|August 28, 2014|
Previously published on September 1, 2014
The Affordable Care Act changes the insurance environment in Pennsylvania because it requires citizens to purchase health insurance.
Because the Affordable Care Act requires health insurance coverage, it may be easier to calculate a personal injury victim’s award of future damages for medical expenses.
In the wake of the Affordable Care Act, Pennsylvania may take this opportunity to revisit the computation of future damages in medical malpractice litigation.
In light of Pennsylvania’s history of creating unique laws surrounding medical malpractice litigation, Pennsylvania law may eventually limit the use of life care plans or at least permit evidence to counter life care plans.
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (the Affordable Care Act or ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010) into law. Commonly referred to as “Obamacare,” it is generally considered the most significant statutory reform of the United States health care system in decades. See Wilson Huhn, J.D., Constitutionality of the Patient Protection and Affordable Care Act Under the Commerce Clause and the Necessary and Proper Clause, 32 J. Legal Med. 139, 140 (2011). The law’s fundamental purpose is “to increase the number of Americans covered by health insurance and decrease the cost of health care.” Nat’l Fed’n of Indep. Bus. v. Sebelious, 132 S. Ct. 2566, 2580 (2012).
Without commenting on the wisdom of the Affordable Care Act, the reality is that it has withstood legal challenges by 26 of the 50 states and scrutiny by the United States Supreme Court; it is, therefore, the law of the land. The Affordable Care Act can and may very well have an impact on a wide variety of social and legal issues, one of which is the award of future damages in medical malpractice litigation. This begs the question: to what extent will the Affordable Care Act affect Pennsylvania law surrounding future damages in medical malpractice litigation?
Pennsylvania has demonstrated a unique willingness to address issues and costs associated with medical malpractice litigation through both the legislature and the courts in ways that, to our knowledge, have not been seen in other areas of litigation. Consequently, the Affordable Care Act will likely have an impact on Pennsylvania law by enticing the legislature or the courts to revisit the issue of the proper computation of future damages and limit the award of damages for future medical costs to the actual amount to be incurred.
The Collateral Source Rule
Essentially, every state—including Pennsylvania—has adopted the collateral source rule. See Rebecca Levenson, Allocating the Costs of Harm to Whom They are Due: Modifying the Collateral Source Rule After Health Care Reform, 160 U. Pa. L. Rev. 921, 922 (Feb. 2012); Beechwoods Flying Service, Inc. v. Al Hamilton Contracting Corp., 476 A.2d 350, 352 (Pa. 1984). In general, under the common law, the collateral source rule prohibits an injured plaintiff’s recovery of damages for reasonable medical expenses from being reduced by payments or benefits simply because coverage for the injury was provided by some collateral source—i.e., insurance coverage.
At its core, the collateral source rule aims “to prevent a wrongdoer from taking advantage of the fortuitous existence of a collateral remedy.” The rationale is that it is better for the plaintiff to receive a potential windfall than for the wrongdoer to be relieved of responsibility for his or her wrong. Johnson v. Beane, 664 A.2d 96, 99 (Pa. 1995).
Medical liability issues have historically troubled Pennsylvania. By the mid 1970s, there was a lack of adequate medical malpractice insurance coverage in Pennsylvania, and many physicians were fleeing the Commonwealth to practice elsewhere. See Charles A. Castle, M.D., Medical Liability in Pennsylvania: An Uncertain State, J. Lancaster Gen. Health, Vol. 3, No. 1 (Spring 2008). Pennsylvania was facing a potential shortage of physicians, which was exacerbated by drastically increased costs of liability insurance and skyrocketing medical liability awards. This resulted in a significant public policy concern—that Pennsylvania citizens would not be able to obtain access to top quality medical care within the state’s borders.
To address this crisis, in 1975 the Pennsylvania General Assembly enacted the Health Care Services Malpractice Act, 40 P.S. § 1301.101 et seq., which resulted in the creation of the Medical Professional Liability Catastrophe Loss Fund, also known as the “CAT Fund,” to encourage private insurance companies to provide coverage at reasonable rates and fair compensation to injured persons. However, it soon became apparent that there were a number of problems with that law.
In 2001 the Pennsylvania Supreme Court significantly modified the collateral source rule by ruling that a medical malpractice plaintiff’s recovery of damages for past medical expenses was limited to the amount actually incurred. See Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786, 789 (Pa. 2001), overruled in part, Northbrook Life Insurance Co. v. Commonwealth, 949 A.2d 333, 337 (Pa. 2008). In other words, a plaintiff in a medical malpractice lawsuit was not entitled to recover the “full cost” of past medical expenses—including the amount written-off by insurance—because no collateral source actually paid that amount.
