SB 22:  Collateral Source Bill

Dear Senator Vukmir:

            I am an attorney practicing in Wauwatosa and I am a resident of your District, residing in Wauwatosa.  I am writing you regarding SB 405, a proposed Bill to abrogate the Collateral Source Rule in Wisconsin. The purpose of this letter is to provide you with some additional information regarding this fairly complicated issue in the hopes that you will consider opposing this legislation in its entirety.

1. Introduction to the “Collateral Source Rule.”

            The target of this bill is a Wisconsin law known as the “Collateral Source Rule.” The Collateral Source Rule has been a part of Wisconsin law since at least 1908. Wisconsin courts have long recognized that an injured party has a right to recover from the wrongdoer “the reasonable value of the medical treatment reasonably required by the injury.”  This rule is based on “Wisconsin’s significant interests in fully compensating victims of ordinary negligence.”  The “Collateral Source Rule” prohibits the introduction of the amount actually paid by the injured party’s health insurer for medical treatment in order to prove “the reasonable value of medical treatment.”

            Those who advocate for a change in the law characterize this rule as allowing a “windfall” or “phantom damages” because it allows an injured party to recover past medical expenses that exceed the amount actually paid by the injured party’s insurer.  This is an incorrect view of the operation of the collateral source rule that runs counter to the most recent rulings from the Wisconsin Supreme Court.

            The collateral source rule was recently reaffirmed by all the Justices currently sitting on our Supreme Court in the decision in Orlowski v. State Farm Ins. Co., including those Justices with a long history of protecting the interests of Wisconsin’s business community.  In Orlowski, the court recognized the significant benefits associated with the current rule: 

       First, the rule deters a wrongdoer’s negligent conduct by placing the full cost of the wrongful conduct on the wrongdoer.

       Second, the rule assures that the injured party is fully compensated (“The collateral source rule protects plaintiffs by guarding against the potential misuse of collateral source evidence to deny the plaintiff full recovery to which he is entitled.”)

       Third, the rule allows the injured party to receive the benefit of the premiums paid for coverage that he or she had the foresight to purchase. 

            In fact, the court in Orlowski addressed head-on the very argument raised by proponents of this change in the law, rejecting the “phantom damage” argument based on the recognition that the injured party has paid premiums for health insurance coverage and should receive the benefit of these premiums, not the wrongdoer. There is nothing irrational or unfair about a rule that prohibits a wrongdoer from benefitting from the planning and foresight of an injured party, who has the wisdom to plan ahead and purchase insurance.  In addition, the proposed elimination of the collateral source rule will impose a greater burden on the health care providers that treat the injured party and the insurers that provide their medical coverage.

2. How Changing the Law Penalizes Workers with Insurance.

            Explaining how the current law works and how changing the law will penalize those who buy health insurance is best shown by example. I will compare John, who has health insurance, to Doug, who does not have health insurance.

            John lives is New Berlin and is a productive member of society who works at Buy Seasons, Inc. John’s employment with Buy Seasons includes health insurance. As with all workers, John pays premiums for this health insurance. As John leaves work, he gets into an auto accident because a drunk driver runs a stop sign. As a result of the accident, John has to go to the emergency room. The emergency room charges John $10,000 for its services (the reasonable value of its services). John sends the bill to his health insurance. John’s health insurance pays $7,000 for the emergency room services because of the premiums John paid for his health insurance and because this amount was agreed upon by John, through his health insurance, and the emergency room.

            Under the Collateral Source Rule as it exists today, the auto insurance company for the drunk driver who ran the stop sign has to pay the reasonable value of the services John received at the emergency room without regard to what John’s health insurance paid. Stated another way, the drunk driver cannot argue that he/she should only have to pay $7,000. Under the Collateral Source Rule, the drunk driver does not get to benefit from John having worked hard to buy health insurance. Rather, John is entitled to the full amount charged by the emergency room and the drunk driver cannot argue that John is entitled to the discounted amount paid by his health insurance.

            SB 22 seeks to change the current law to penalize John for having worked hard to buy health insurance. Under the proposed change, the drunk driver would be allowed to argue that John is not entitled to the full amount billed by the emergency room ($10,000) but rather is only entitled to the discounted amount paid by John’s health insurance ($7,000). Under the proposed change, the drunk driver benefits from John having purchased health insurance.

            Now let’s compare John’s situation to Doug, a person who does not work and does not buy health insurance. Doug gets into the same auto accident and incurs the same $10,000 in expenses from the emergency room. Comparing Doug to John, Doug would be allowed to recover $10,000 for his medical bills (because he had no health insurance) and there would be no “Collateral Source” evidence introduced to allow for any reduction in this recovery.  Thus, changing the Collateral Source Rule penalizes John for working hard to buy health insurance and rewards Doug for not working hard to buy health insurance.

