On August 28, 2011, the Supreme Court of California, in a 6-1 decision, held that, “personal injury plaintiffs are not entitled to full recovery of medical bills if their insurers paid only a smaller, negotiated amount.” The Court in the Howell v. Hamilton Meats & Provisions (2011) decision concluded, “no such recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.”

In this case, Plaintiff was injured by Defendant’s employee in a motor vehicle accident. Plaintiff had previously purchased a private health insurance plan. As part of a pre-negotiated agreement with certain health providers, Plaintiff’s insurance paid Plaintiff’s health care costs at a severely reduced rate compared to what the health providers actually billed. In this case the billed charges were close to $190,000. Plaintiff’s insurance paid close to $60,000 as full payment of those charges.

Plaintiff argued that the nearly $130,000 differential was a benefit that should be protected by the Collateral Source doctrine. The Collateral Source rule was established by the Court in the 1970 decision, Helfend v. Southern California Rapid Transit District. They found, “if an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.”

Defendant argued that Plaintiff’s medical damages are established by how was actually paid on her behalf. Actual damages are paid in order to made the Plaintiff whole by her judgement. If Plaintiff were to receive more than the amount of damages she actually suffered, specifically in regards to her medical damages, she would be getting a windfall which goes beyond the intent of the Collateral Source rule.

Plaintiff believes the pre-negotiated reduction was part of the “compensation” that is “wholly independent of the tortfeasor” and thus should be protected by the Collateral Source rule. Because the intent of the rule is not to punish a Plaintiff who has previously had the forethought to protect themselves by purchasing private insurance, any benefit they receive from the private insurance should not go unrewarded. Plaintiff argues that the work their private insurance has done in negotiating reduced rates is going unrewarded by not being protected by the Collateral Source rule.

The problem is, any private health insurance purchaser has already been rewarded for their insurers pre-negotiated agreements with health care providers. This reward is manifested as a reduction in premiums paid. The insurance company takes into account what they are actually projected to pay to health care providers in calculating premiums charged to their insureds.

When the insurer calculates premiums, they don’t utilize the exaggerated inflated costs some doctors actually bill. The main reason an insurer pre-negotiates agreements with health care providers is so they have more concrete numbers to work with when projecting pay-outs, and in-turn, how much they will charge in premiums. Because they have already been rewarded with reduced premium amounts, to be awarded again a second time would be a windfall and would have the effect of a punitive damage as opposed to actual damages intended to make the Plaintiff whole.

The Court has thus taken the highly inflated phantom charges most health providers actually bill out of the equation. In their decision, the Court has done its part in protecting the Plaintiff by making sure the Plaintiff is made whole by getting paid for actual damages suffered, whilst protecting the Defendant from paying punitive damages in the form of exaggerated, inflated, so-called actually billed charges from the health care providers.