In 2002 the Pennsylvania General Assembly took it a step further. It repealed the Health Care Services Malpractice Act and replaced it with the Medical Care Availability and Reduction of Error Act, 40 P.S. § 1303.101 et seq., which abrogated the collateral source rule in medical professional liability actions. The MCARE Act provides, with four limited exceptions, that claimants in medical professional liability actions are precluded from recovering past medical expenses paid by a collateral source.
Additionally, the MCARE Act limits future damages. In awarding future damages, medical expenses are a distinct item and the jury must calculate the payments on a yearly basis for the expected life of the plaintiff. Under MCARE, the defendant is permitted to purchase an annuity contract to pay for the plaintiff’s future medical care. In most cases, that will be far cheaper than paying for the full amount of the plaintiff’s future medical care. In addition, MCARE limits payments for future medical expenses to the life of the plaintiff.
Life Care Plans
Before the Affordable Care Act was passed, there was no universal access to medical care. It was speculative whether an individual would have health insurance coverage in the future. As a result, plaintiffs’ attorneys were permitted to put on evidence projecting the cost of the victim’s medical expenses into the future. Many times this was accomplished by the use of life care plans.
Life care plans are the single largest component of every medical malpractice or catastrophic loss case. They are premised upon the assumption that the plaintiff will not have insurance coverage in the future, and consist of dollar-for-dollar projections of the future costs for medical expenses without the benefit of any insurance reduction. Life care plans almost always project massive expenses that, in turn, drive the big jury verdicts.
The law in Pennsylvania is and has been that plaintiffs’ attorneys can argue that the plaintiff will incur the full amount of the medical expenses projected in the life care plan. One of the biggest obstacles for defense lawyers is that they have not been permitted to counter that argument with evidence of the actual amount that will need to be incurred to provide for the future health care for the plaintiff versus the projected amount that, in all likelihood, will never be incurred.
The Affordable Care Act is effective, valid and enforceable. We are now in an era of a drastically different insurance climate: everyone has access to health insurance and everyone knows it.
One of the key (and controversial) parts of the law is the so-called “individual mandate” which requires, with few exceptions, that every American citizen purchase a health insurance policy. The law is enforced through the Internal Revenue Code. Americans are compelled to purchase health insurance, or they incur a tax penalty. Importantly, the Affordable Care Act prohibits discrimination on the basis of pre-existing conditions. It also guarantees private insurance coverage with renewability.
This, of course, does not come free. Individuals must pay a yearly premium. Moreover, there are out-of-pocket expenses that most Affordable Care Act participants will incur, which are capped to a maximum amount.
The speculative nature of whether an individual will have health insurance coverage in the future is no longer speculative and neither is the cost. In fact, it can be calculated within a reasonable degree of precision.
Recently, Joshua Congdon-Hohman and Victor A. Matheson, two economists at the College of the Holy Cross, published a study on this very issue. See Joshua Congdon-Hohman & Victor Matheson, Potential Effects of the Affordable Care Act on the Award of Life Care Expenses, 8-12 (Sept. 2012). Drs. Congdon-Homan’s and Matheson’s study concludes that, under the Affordable Care Act, the life care costs for medical care for any victim of an accident are limited to the legal maximum out-of-pocket expenses allowable under the law per year (less any government subsidies) plus the cost of a typical health insurance policy.
Impact on Pennsylvania Law
Over the years, Pennsylvania has demonstrated a willingness to treat medical malpractice litigation differently than other areas of litigation and to protect health care providers to ensure access to quality care. The Pennsylvania Supreme Court in Moorhead limited past medical expenses to the amount actually incurred. The General Assembly has abrogated the collateral source rule in medical malpractice lawsuits and also limited future damages.
Added to that equation is the fact that the federal government, vis-à-vis the Affordable Care Act, requires all Americans, with few exceptions, to buy health insurance and forbids insurance companies from discriminating against individuals with pre-existing conditions. Whether an individual will have insurance is no longer speculative—it’s actually quite certain—and the costs can be calculated within a reasonable degree of certainty.
As of the time of the writing of this article, although this issue has never been litigated in Pennsylvania, there is no reason to believe that Pennsylvania will not follow the trend of limiting costs to the amount actually incurred. In our view, at some point, the law in Pennsylvania will be that the award of future damages for medical expenses are limited to the actual cost of going out and buying health insurance coverage for the plaintiff or, at the very least, defense attorneys will be permitted to refute life care plans with evidence of the actual cost of insurance coverage to care for the plaintiff for the remainder of his or her life.
This could happen in a couple of ways: (1) the General Assembly may legislate in the wake of the Affordable Care Act; or (2) the courts may rule on this issue. Perhaps history will repeat itself and the Pennsylvania courts will rule on this issue, which will prompt the General Assembly to step in and legislate.