The ACA and personal injury litigation

Guest post from Victor Matheson (referee, economist and snarling jackel from the comments)

Now that the imminent threat to the ACA has passed, I would like to thank David/Mayhew for handing over the keys for a guest post about the difficulties in dealing with cases of medical malpractice and personal injury within the ACA.
Suppose David is hit by a negligent bus driver on the way home from refereeing a soccer match, and his injuries will require major surgery at some point in the future. David hires a lawyer, sues the bus company, and the lawyer hires an economist and person called a “life care planner” to figure out how much his injuries will cost him. Let’s assume the damages are limited to a single future $100,000 surgery.

Prior to the ACA, it would have been reasonable to presume that he would have had to pay for that surgery out-of-pocket. He couldn’t be guaranteed to be eligible for public insurance; the accident that caused the injuries may have forced him out of work and ended his employer-based insurance; and his pre-existing condition would have prevented him from buying individual insurance on the private markets. Thus, he should get awarded $100,000. Easy.
With the ACA, however, the story is different. David can now buy insurance despite his pre-existing condition. He can go out and purchase a Bronze plan during the enrollment period for the year he expects to need the surgery for a few thousand bucks. This will pay for the surgery and limit him to a maximum out-of-pocket cost. (The limit is $7,150 for 2017.) All in all, his surgery might cost him a maximum of $12,000. So, what should he be awarded?

If you give him $12,000, David gets his surgery at a huge discount, but the bus company gets to pass the costs of their negligence on to everyone else in the insurance pool, raising premiums for every other member. (This is actually what happens in Ohio and California under current court rulings.)

If you give him $100,000, the bus company pays the full cost for their negligence, but David still goes out and buys the ACA plan and pockets the extra $88,000. So, he gets a huge windfall, and premiums still go up. (This is the law of the land in most other states.)

In places with single-payer, like Ontario or cases in the US involving persons over age 65 utilizing Medicare, you can use what is called “subrogation.” Here David would get $100,000 from the bus company but would have to turn over everything but his out-of-pocket costs to the insurer. So, the bus company pays for their full damages, but David doesn’t end up with a windfall.

Subrogation doesn’t work for future medical bills, however, unless you know exactly who will be paying for the medical care at the time of trial or settlement. With the ACA, at the time David sues, he has no idea who his insurer might be when the time comes for his surgery. Thus, the insurer can’t subrogate the money at the time of the payout, and they can’t try to charge him more when the time comes for the surgery, because that violates the ban on discrimination based on pre-existing conditions.

Fixing this inefficiency is tricky, but it is worthwhile public policy goal considering the billions of dollars in medical malpractice and personal injury payouts for future medical care that occur each year. Bonus points for any Juicers who can solve this problem other than the obvious cure of single-payer (and not hitting David with a bus!)

33 replies
  1. 1
    Luthe says:

    (referee, economist and snarling jacket from the comments)

    I didn’t know jackets could snarl.

  2. 2
    Aimai says:

    Hm. Keep the ACA. Settlement to come out of executive pay. Used to purchase platinum plan for x number of years. Plus fine assesed to company for negligence.

  3. 3
    Baud says:

    Money goes into pool to help fund CSR payments.

  4. 4
    David Stewart says:

    Something like put David in a different pool and fund it with the lawsuit proceeds such that it doesn’t affect the normal pool? Or setting up an escrow account with the funds to pay future health expenses, not hookers and blow?

  5. 5
    Another Scott says:

    Interesting corner case (which may be more common that I realize). It’s hypotheticals like this that always make me very suspicious of “obvious solutions” to “simple problems”.

    But even this is a fairly easy case, I think. The bus company should be required (by the local and state and federal licensing bodies) to carry insurance that that covers paying for “hit by a bus” accidents, and that’s the place where “windfalls” and so forth should be addressed.

    Whether Richard-David gets a windfall or not should be decided farther up the chain (by the legislature and regulatory bodies, etc.), not (as a mater of course) in a case-by-case basis depending on whether he gets a good jury and a great personal injury lawyer, or mistakenly signs away his rights or is a victim of a bus-company-imposed arbitration clause, etc.

    There are always going to be corner cases and always the need for civil cases and juries. But the general case of what to do about people injured in transportation accidents shouldn’t be one of them.

    My $0.02.



  6. 6
    aimai says:

    @Another Scott: I like this. I don’t think that the victim’s “windfall” should factor into this at all unless we suddenly see a rash of people diving in front of buses to get the payout. The right wing fantasy, of course, about tort law.

  7. 7
    ThresherK says:

    A referee? Shouldn’t he prove his mettle with a You Make the Call post first?

