Do the Mandates of the Affordable Care Act Affect the Recovery of Future Medical Expenses Under Wisconsin Law?
How the collateral source rule operates with respect to the recovery of medical expenses may be the most difficult to understand, and controversial, rule of tort law from a lay person's perspective. In talking to friends or family members, we've all probably heard, more than once, something like, "What? Why do they get paid more for their medical expenses than the treatment actually cost?" Though Wisconsin courts have become entrenched in the view that the collateral source rule applies to allow injured parties to recover the difference between the amounts billed for and actually paid to satisfy medical expenses,1 the same may not ultimately hold true with respect to the recovery of future medical expenses in light of the Patient Protection and Affordable Care Act.2
From the perspective of Wisconsin law, this Article demonstrates why established authority supports the notion that the provisions of the Affordable Care Act may defeat the potential application of the collateral source rule with respect to recovery for damages arising from future medical expenses. Part I identifies the principal provisions of the Affordable Care Act that concern the issue. Part II explains how Wisconsin law has long recognized a specific situation in which the risk of double recovery defeats the application of the collateral source rule. And Part III analyzes why the passage of the Affordable Care Act will result in the specific situation in which Wisconsin courts have previously chosen not to apply the collateral source rule.
I. The Affordable Care Act: Ensuring Widely Available Health Insurance Coverage in the Future
In 2010, the United States Congress enacted the Affordable Care Act.3 "The Act aims to increase the number of Americans covered by health insurance and decrease the cost of health care,"4 and two of the Act's key provisions are material for purposes of this Article.
Individual Mandate. The first is what's widely been referred to as the "individual mandate."5 The provision requires most Americans to maintain "minimum essential" health insurance coverage.6 The Act does not apply to some individuals, like prisoners and undocumented aliens,7 and many individuals receive the required health insurance coverage through an employer or governmental program,8 but the remainder must purchase insurance from a private company to comply with the Act.9 Those who do not comply with the mandate must make a "[s]hared responsibility payment" to the federal government,10which the United States Supreme Court has characterized as a constitutionally permissible tax.11
Coverage for Preexisting Conditions. The second provision concerns the Act's directive with respect to preexisting conditions. By it, Congress intended to address the problem of those individuals who cannot obtain insurance coverage because of preexisting conditions or other health issues.12 It did so through two provisions, the "guaranteed issue" and "community-rating" provisions, which, together, "prohibit insurance companies from denying coverage to those with preexisting conditions or charging unhealthy individuals higher premiums than healthy individuals."13
Summary. By requiring that individuals purchase health insurance, the Act's overall concept is that the individual mandate will force more healthy individuals into the risk pool (whose premiums on average will be higher than their health care expenses) and that the additional premiums insurers receive will allow them to subsidize the cost of covering unhealthy individuals whom the reforms require them to accept.14 Going forward, then, the Affordable Care Act (1) requires individuals to obtain health insurance coverage and (2) prohibits health insurers from denying coverage for preexisting conditions.
II. Subrogation Absent: The One Situation in Which Wisconsin Courts Have Not Applied the Collateral Source Rule Based Upon the Principle of Subrogation and the Risk of Double Recovery
In order to place the issue of how the Affordable Care Act may affect the recovery of future medical expenses in context, it is necessary to begin by considering how Wisconsin courts deal with several competing policy considerations and, more specifically, the intersection of the collateral source rule, the principle of subrogation, and the potential for double recovery. As demonstrated below, Wisconsin courts have traditionally applied the collateral source rule to ensure that a defendant is responsible for the full extent of a plaintiff's damages. At the same time, courts have traditionally applied the collateral source rule and the principle of subrogation to preclude a plaintiff from receiving a double recovery. Finally, courts have refused to invoke the collateral source rule in one specific circumstance—where subrogation is absent, leaving the unmistakable potential for double recovery.
