How Will the Changes to Insurance Impact Personal Injury Cases?
From the Health Care Group
The Patient Protection and Affordable Care Act (the “ACA”) is the most sweeping healthcare law in decades. It has three overarching tenets:
- All persons will be required to obtain health insurance or pay a tax penalty;
- All health insurance policies must comply with certain minimum requirements regarding the scope of coverage and permissible restrictions on coverage; and
- The federal government will implement a series of economic incentives and subsidies to facilitate widespread adoption and issuance of health insurance throughout the United States.
Like any broad, wide-ranging legislation, the ACA will have significant effects in related areas, including personal injury litigation. These materials briefly identify areas of significant change in how health insurance will work under the ACA, and what it means to settlement and resolution of personal injury claims. The focus here is on effects and interactions under Washington law, and it is important to remember that the impacts will be different in different states, due to underlying variations in tort law, evidence rules, statutory damages caps, and more. The main changes to insurance laws are addressed in turn, each followed by a discussion of ways in which these changes may affect resolution and management of personal injury claims.
A. The “Individual Mandate” Requirements and Exemptions
At the center of the ACA is the requirement that all citizens purchase health insurance or pay a tax penalty. Beginning in 2014, the law requires that individuals must maintain “minimum essential coverage” for themselves and their dependents. This “individual mandate” provides that one must either be insured or pay a tax (which penalty is colorfully identified in the text of the Act itself as the “individual shared responsibility payment”). The underlying policy is that widespread purchase of insurance will help maintain affordability and increase competition, while allowing insurers to mitigate risk pool issues that arise from removal of limitations on pre-existing conditions, guaranteed issue requirements, and maximum payments under the policies. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2585, 183 L. Ed. 2d 450 (2012) (“In addition, the mandate forces into the insurance risk pool more healthy individuals, whose premiums on average will be higher than their health care expenses. This allows insurers to subsidize the costs of covering the unhealthy individuals the reforms require them to accept.”).
The nature of the tax penalty imposed for failure to obtain the required coverage depends on the age and income of the person without insurance. For 2014, the penalty is the greater of 1% of household income above the tax return filing threshold (about $10,000 for an individual), or $95 per person for the year ($47.50 for a child under age 18). The maximum penalty if using the percentage-income method is the national average premium for a bronze plan. The maximum penalty per family if using the flat-fee method is $285.
Beginning in 2015, the penalty increases every year. Beginning January 1, 2015, the penalty becomes the greater of 2% of household income (again capped at the average national premium for a bronze plan) or $325 per person ($162.50 per child under age 18, with the aggregate penalty capped at $975). In 2016, it is set at 2.5% of household income, or $695 per person. After that time, the penalty is indexed to inflation. All tax penalties are paid via federal income tax return.
But what plans are good enough to count as “minimum essential coverage” for purposes of satisfying the mandate and so avoiding the tax? The ACA defines minimum essential coverage to include:
- Coverage under certain government-sponsored plans;
- Employer-sponsored plans, with respect to any employee;
- All plans obtained in the individual marketplaces set up under the ACA;
- “Grandfathered” health plans; and
- Any other health benefits coverage, such as a state health plan, that is recognized as “qualifying” by the Secretary for Health and Human Services.
Importantly, the definition of “minimum essential coverage” does not include health coverage that deals with benefits that are excepted from the ACA requirements, such as dental-only plans.
Like all good rules, however, there are exceptions to the “individual mandate” requirement. Some individuals are exempt from the mandate or the penalty, while others may receive financial assistance to help pay for the costs of health insurance. There are numerous categories of exemptions, including one seeming “catch-all” exemption. Presently, exemptions are available to persons who:
- Are uninsured for less than 3 months of the year;
- Would have to spend more than 8% of household income to obtain the lowest-price coverage available;
- Do not have to file an income tax return because that person’s income is too low;
- Are members of federally-recognized tribes, or are otherwise eligible for services through an Indian Health Services provider;
- Are members of a recognized health care sharing ministry;
- Belong to religious sects or organizations that have religious objections to insurances, including Social Security and Medicare;
- Are incarcerated, but not those being held pending disposition of charges;
- Are not lawfully present in the United States; or
- Qualify for a “hardship exemption”
This last category—the “hardship exemption”—in turn reflects fourteen types of approved “hardships” that allow an individual to avoid the mandate/penalty:
- Eviction within the past 6 months, or facing eviction or foreclosure;
- Receipt of a shut-off notice from utility company;
- Domestic violence victim;
- Death of a close family member;
- Victim of flood, fire, or other disaster that caused substantial damage to individual’s property;
- Filed for bankruptcy within the last 6 months;
- Medical expenses that within past 24 months resulting in substantial debt;
- Unexpected increase in necessary expenses due to caring for ill, disabled, or aging family member;
- Will claim as a tax dependent a child who has been denied coverage by Medicaid and CHIP, and another person is required to give medical support to the child. The individual in this circumstance will be exempt from paying the penalty for the child;
- Eligibility appeals decision means that individual is eligible for enrollment for a plan in the Marketplace, for lower costs on premiums, or for subsidies for a time period where the individual was not enrolled in a qualified Marketplace plan;
- Ineligibility for Medicaid due to the resident state’s failure to expand eligibility for Medicaid under the ACA;
- Individual insurance plan was cancelled because of the ACA, and individual attests to a “belief” that the other Marketplace plans are unaffordable; or
- Another hardship in obtaining health insurance.