3. Response to the Issues Raised in Support of Changing The Law.

            Those advocating for a change in the law cite three reasons. First, the proponents state that the changing the law will prevent a “windfall” to the injured victim. Simply stated, this is wrong because the victim has paid thousands if not tens of thousands of dollars for health insurance premiums. The current law does not result in a windfall to anyone; rather, 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 buying health insurance. As explained by Justice David Prosser in 2011, a windfall would occur to a negligent driver and his auto insurance company if the Collateral Source Rule was changed. In the case of Fischer v. Steffen, Steffen injured Fischer in an auto accident. Fischer incurred $12,157 in medical expenses. All of the medical expenses except $2,157 were paid by Fischer’s insurance. Steffen argued that he only had to pay the amount not written off by Fischer’s insurance ($2,157) rather than the amount incurred by Steffen ($12,157). Justice Prosser wrote:

“The most striking fact about this case is that defendant Steffen caused $12,157.14 in medical expenses to Fischer but has been relieved of the burden of paying all but $2,157.14 toward these expenses. As a result, Fischer is being punished for their foresight in purchasing [ ] insurance with coverage for medical expenses, while Wilson Mutual (Steffen’s auto insurance company) receives a $10,000 windfall.”

            Second, the proponents state that the current law results in “inflated judgments” that result in increased insurance rates. There is no evidence to support this conclusion.  The Collateral Source Rule has existed in Wisconsin for over 100 years and no Wisconsin appellate judge or Supreme Court justice has ever said that the current law results in “inflated judgments.” 

            Third, the proponents state that a change in the law will bring Wisconsin in line with Indiana, Minnesota and Ohio. Following that logic, auto insurance premiums would likely increase as the average auto insurance premium in these three states is higher than Wisconsin. Specifically, Indiana’s average auto insurance premium is $2.47 per year less than Wisconsin while Ohio’s and Minnesota’s average auto insurance premiums are, respectively, $10.96 and $189.18 per year higher than Wisconsin.   There is no correlation between the elimination of the Collateral Source Rule and reduced insurance premiums.

4. Changing the Collateral Source Rule will have the Unintended Consequence of Increasing the Costs of Healthcare in Wisconsin.

            In addition, a change in current law will likely have significant consequences for health care insurers and health care providers in Wisconsin.  In most personal injury claims, the interests of the health care insurers and health care providers are directly aligned with those of the injured claimant either as a result of their right of subrogation or their assertion of a lien for recovery of health care expenses.

            There are numerous adverse risks to Wisconsin’s business community that are the unintended consequences off this proposed change in Wisconsin law.  Health insurers face the very significant risk of greater involvement in personal injury litigation as a result of expanded written discovery and depositions seeking information on the basis for their reduced reimbursements.  In addition to the costs associated with this discovery, there is also substantial risk of unwanted disclosure of the confidential negotiations between health care providers and insurers that form the foundation for the contractually reduced health insurance payments.  These additional costs and inconvenience will have an adverse impact on the bottom line for health insurers with subrogated claims.  In addition, the proposed legislation creates additional risk of reduced recovery of claims in settlement or the extinguishment of subrogated claims after settlement.  Reduced recovery and increased costs will result in increased health insurance premiums being passed on to your constituents. 

            Passage of this law will also result in increased costs to Wisconsin taxpayers.  The costs to the State of Wisconsin Medicaid program in reduced recoveries of State Medicaid funds through subrogation has been estimated by representatives of the DOJ and DHS as being “significant” if SB 405 becomes law.  It would be fiscally irresponsible to penalize Wisconsin taxpayers in an effort to benefit liability insurance carriers in this state.

            The adverse consequences of this legislation will impact not only health insurance carriers and state taxpayers, but also health care providers.   Although the legislation indicates that the bills and invoices, once submitted, create a presumption that the amount contained in the bill or invoice represents the reasonable value of the services provided, this presumption is now easily rebutted by the admission of the amounts paid by collateral sources, evidence that is currently inadmissible.  Once evidence of collateral source payments is introduced in the litigation, any presumption of reasonableness of the amounts billed evaporates, and the issue of reasonableness becomes a question of fact in the lawsuit.  The consequences for health care providers are significant.

            First, health care providers will be subject to subpoena in every personal injury claim to testify as to the basis for the amount billed to the patient and also to testify as to the basis for the contractually negotiated reduced sum paid by the patient’s insurer.  In situations where there exists no health insurance or where the provider decides to forgo the submission of the bill to insurance or to government agencies for reimbursement, the health care provider lien will be subject to attack by both the defendant and the plaintiff regarding the reasonable value of the service.  Evidence will now be admissible regarding amounts accepted by the provider from collateral sources such as insurance carriers and government funded health programs.  These adverse consequences will only increase costs to health care providers and reduce recoveries, which will naturally be reflected in additional increased costs of healthcare to your constituents.

            The primary entities that benefit from the proposed change in the collateral source rule are the property and casualty insurers that provide liability coverage to the negligent parties.  The legislation allows the wrongdoer and his/her insurer to benefit from the planning and foresight of the injured party and the premium funded benefits negotiated by the injured party’s employer and/or insurer.  Most importantly, it does so at increased cost and risk to health care insurers and health care providers in Wisconsin.  It is legislation that, at first blush may seem logical, but in reality is not in the interests of Wisconsin’s business community or is citizens.

            I apologize for the length of this letter, but I wanted to adequately cover the important issues surrounding this proposed drastic change in Wisconsin law.  I am always willing to sit and answer any question that you might have regarding any of the issues raised above.  Just have your staff contact me and I will make myself available.

Very truly yours,

James P. Scoptur