Insurance Law – Accident victims can’t recover more than the amount of their medical bills paid by their health insurer

Insurance companies scored a big victory with the California Supreme Court’s recent decision in the case of Howell v. Hamilton Meats & Provisions (click here for the Google Scholar version of the decision).  In personal injury/accident cases the accident victims are allowed to recover, among other things, the reasonable cost of medical expenses for treatment related to the accident.  For those with health insurance, as you probably know, the health insurers negotiate reduced rates with hospitals and doctors so that the hospitals and doctors accept discounts, often times substantial discounts, from their normal billed rate.

In the Howell case, Howell was seriously injured in an auto accident and received substantial medical treatment. The billed amount of her treatment was about $190,000.  However, since Howell had health insurance, the hospital and doctors ended up accepting only about $60,000 for Howell’s treatment.

Therefore, the California Supreme Court held that regarding the amount of medical expenses recoverable by Howell, she could only recover the amount actually paid for her treatment, $60,000, even though the reasonable value or market value of her treatment arguably exceeds $60,000.

There are 2 big side-effects of this ruling.  The first side effect is that it causes a situation where an uninsured person has a better case than an insured person because the uninsured person with Howell’s injuries can claim $190,000 in medical expenses while Howell can only claim $60,000.  A general legal principle called the “collateral source rule” says that if an injured person is compensated for his injuries from someone besides the tortfeasor, that payment shouldn’t be taken into account in figuring out the amount of the injured person’s damages.  The California Supreme Court decided the collateral source rule did not apply to health insurance and limited the recoverable amount to the actual amount paid, even though the majority of other states allow the injured person to recover the reasonable value of the medical treatment, even if that exceeds the actual amount paid.

The second side effect is that as a practical matter, the amount of money awarded for pain and suffering is often based on the amount of medical bills (in general, in personal injury cases you can recover the amount of medical bills, property damage, lost earnings and earning capacity, and pain and suffering: it is common for pain and suffering to have the most value out of these damage categories).  Therefore, the value of many personal injury cases will be substantially reduced because, as seen in Howell, if there is health insurance the amount of medical bills will probably be less than 50% what they would have been if there was no insurance: for Howell, the pain and suffering is based on $60,000 in medical bills instead of $190,000.  Also, the Howell case was silent on how the difference in the billed rate and the amount paid makes a difference in figuring out the amount to award for pain and suffering: arguably plaintiffs will now not be able to even refer to the billed medical expenses to explain the extent of their injuries (meaning, if the jury is barred from hearing that the billed medical expenses were $190,000 and only hears the medical expenses were $60,000, a pain and suffering award is be smaller).

For more on this case, see this Sacramento Bee blogpost on the case, an interview with the appellate lawyer representing Howell, and a pro-insurer view of this case.

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