Any of these hardships waivers may be obtained by filing a form that is submitted to an exemption processing center. The forms are available for download, and are located here: https://marketplace.cms.gov/applications-and-forms/hardship-exemption.pdf. Hardship exemptions typically will cover the month before the hardship, the month of the hardship, and the month following the hardship. These exemptions can be extended up to a full calendar year, on request.
As of June 2014, the Congressional Budget Office revised downward its estimate of people who will have to pay a fine in 2016, from six million to four million. But the CBO also estimated that 30 million non-elderly residents still would be uninsured in 2016. Thus, the exemptions are estimated to cover a very significant portion of the population, allowing up to 5% of the total population to avoid paying the tax penalty contemplated by the individual mandate.
For purposes of resolving personal injury claims, why does any of this matter? Taken with the fact that the new policies under the ACA follow “guaranteed issue” requirements (discussed in greater detail in the next section), almost all citizens will have access to health insurance, regardless of their age or existing state of health. That has implications for arguments and settlement value discussions surrounding the proper valuation of a future medical special damages claim in a personal injury case, as the costs of healthcare are going to be shifted more and more to third-party insurers and their associated risk pools. Although collateral source rule issues in Washington will limit the admissibility of insurance payments at trial, there may be methods available to creative counsel to push the envelope on this issue, including by attempting to “work in” assumptions about future medical costs into expert opinions (such as life care planners) and the future costs of healthcare.
B. The “Guaranteed Issue” Requirements
Under the ACA, all health insurance policies must be sold on a “guaranteed issue” basis. This simply means that insurers must guarantee that all applicants will be granted insurance, regardless of their health status or other factors. What formerly may have been disqualifying or cost-prohibitive conditions that led to unavailability of insurance in the private marketplace—chronic issues like cancer, cardiovascular disease, or significant disability—no longer will prevent issuance of insurance at the established marketplace cost.
This “guaranteed issue” requirement applies to all group plans and to new plans on the individual market, but not to grandfathered individual plans. Grandfathered plans are those that were in existence as of the date that the ACA was enacted (March 23, 2010). These plans (which may be individual or group plans) are exempt from many of the ACA reforms, including guaranteed issue requirements. However, any uninsured person can now purchase a policy in an ACA marketplace instead.
Prior to the ACA, there were already laws in place that required insurers to guarantee issuance for certain types of policies. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), insurers already had the duty to guarantee issuance and renewal of coverage to small groups under certain circumstances. These requirements remain in place, even for the grandfathered plans.
Again, the question arises: how does this new guaranteed issue regulation affect our work in personal injury litigation? The answer is much more policy focused than immediately practical. There likely will be a concerted effort among insurers nationwide to begin to chip away at states’ rules prohibiting presentation of collateral source evidence, with the aim of permitting the introduction of evidence regarding the availability of insurance to the injured person for future medical needs, with an out-of-pocket maximum annually. A plaintiff already has the duty under Washington law to act “reasonably” to mitigate damages. See, e.g., WPI 33.01 (avoidable consequences in personal injury generally); WPI 33.02 (avoidable consequences – failure to secure treatment); RCW 4.22.015 (defining “fault” to include “unreasonable failure to avoid an injury or to mitigate damages”). It stands to reason that obtaining and maintaining insurance post-lawsuit would be a “reasonable” decision for nearly all plaintiffs, given guaranteed issuance and annual out-of-pocket maximums, plus the penalty requirement for failing to obtain insurance. If the fact-finder were permitted to consider and modify a damages award for future medical expenses that accounted for guaranteed insurance being available, it could be a hugely-significant way for defendants and liability insurers to avoid or reduce expensive awards of future medical expenses.
