Billed versus Paid, or "How Your Health Insurance Policy Can Reward Bad Drivers"

Imagine that you're sitting at the plaintiff's table in a courtroom.  You were t-boned by a teenager on her cell phone last year, settlement negotiations with the auto insurance carrier broke down, and your personal injury attorney ended up filing a lawsuit.  Now you're suing the teenager's carrier because they refused to offer you a reasonable settlement.  In order to prove your damages, you need to offer evidence of your medical bills; these reflect the amount of money that you had to pay as the result of the teenager's negligence.  But what part of the bill controls what your damages are?  

Before October 1, 2011, the answer was fairly simple.  The amount that was billed could be offered as evidence of medical expenses.  So if your bill from the emergency room was for $5,000, then that's what your medical expenses would be.  Easy peasy, right?

Well, not so fast.  Beginning on October 1, 2011, North Carolina's Evidence Code includes Rule 414, or what we not-so-fondly refer to as "Billed versus Paid."  The text of Rule 414 reads, in relevant part, as follows:

"Evidence offered to prove past medical expenses shall be limited to evidence of the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied."

Why does this matter, you ask?  Well, let's talk about health insurance.  If you have health insurance, your carrier is going to cover your medical expenses, minus deductibles and co-pays and the like.  What you might not know, however, is that your carrier will often pay medical bills at a reduced rate, which is commonly referred to as a "contracted discount."  So for argument's sake, let's say that your bill is $5,000 as above, but your insurance carrier pays at a "contracted discount" of $1,000.

Fast forward back to the courtroom.  Remember that before October 1, 2011, you could have introduced the billed amount of $5,000 as evidence of your medical expenses.  Sadly, however, we are well past October 1, 2011.  I know, time flies.  So now, you can only offer the paid amount of $1,000 as evidence of your medical expenses.  Clearly, this is going to greatly reduce the amount of any award that you might receive as the result of your accident.

The merits of Rule 414 are going to differ depend on who you talk to.  The auto insurance universe loves it because it reduces judgment amounts, and therefore settlement amounts, as well.  They might speak to the fact that the Rule is more equitable because it prevents awards of money that was never actually paid, and that might be true.  But as you might imagine, attorneys like me pretty much universally hate Rule 414.  It's our position that your health insurance is meant to benefit the person who carries it, and Rule 414 forces it to operate as a reward to the person who harmed the insured.  

Love it or hate it, "billed versus paid" is what we have to deal with for now.  It helps to be aware of how the Rule operates, because it can make a major difference in whether or not you might want to pursue your personal injury claim.