The Collateral Source Rule. Plaintiffs suffering personal injuries frequently receive compensation from third parties unrelated to a defendant. The compensation may be in the form of voluntary services, employment benefits such as sick leave or disability income, or benefits arising out of insurance contracts.15 When a plaintiff receives compensation from a collateral party for accident related injuries, a potential windfall may arise for either the plaintiff or the defendant. If the collateral income reduced the plaintiff's actual damages, the defendant would receive a reduction in the amount of damages recoverable against him or her without paying the full amount of the plaintiff's loss. If the collateral income did not reduce the plaintiff's actual damages, the plaintiff would be permitted to recover damages from the defendant that he or she may not have actually incurred.16 The collateral source rule embodies a judicially crafted policy decision to ensure that the party to receive a potential windfall is the one who has been injured, not the one whose wrongful conduct caused the injury.17 The rule therefore holds that an injured party's recovery from a defendant should not be reduced by the amount of compensation that the injured party receives from sources other than the defendant.18
The Principle of Subrogation. Wisconsin law also recognizes that parties are entitled to be made whole by compensatory damages, but not made more than whole,19 and that the collateral source rule is not a policy wholly in favor of double recovery.20 In personal injury cases, more specifically, Wisconsin courts apply the principle of subrogation in conjunction with the collateral source rule to ensure that plaintiffs do not become unjustly enriched by recovering more than their fair share of damages.21 Under the principle of subrogation, by virtue and to the extent of payments made on behalf of another, a subrogated party obtains a right of recovery in an action against a third-party defendant. Because the subrogated party is entitled to recover damages against the defendant, the plaintiff is not, which prevents plaintiffs from recovering their damages twice.22 In cases where a plaintiff has received a payment from or has had a payment made on his or her behalf by an insurer, then, the collateral source rule prevents the insurance payment from inuring to a defendant's benefit and the insurer's subrogation right prevents the plaintiff from receiving a double recovery.23
Subrogation Waived. A special circumstance arises in situations where a subrogated insurer waives its interest. If an insurer waives its subrogation interest at the time it makes a payment, Wisconsin courts apply the collateral source rule to the amount of the payment so that the benefit of the payment and waiver does not inure to a defendant-tortfeasor.24 The rule is well-established in the Wisconsin cases. InVoge v. Anderson, for example, the plaintiff's underinsured motorist insurer, American Family Mutual Insurance Company, paid him the limits of his available underinsured motorist coverage, $150,000, for injuries he sustained in a car accident, and expressly waived its right to subrogation against the defendant and his insurer at the time it made the payment.25 Since American Family's payment was paid on the defendant's behalf and American Family waived its right to subrogation, the defendant and his insurer argued that they were entitled to reduce the amount of damages recoverable against them by $150,000.26Rather than allowing the defendant and his insurer to offset the amount paid by American Family and to pay less than their fair share of the plaintiff's damages, the court reasoned that the collateral source rule should be applied to prevent the benefit of the underinsured motorist coverage payment from inuring to the defendant.27 Consequently, in the situation where an insurer waives its subrogation interest, Wisconsin courts have chosen to apply the collateral source rule.
Subrogation Absent. A final situation, which is equally well-established in Wisconsin case law, arises where the operation of the collateral source rule and the principle of subrogation can lead to what Wisconsin courts have considered to be an impermissible double recovery by a plaintiff. In those cases, Wisconsin courts recognize that the risk of double recovery by a plaintiff—from both a third party and a defendant for the same injury—defeats the application of the collateral source rule.28 This is the situation involving an absent subrogation interest.
In Voge, for instance, separate from its underinsured motorist coverage payment to the plaintiff, American Family also paid $5,895.75 to the plaintiff for no-fault medical coverage available to him under its policy.29 It did not expressly waive its subrogation interest to recover the amount of the medical payment at the time it made that payment, but later waived its subrogation interest.30 Unlike the underinsured motorist coverage benefits that American Family paid, the court reasoned that the right to recover the medical payment was not the plaintiff's—it was American Family's by virtue of its subrogation interest.31 The court found that applying the collateral source rule to the medical coverage payment would serve only to allow the plaintiff to recover the amount of the payment twice, once from American Family and once from the defendant and its insurer.32 Finding no principled reason to allow the plaintiff to recover the amount of the medical payment twice, the court held that the collateral source rule should not be applied to the payment and that the defendant and his insurer were not responsible for that amount of damages.33 Under Voge, then, an insurer's subrogation interest can revert to a plaintiff if the insurer expressly waives its interest, but not when the insurer retains the interest at the time it makes a payment and later decides not to proceed with recovery.