If rule changes took place in Washington and elsewhere to permit presentation of this evidence, arguments could be made that the annual out-of-pocket maximum is the proper measure of a future damages award, regardless of the nature and scope of the care needed. Push-back on this would be based on the sound principles underlying the collateral source rule, and from practical observations including limitations on what is and is not covered by the ACA minimum requirements. For instance, home and community based services such as attendant care, home care, assisted living facilities, nursing homes, and the like are typically not mandated for coverage under an ACA-approved plan. Future medical damages for these categories of treatment and care would still probably be subject to full recovery, even with a weakened collateral source rule.
Abrogation of the collateral source rule has not happened in Washington (yet), but cautious practitioners should expect and pay attention to competing efforts to attack/defend the doctrine in Olympia and in state houses across the country. In the context of multi-state litigation, MDL management and investigation, or other litigation involving various jurisdictions, the varied collateral source rules of the several states will matter a great deal in forum selection, removal decisions, and in the inclusion and challenge to jurisdiction and venue selection clauses in contracts of all kinds.
C. How Will the New State Health Insurance Exchanges Impact Injury Settlements?
As has been well-publicized, an important component of the ACA is the creation of state-based insurance exchanges, which are to act as marketplaces in which insurers compete on price and coverage for policyholders. From the consumer point of view, price transparency and coverage transparency are significant positive developments under the ACA that the exchanges help enable. The federal government facilitates the private exchanges of many states that have failed or declined to create their own domestic exchanges, via the initially ill-fated website www.healthcare.gov. In Washington, the state has met with preliminary success—at least as compared to the federal government—in setting up a useable system at www.wahealthplanfinder.org.
In and of themselves, the exchanges probably will not significantly affect personal injury settlements or damages awards. However, for purposes of expert testimony or examination, knowledge of the costs and scope of available coverage may be helpful in delineating and establishing the appropriate measure of future medical damages. Local state exchange websites and the federal website will facilitate this in an accurate, meaningful way. This would especially be the case if Washington’s strong collateral source rule was limited or changed in some way to permit introduction of evidence regarding the availability of insurance for some or all future medical expenses.
As health insurance becomes increasingly common, the relevance of the “list price” of health care services also will continue to dwindle. Thus the “reasonable” costs of health care (for purposes of a “reasonable and necessary” analysis in presenting costs of medical special damages), will increasingly be viewed in terms of what the available insurance on the exchanges will pay, as opposed to the “rack rate” that a non-insured person pays.
Indeed, 26 U.S.C. § 501(r)(5) requires that any hospital seeking § 501(c)(3) non-profit status must limit the amounts it charges to patients eligible for assistance under the hospital’s financial assistance policy. A non-profit hospital can charge no more than the amounts the hospital “generally billed to individuals who have insurance covering such care.” As the number of insured people increases and as the number of insured procedures increases, variances in the costs of medical procedures formerly informed by the availability and access of a plaintiff to insurance will begin to be replaced by a straightforward analysis based on the what the available insurance plans under the ACA will pay for that service. Access to this information via online state exchanges can be of use to the personal injury attorney and any consulting experts in evaluating damages in the settlement or trial context.
D. Pre-Existing Conditions under the ACA
As noted above, the guaranteed issue requirements of the ACA mean that coverage cannot be denied to an applicant for insurance due to pre-existing conditions; under the ACA, an individual with preexisting conditions must be covered without regard to medical history. A “preexisting condition” is defined as a condition that existed prior to the effective date of health coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received prior to that date. This aspect of the ACA was effective January 1, 2014. In the context of many personal injury cases, a post-injury plaintiff who would have been uninsurable before the ACA thus will have full coverage available for purchase, regardless of the scope and nature of that person’s injuries.
Practically speaking, this does not materially change the calculus in the context of litigating the most severe, catastrophic injury cases. In those claims, the individuals typically can readily qualify for Medicare following a disability finding by the Social Security Administration (Medicare is typically available two years following the disability determination). These cases will probably be mostly unaffected by the availability of health insurance unburdened by pre-existing condition exclusions, as even in the mitigation context a “reasonable person” is likely to choose lower-cost, comprehensive Medicare coverage over most ACA marketplace plans. All of the joys of settling personal injury cases subject to the Medicare Secondary Payer Recovery Act are still there to be had, but the ACA is less likely to precipitate significant changes to the way that is done.
In more marginal injury cases, however, where a plaintiff’s injuries are significant but not fully disabling, or where injuries may require ongoing care but are not disabling at all, this new provision is important. The elimination of a pre-existing condition exclusion makes it almost assured that in the mitigation context a “reasonable person” would purchase insurance of some sort under the ACA, and so would control and cap many of their future health care costs. Although in the face of collateral source rule restrictions this remains mostly immaterial for evidentiary purposes, that rule of exclusion may well change soon, and will certainly be challenged.