  8. 8
    dr. bloor says:

    Suppose David is hit by a negligent bus driver on the way home from refereeing a soccer match, and his injuries will require major surgery at some point in the future.

    But is the bus full of hemophiliacs?

  9. 9
    AnderJ says:

    But wouldn’t this happen with every insurance in the world? I.e. it seems unrelated to the ACA.

    The solution in the Netherlands is that David would only gets awarded his out of pockets costs (as he has no other costs). The insurance company can sue for the other costs. The fact that those costs are not yet know or made is not an issue. Under Dutch procedural law, this is resolved by asking the court for a declaration of rights that defendant is liable for all damage caused by his tort/malfeasance/whatever.

    This is how it works on paper. Because in practice, the David’s health insurer would litigate directly against the bus driver’s insurance company and sue for the full costs of the surgery and pay the out of pocket costs to David.

    ps. We also know the concept of subrogation, but it seems to means something else here than with you (unless either of us is mistaken). With us it means that if party A has a claim on party B and party C pays the claimed amount to party A, party C will automatically become entitled to party A’s original claim. Usually, party C is an insurer. Take the example of a crash involving driver A and driver B for which driver B is at fault. Driver A has all risk insurance with insurer C. Insurer C will pay all damages to A, obtain its claim by subrogation and will then sue driver B (or actually his insurance, which is of course mandatory in the Netherlands)

    (take an all risk car insurance, which pays its insuree, but will start litigating against the other driver

  10. 10
    MomSense says:

    First I’d like to know where I can purchase a snarling jacket since that is exactly the kind of wardrobe staple I need for these perilous times.

    I was in a head on car collision a few years ago. Fortunately only minor injuries were involved. My insurance company paid for the services, minus my co-pays and deductible and then subrogated their portion out of my personal injury settlement. The other driver’s insurance company had to pay me for the full amount of the services plus the pain and suffering part.

  11. 11
    Tokyokie says:

    If the plaintiff in such a case used insurance coverage to cover medical costs, then require that the insurer be made a party to the tort claim. If the plaintiff prevails, then his out-of-pocket expenses are paid first, with the remainder going to the insurer.

  12. 12
    AnderJ says:

    Oops, my last line was a remnant of an earlier version of my comment.

  13. 13
    Bradley says:

    Its free riding. A perpetual problem in all walks of life–now with the ACA though, the fix costs $12K. Maybe pre-ACA you buy a policy for $25K and win. Maybe you negotiate for cash and win at $20K for a package deal.

    You don’t suggest a solution other than another system up north. Not a model here. And what are the administrative hassles of the fix that the benefits of going forward with it will overcome? Does it best what we have given the small percent of folks who undergo the scenario you describe above?

  14. 14
    MattF says:

    Hmm. Made me think of this incident where a jogger pushes a pedestrian under a bus. Fortunately for everyone, the woman was not hit by the bus, but who would have paid her medical bills if it had happened in this country?

  15. 15
    The Other Bob says:

    What if somehow these awards are placed into a private or publicly run escrow account for the future $100,000 surgery? The future insurance company could tap the escrow fund for a specified amount, with the rest covered under the policy? The award David received would need to be recorded somehow, so future insurance company would be aware of the escrow.

  16. 16
    Villago Delenda Est says:

    OK, so what if we throw David under the bus…

  17. 17
    Rebecca L Marks says:

    Not sure I would call $88,000 a windfall for someone who had to suffer what this guy suffered, including future surgery. My husband had a catastrophic accident where the 100% liable party was only carrying the minimum insurance required by our state law, which was $20,000. The other party’s insurance company was practically shoving the check into our hands on day 1, given that they knew there was no way to deny the liability, but we held out, not knowing if the liable party had private funds — so we sued. Turns out the liable party had no funds and was as poor as a church mouse, but managed to have family chip in for an additional $3,000. So my husband got a measly $23,000 for a life-changing event, and that measly $23,000 basically paid for squat that he needed in order to function. Meanwhile, his health insurance company got wind of the settlement, and wrote to us that we now owed them $23,000 under our state subrogation laws. At this point neither of us had worked for a year — him because he couldn’t, and me in order to care for him. Because his medical costs at that point were over $1,000,000 (paid for by his health insurance company), his (pro-bono) lawyer wrote to them saying essentially — “Really?!? Are you really going to go after him for this pittance — which would be a drop in the bucket for you, but which they really need?” So the health insurance company backed down. Frankly, although unusual to say this, I had loved them prior to this demand because he had a great plan, and they took really good care of us. And then I loved them again after they backed down from this demand. (Unfortunately I now work for an employer with a different insurance company). But what I’m saying is that for people whose medical bills outstrip the settlement that they can receive, subrogation is kicking someone while they’re down. Other than single payer, I suggest that the liable party’s medical insurance pay for the victim’s medical costs, and settlement money not be tied to medical costs, but go directly to the victim for pain and suffering and other damages.