Another instance in which the situation arises is when an insurer is time-barred from pursuing a claim of subrogation.34 In Lambert v. Wrensch, for example, a subrogated insurer paid all of the medical expenses that the plaintiff sought against the defendant, but because the statute of limitations on the insurer's subrogation claim expired, the insurer's subrogation right was extinguished.35 Since the insurer was barred from pursuing its subrogation claim, the court there held that—to prevent the plaintiff from being unjustly enriched— the collateral source rule should not be invoked and that the defendant was entitled to a reduction in the judgment for the amount of the subrogation claim.36 In other words, because the subrogated insurer could not recover its interest by operation of the statute of limitations, the Wisconsin Supreme Court found that allowing recovery by the plaintiff would result in an unfair double recovery (once from the subrogated carrier and once from the defendant).
Accordingly, in the limited situation where a subrogation interest is absent, Wisconsin courts have invalidated the collateral source rule to prevent a double recovery by the plaintiff.
III. The Operation of the Affordable Care Act Will Ensure an Absent Subrogation Interest—and Therefore Negate the Application of the Collateral Source Rule— With Respect to the Recovery of Future Medical Expenses.
The purpose of this Article is to recognize that, with respect to recovery for future medical expenses, the circumstances resulting from the passage of the Affordable Care Act will, in many cases, create the very situation in which Wisconsin courts have chosen not to apply the collateral source rule to prevent an impermissible double recovery—the situation where there is an absent, or unrecoverable, subrogation interest.
First, by virtue of the Affordable Care Act's mandates, a third party will be required to pay for a plaintiff's future health care expenses by operation of law. Indeed, as demonstrated, the Act's provisions prohibit health insurers from denying coverage to those with preexisting conditions or charging unhealthy individuals higher premiums than healthy individuals, so in the future, health insurance coverage will be available to a plaintiff even for accident-related injuries. It is true that the Act does not technically force an individual to purchase health insurance, but under the circumstances, a plaintiff's failure to procure available insurance would be plainly inconsistent with his or her duty to mitigate damages.37 Under Wisconsin law, "[a] person who has been injured must use ordinary care to mitigate or lessen [his or her] damages,"38 and that duty specifically applies with respect to future medical care.39 As a result, in light of the insurance that will be available for a plaintiff's future medical expenses as a result the Affordable Care Act and the law's imposition of a duty to mitigate damages, a plaintiff can and, by operation of law, will have future medical expenses paid by a third party.
Second, the third party's subrogation interest will, in most cases, be time-barred. More specifically, "[t]he appellate courts of this state have repeatedly held that an insurer's right of subrogation, including a statute of limitations question, is measured by the insured's ability to recover."40 In personal injury actions, the Wisconsin statute of limitations is three years,41 and the time from injury to verdict alone often exceeds that period. In other words, insurers that pay medical expenses more than three years after an accident have no meaningful right to recovery against a defendant-tortfeasor.
In the end, the Affordable Care Act presents certainty that future medical payments will be paid by a third party on behalf of a plaintiff, while the operation of law will preclude the third party from enforcing a subrogation interest. This is precisely the absent subrogation situation that Wisconsin courts have long found presents an unfair risk of double recovery and in which the courts have chosen not to apply the collateral source rule in the law of damages.
The analysis here may not apply uniformly in all cases42 and can be further developed, but does demonstrate that, in many routine cases, an opportunity exists for Wisconsin defense counsel to attempt to limit exposure for future medical expenses based upon the circumstances created by the Affordable Care Act.