E. New Catastrophic Healthcare Plans
The ACA allows for purchase of a “catastrophic plan” to provide coverage for qualified persons who do not purchase one of the “metal” level plans. Primarily reserved for people younger than 30, the ACA catastrophic plans cover three annual primary care visits and preventive services at no cost, including disease screenings and vaccinations. Beyond that, the patient pays all medical expenses out of pocket up to a steep deductible, generally $6,350 for individuals and $12,700 for families. People older than 30 who shop for health insurance in the ACA exchanges are usually required to choose a more comprehensive plan but may buy a catastrophic plan under one of the law’s many exemptions, identified above. If an individual buys a catastrophic plan, premium tax credits or lower out-of-pocket costs based on income are not available. Regardless of the policy holder’s income, that person will pay the standard price for the catastrophic plan.
The availability of catastrophic plans could complicate a future damages analysis that relies on the ability to present collateral source evidence, especially for younger plaintiffs who may have this coverage more commonly. But even were this plan used as the basis for calculating future medical expenses for most services, it would only increase the annual out-of-pocket amounts that might be subject to recovery by a relatively small amount.
F. Subsidizing Insurance Premiums
A major provision of the ACA provides subsidies for insurance premiums and health care costs to those with low income, and those who do not receive health insurance through the government or a family member’s employer. Those whose family income is more than 133% and less than 400% of the poverty rate are eligible for significant subsidies that limit the share of income spent on premiums for an insurance policy (ranging from 2% to 9.5% of income) and lower limits on out-of-pocket expenditures (one-third to two-thirds of the Health Care Savings Account limit).
The subsidy is under attack in the courts, and the Supreme Court of the United States recently granted certiorari in a case challenging the award of subsidies given the ACA’s unartful subsidy language. Section 1311 of the ACA provides that subsidies will be awarded by the federal government to eligible consumers who purchase insurance from an exchange “established by the State.” However, 34 states currently utilize the federal exchange (www.healthcare.gov), as opposed to operating an independent State-run exchange.
The Federal Circuit Court of Appeals held in Halbig v. Burwell that this provision means that any person who obtained care via the federal exchange does not qualify for a tax credit under the law. 758 F.3d 390, 399 (D.C. Cir. 2014). In King v. Burwell, the Fourth Circuit held the opposite, and found a federal exchange-based subsidy compliant with the intent of the law, as more fully revealed by a contextual reading of the subsidy provision with the other sections of the ACA. 759 F.3d 358, 373–76 (4th Cir. 2014). The Supreme Court granted certiorari in the Fourth Circuit case on November 7, 2014.
The federal government reports that approximately 86% of current enrollees qualify for some form of subsidy. If this tax incentive provision were read out of the law, the ACA would be left with a significant handicap. With the current level of opposition to the ACA in Congress, it is unlikely that the ACA could successfully be restructured to remedy this issue. Indeed, Circuit Judge Harry Edwards stated in his Halbig dissent that the litigation on this issue is a “not-so-veiled attempt to gut the Patient Protection and Affordable Care Act.” 758 F.3d at 412–13 (Edwards, J., dissenting). Whether any of the structural changes afforded by the ACA will remain enforceable if the Supreme Court reverses the Fourth Circuit remains to be seen.
G. Practical Tips for Managing a Personal Injury Case, in Light of the ACA
The following are a few practical considerations for managing a personal injury case in light of the ACA, and given the likely growth of collateral source challenges that it will precipitate:
- In discovery as defense counsel, get a copy of the plaintiff’s health insurance policy. This is often overlooked in discovery now, as it is rarely of significance, given Washington’s collateral source rule. But with ACA policies and the individual mandate, knowing what elements of the future medical damages are covered can be helpful in developing a competing damages calculation.
- In settlement negotiations, ensure that subrogation is involved early. For mediation or other ADR options, have a representative available in real-time. Use your neutral to facilitate negotiation of liens and subrogation interests. While this has always been good and common practice in personal injury cases, where there is an ACA plan involved, this can be even more helpful in establishing and accounting for variances in future medical expenses.
- Consider the usefulness of special needs trusts. These trusts may be unnecessary for individuals whose future medical needs can now be adequately met with insurance. For medical care not subject to the ACA’s coverage mandate, however, these trusts can still be a means of ensuring that the plaintiff is not left financially ineligible for publicly-funded programs.
- Consider pleading mitigation of damages in combination with a request for reduction of any award based on collateral source offsets as an affirmative defenses in a defendant’s answer.
- Post-judgment, consider making a motion for remittitur. A challenge to a jury award for inclusion of medical expenses that would be covered by ACA insurance can afford a judge an opportunity to rule on this issue.
- Plaintiffs’ counsel should continue to rely and cite Washington law to address any claimed or sought offset as an impermissible collateral source reduction.