  18. 18
    Central Planning says:


    I’d like to know where I can purchase a snarling jacket

    Is that anything like a smoking jacket?

    PSA: googling “snarling jacket” returns this post as the #1 result.

  19. 19
    Dean says:

    INAL, but wouldn’t the judgement against the bus company hold that company liable for the damages caused by the accident, regardless of when they are “triggered?” Does the fact that David might change insurers at some point in the process really matter?

    So, the accident happens on 1/1/17.

    David has surgery on 1/15/17, incurring the out of pocket expenses and assuming the debt associated with the balance (or his health plan assumes that debt).

    Suit settled/adjudicated on 3/1/17 in David”s favor. Payment made by the bus company to David – David pockets the reimbursement for the out of pocket expenses, and remits the balance to the facility/health plan that paid for his procedure.

    Am I missing something?

  20. 20
    What Have the Romans Ever Done for Us? says:

    I figured his insurance company, assuming they pay for the surgery, would get the leftover money from the negligent party – i.e. the $100,000, or what’s left of it after every cent of out of pocket cost David incurs for the surgery is paid to him, goes to the entity that paid the rest of the cost of surgery…his insurance company. I thought insurance companies battled each other over those costs all the time – and in fact auto rather than health insurance should be covering this particular cost as it was an auto injury. So David’s auto insurance would pay and then get the money back from the bus company’s auto insurance. Is that not how it works?

  21. 21
    Annie says:

    I worked plaintiff-side personal injury in California from 1998-2008 so I have a good deal of hands-on experience with these issues.
    First: insurance companies can and do record liens against personal injury damages and those liens must be paid first, before the injured person gets a dime. Public insurance such as Medi-Cal and Medicare also recorded liens. I assume insurers under the ACA could do the same.
    Second: The ACA was tort reform. Look, somebody who (like one of our clients) lost both legs when they got hit by a bus is not looking for a windfall. They’re looking for money to pay for future medical care. They need prosthetics. They may need a wheelchair for respite (prosthetics hurt). Prosthetics wear out and have to be replaced. One of our clients who became paraplegic lived on the fourth floor of an apartment house with no elevator. She had to find a new place to live. One woman who was sandwiched in a multi-car collision needed surgery to rebuild her jaw so she could eat. A guy with brain injury due to medical negligence needed very specific neurological rehab – available, but expensive. People sued to get money for these things. Before ACA, a really serious injury would eat up your lifetime insurance limits in a few months and then every dime was out of pocket – and expensive. If an injured person had insurance through a job and could no longer work, after a while there went the insurance. And of course they then had a pre-existing condition that made individual insurance unobtainable.
    The ACA ended all that. Now, the insurance will cover what that person needs. They don’t have to worry about losing their job-related coverage. They don’t have a maximum to burn through. So there’s a lot less motive to sue. I haven’t checked with my old shop about this, but even before ACA lawsuits from people with middling injuries – which is what you have if you get a $100, 000 damage award – were declining. So that leaves the hideous injuries at one end, and smaller injuries at the other.
    As for windfalls – the quadriplegic with the crushed spine got a lot of money but believe me he did not feel like he got a windfall. Nor did the man who had been a computer programmer til his doctors failed to catch a massive infection in time and he had cardiac arrest and brain death. But actually he was so brain-damaged we couldn’t ask him. His wife, who’s taking care of him, did not feel like she’d gotten a windfall. These people are using all their energy to get from one day to the next and the ones I dealt with were using every dime to take care of an injured person.

  22. 22
    Another Scott says:

    @Rebecca L Marks: That’s horrible. :-(

    Thanks for posting it.

    We need to fight back against the meme that every instance of “pain and suffering” is simply greedy lawyers and their clients trying to get rich. I’m reminded of Stella Liebeck


  23. 23
    JimV says:

    I’m too busy to read all the comments so I apologize for missing equal or better ideas but it seems simple to me:

    The person hit by the bus gets to sue for his or her actual costs, plus pain and suffering, and whatever insurance company or companies which pay some (probably most) of the medical costs gets to sue the bus company for their costs.

    (What we should do about lawyers and the legal system is another issue.)

