Insurance: Collateral Source Rule

In some states, the “collateral source rule” is a powerful negotiating tool you and your attorney can use to help maximize your recovery after an injury which was not your fault.

Generally speaking, the collateral source rule states that in the event your case goes to trial, you are allowed to ask the jury to award you damages for your medical bills based on the amount the care provider billed you for the services, and not the discounted rate the care provider allowed your insurance carrier to pay.

In essence, insurance companies do large volume work with medical care providers. While you may not be a frequent patient in the doctor’s office, when you add up all of the people who have the same health insurance carrier you have, your insurance carrier is paying for a large portion of a care provider’s business. The care provider essentially gives the insurance company a volume discount While the care provider may charge you $150 for a doctor visit if you pay out of pocket, they may accept $100 from the insurance carrier as payment in full for the same visit.

Note that government programs, such as Medicare and Medicaid receive discounts from care providers as well. Sometimes these are very large discounts.

Consider the application of the collateral source rule in the context of a person who has Medicaid, and who is injured in an accident. For purposes of this example, assume the medical bills are $700,000. In such a case, it is not unreasonable to learn that the Medicaid pay rate on those services is $250,000. If this case goes to trial in a state which has adopted the collateral source rule, this person would be allowed to present the jury with $700,000 of bills for their injuries, as opposed to $250,000 which the care providers actually accepted as full payment for their services.

Obviously there is a large difference between paying out $250,000 for medical bills, versus paying out $700,000 for medical bills. If you are the injured person in this example, and you are in a state where the collateral source rule applies, you can offer evidence of $700,000 of medical bills at trial. If the collateral source rule does not apply, you are going to be limited to offering evidence of $250,000 of medical bills. It is easy to see how you and your attorney can use the collateral source rule as leverage to induce the at-fault person’s insurance company to settle outside of trial for a larger amount of damages when you are in a state the applies the collateral source rule, than if you are in a state where the collateral source rule does not apply.

Having an attorney who is familiar with the collateral source rule can pay off huge dividends for you when it comes time to negotiate a settlement of your case.

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