Michael J. Cerjak is a shareholder at Kasdorf, Lewis & Swietlik, S.C., and a trial lawyer who focuses on complex personal injury, commercial litigation, and insurance coverage matters. Trained in law and software engineering, Michael is an honors graduate of the Marquette University Law School and the Milwaukee School of Engineering.
1 Orlowski v. State Farm Mut. Auto. Ins. Co., 2012 WI 21, 339 Wis. 2d 1, 810 N.W.2d 775; Leitinger v. DBart, 2007 WI 84, 302 Wis. 2d 110, 736 N.W.2d 1; Koffman v. Leichtfuss, 2001 WI 111, 246 Wis. 2d 31, 630 N.W.2d 201; Ellsworth v. Schelbrock, 2000 WI 63, 235 Wis. 2d 678, 611 N.W.2d 764.
2 The Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010) (to be codified in scattered sections of 42 U.S.C. & 26 U.S.C.), and the Health Care and Education Reconciliation Act of 2010 (HCERA), Pub. L. No. Law 111-152, 124 Stat. 1029, are collectively referred to as the Affordable Care Act.
4 Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2580, 183 L. Ed. 2d 450 (2012).
5 Id. at 2577.
6 26 U.S.C. § 5000A.
7 Id., § 5000A(d).
8 See id., § 5000A(f).
9 Sebelius, 132 S. Ct. at 2580.
10 26 U.S.C. § 5000A(b)(1).
11 Sebelius, 132 S. Ct. at 2593-2601.
12 Id. at 2585.
15 See generally Koffman v. Leichtfuss, 2001 WI 111, ¶ 29, 246 Wis. 2d 31, 630 N.W.2d 201.
16 See id.
17 See id.
19 See Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 272, 316 N.W.2d 348 (1982).
20 See Voge v. Anderson, 181 Wis. 2d 726, 732-34, 512 N.W.2d 749 (1994).
21 See Cunningham v. Metropolitan Life Ins. Co., 121 Wis. 2d 437, 444, 360 N.W.2d 33 (1985).
22 Beacon Bowl, Inc. v. Wisconsin Elec. Power Co., 176 Wis. 2d 740, 775, 501 N.W.2d 788 (1993).
23 Lambert v. Wrensch, 135 Wis. 2d 105, 117, 399 N.W.2d 369 (1987).
24 See, e.g., Voge, 181 Wis. 2d at 732-33.
25 Id. at 729.
26 Id. at 730.
27 Id. at 732-33.
28 See, e.g., Lambert, 135 Wis. 2d at 121.
29 Voge, 181 Wis. 2d at 730.
30 Id. at 733.
31 Id. at 734.
34 Lambert, 135 Wis. 2d 105.
35 Id. at 118-19.
36 Id. at 121; see also Estate of Otto v. Physicians Ins. Co. of Wis., Inc., 2007 WI App 192, ¶ 32, 305 Wis. 2d 198, 738 N.W.2d 599, aff'd, 2008 WI 78, 311 Wis. 2d 84, 751 N.W.2d 805 (upholding the rule of Lambert).
37 Wis JI-Civil 1730 (Damages: Duty to Mitigate: Physical Injuries) (citing Lobermeier v. Gen. Tel. Co. of Wis., 119 Wis. 2d 129, 349 N.W.2d 466 (1984); Loser v. Libal, 269 Wis. 418, 424, 69 N.W.2d 463 (1955); Collova v. Mut. Serv. Cas. Ins. Co., 8 Wis. 2d 535, 539, 99 N.W.2d 740 (1958)).
39 Hargrove v. Peterson, 65 Wis. 2d 118, 123-26, 221 N.W.2d 875 (1974).
40 Schwittay v. Sheboygan Falls Mut. Ins. Co., 2001 WI App 140, ¶ 6, 246 Wis. 2d 385, 630 N.W.2d 772.
41 See Wis. Stat. § 893.54(1).
42 For example, based on the statute of limitations for payments made by Medicare, the analysis presented here may not apply to Medicare-eligible claimants.