  24. 24
    Rebecca L Marks says:

    @Another Scott: Thanks Scott — Yeah, I know that the Stella Liebeck story was used by all those “tort reform”-ers as some sort of proof that people sue for a stubbed toe and that companies need to be protected from them. But juries are generally not idiots – they would not have awarded SL those damages if they did not truly believe that the facts warranted it. In our case there was really no one else to sue, and no money to be had. I get the argument for subrogation, but it was really a shock to the system when we got that letter.

  25. 25
    TenguPhule says:


    First I’d like to know where I can purchase a snarling jacket since that is exactly the kind of wardrobe staple I need for these perilous times.

    Makes sure you get it in yellow.

  26. 26
    agorabum says:

    We just accept it. Society jointly pays for all medical treatment resulting from injuries, even those caused by the negligence of individual members of society.

    The bus company pays for pain and suffering damages and all economic damages caused by lost wages and other non-medical expenses, plus for all premium costs (“knowing that I’m injured, I want a gold policy going forward, not bronze”), which can still be substantial, and are sufficient to avoid the moral hazard of reckless bus companies

  27. 27
    Thrasius says:

    I work for a group health TPA (third party administrator for fully or partially self insured plans). While we don’t go through subrogation up front, we always chase situations like this one for our clients. It’s often difficult. We have to get the information from the member or use big data mining to comb through court cases and the like. Though it’s a very technical process that is not always successful.

    BTW, I’m not really an ops, let alone a subro, guy so don’t look at me like an expert on this subject.

  28. 28
    Victor Matheson says:

    Thank you to everyone for engaging on a pretty technical topic. Just a few comments.

    1. Again, getting money back for procedures that have already taken place and were paid for by insurance is both common and relatively straight-forward. It’s the future care that is the problem.

    2. My solution would be to capture excess payments in a stabilization fund that would then be distributed to insurers who take on expensive customers so it was gratifying to see roughly that suggested by others such as Baud, DS, and Bob. Maybe I can run HHS in the Baud administration.

    3. I apologize to David and he BJ community for violating protocols by not mentioning “hookers and blow” at any time in my guest post. It will not happen again.

  29. 29
    Rb says:

    I resolve healthcare liens against personal injury settlements for a living. The real problem here is that almost no injured claimant receives the full amount of cost of future (let alone past!) treatment- is ‘made whole’ in legal terms. Nowhere near it really. So that windfall you are talking about is extremely rare.

    If anyone is getting a windfall its the insurance companies who don’t spend a dime actually subrogating i.e. suing the liable party directly. Instead they just sit back and collect reimbursement out of a settlement that was secured by a pi attorney working on a contingency fee of 40%. After paying her attorney and reimbursing her insurance company the injured claimant receives a pittance.

  30. 30
    tb says:

    @Rebecca L Marks: I believe every ins. policy has subrogation. Period. When I practiced law, tort victims, when they found out about this, were livid. Your ins. co. can basically rob you of your recovery. Ins. is NOT what people think it is.

  31. 31
    Sam Dobermann says:

    @Rebecca L Marks: Toall those who denegrate lawyers:

    his (pro-bono) lawyer wrote to them saying essentially — “Really?!? Are you really going to go after him for this pittance — which would be a drop in the bucket for you, but which they really need?” So the health insurance company backed down.

    Most of the time they do a lot of good.

    But what about your own auto insurance? Didn’t you have uninsured/inadequately insured coverage? The amount you can sign up for is limited by the amount of your liability coverage. AND if you have two cars with the same coverage you can stack them.

    My sister in law was horribly injured by a crash with a drunk driver with no insurance or assets. They had $25k on each car so they collected $50k — which of course the health insurer took $40k. Her ignorant husband refused to get a lawyer because of all the propaganda but they could have sued the bar which served him his last drinks.

  32. 32
    Rebecca L Marks says:

    @Sam Dobermann: Thanks Sam – At the time he did not have uninsured/underinsured coverage as he(we) were woefully uneducated about insurance. Now of course, we are closing the barn door after the horses have escaped — we are substantially over-insured in every respect.

  33. 33
    Victor Matheson says:

    @tb: True, but you can’t subrogate future claims. David gets hit by a bus and has $100,000 in surgery and then wins a lawsuit for $100,000, the insurance company is likely to get everything. Exactly like you said.

    David gets hit by a bus and sues and wins $100,000 for future medical care, the insurer paying the bill in the future can’t subrogate the past award. That’s the big difference here.

    When you know who your insurer will be in the future, i.e. you are over 65 and on Medicare, you are covered by universal insurance in Ontario, etc., the subrogation for future care will happen at the time of the settlement/award, but there is no such possibility for people expecting coverage under the ACA.

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