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.

Take the concept, and apply it over the course of a large personal injury case due to an injury to a person on Medicaid. In such a case, it is not unreasonable to find that the actual billed cost of the medical care for the injured party is $700,000, but 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.

The at-fault person’s insurance company will be familiar with this rule, and 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 person in this example, 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 than if you are in a state where the collateral source rule does not apply, where the jury could only be presented with $250,000 of medical bills.

Having an attorney that 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.