Health care reform and medical malpractice

The U.S. House of Representatives voted last week to repeal the Patient Protection and Affordable Care Act, aka Obamacare, and replace it with something called the American Health Care Act. This comes only one week after the California Court of Appeal decided that evidence of ACA benefits are admissible in a medical malpractice case as an offset for future medical care costs. Cuevas v. Contra Costa County, 2017 DJDAR 4018 (April 27, 2017). Because of the announced deliberate pace for the Senate to consider this bill, it will take many months before the victims of medical malpractice will know whether the ACA or the AHCA will be the basis of such admissible evidence.

Although the specifics of the ACA are reasonably well known, the AHCA is far more uncertain. The version that passed the House removes the mandatory requirement for health insurance, and allows states to opt out of requiring that preexisting conditions be covered. To placate moderate Republicans, the House bill includes $8 billion in subsidies over five years to subsidize premiums for people with preexisting conditions, but others estimate that it would take $25 billion each year to adequately subsidize such premiums.

Whatever bill comes out of the Senate, if any, will have to cover preexisting conditions at least in name only to comply with President Donald J. Trump's stated position that "preexisting conditions will be covered," but is not likely to be properly funded. Without proper funding and without mandatory caps on insurance premiums, the premium costs for anyone with a preexisting condition will skyrocket. With campaign promises that Obamacare would be replaced with better and cheaper health care that include preexisting conditions without greatly expanding the federal deficit, any bill that is signed into law will simply not be able to provide the same level of coverage for preexisting conditions that Obamacare currently does.

The 1st District Court of Appeal in Cuevas ruled that the ACA was admissible evidence under Civil Code Section 3333.1 because "as of the writing of this opinion, the ACA remains essentially intact." The 217-213 House vote has not yet changed that law, and until the AHCA passes through the Senate (and then likely goes back to the House to consider revisions) and the president signs it, it is difficult to predict how the ACA will be "repealed." If Obamacare is replaced, that replacement may have a more profound effect on medical malpractice cases than the Cuevas decision. But the medical malpractice liability defense establishment will want to use Cuevas to offset a plaintiff's future medical care costs with something, whether the ACA or the AHCA. While details are few at this point, it is clear that the AHCA will be substantially different than the ACA, especially with regard to preexisting conditions, leaving a big question about whether the AHCA would even apply to medical malpractice victims.

The basic problem with health insurance is that it is not really insurance in the traditional sense. Most types of insurance involve the payment of premiums to a company that then agrees to pay specific benefits if a specific rare event occurs. Accurately evaluating the risk of a specific event occurring in relation to premiums makes the insurance industry very profitable. But unlike auto, homeowners, property/casualty, or even liability insurance, health insurance is not triggered by a rare event. It is designed to be used often and regularly.

But health insurance companies can only make money if enough people pay premiums who do not need to use most of the expensive benefits offered by health insurance companies, like hospitalizations and other surgeries. If too many people need expensive care, premiums have to increase. The main reason that the ACA could work is that if enough young healthy people pay premiums, it would offset the costs for older sick people who could never pay enough premiums to equal the costs for their care. By making health insurance mandatory, either through employed-based plans or health insurance exchanges, like Covered California, it was hoped that the pool of insureds would be large enough to do this.

However, many people have chosen to pay the penalty for not buying health insurance, since the penalty is often lower than the premiums. It is this penalty "tax" that moved Chief Justice John Roberts to agree that the ACA was constitutional. As fewer people buy insurance, or as those insured require more payments for medical services that have continued to increase in cost, health insurers have been forced to raise premiums. In some states, health insurers have decided that there is not enough profit to keep selling policies, which puts more pressure on the remaining insurers. Unless insurers receive sufficient subsidies to make health insurance for individuals with significant preexisting conditions a profitable market, and without mandatory caps on premiums, the premiums for such individuals will approach the amounts paid out for such individuals. Any offsets that the defense can place before the jury under Cuevas, may well be less than the premium cost to obtain such health insurance benefits.

As of now, the AHCA repeals the requirement that employers provide health insurance, which is the source of the majority of Americans who have health insurance, and also repeals the mandate that individuals purchase insurance through state or federal health insurance exchanges. Covered California currently has 11 health insurance carriers that offer private health insurance, and California has a much more stable market than many other states.

Without a mandate for insurance, it is not clear how many Californians who consider themselves healthy and not in need of health insurance will continue to purchase private health insurance. Obviously, a drop in the number of young or otherwise healthy individuals who purchase private health insurance will increase the pressure on health insurers to raise rates for those who actually need and use health insurance. The most important difference between the ACA and the AHCA is the impact on individuals with preexisting conditions, which would include all victims of medical malpractice. Under Section 3333.1, defendants can introduce evidence of collateral source payments for plaintiff's medical expenses. Section 3333.1(b) prevents private health insurance companies, including those under the ACA and Covered California plan, from seeking reimbursement from the plaintiff for any payments made for medical care costs. Cuevas held that Section 3333.1 applies to future damages and it was reversible error for the trial judge to not admit evidence about collateral source offsets under the ACA. California may choose to not opt out of requiring health insurers to cover preexisting conditions, but without a large enough pool of healthy Californians, the market forces may cause insurers to either raise premiums significantly or drop out of the market.

In the months to come, medical malpractice defendants will use the Cuevas case to introduce evidence about ACA health plan benefits that will offset much of plaintiff's claimed future damages for medical care costs. But Section 3333.1 does not require the jury to make such an offset, even after evidence is introduced at trial. Rather, they may consider such evidence in awarding damages for medical care costs. Barme v. Wood, 37 Cal. 3d 174 (1984). With the action by the House, a jury may not believe that the future of the ACA is such that it would be reasonably certain that the plaintiff would be able to benefit from health insurance in the future, and thus offset those benefits from plaintiff's damages.

The people most concerned about losing their benefits for health insurance under the ACA are those with preexisting conditions. If the ACA is going to be replaced, the most direct way of reducing the amount of money that the federal government pays is by moving them into a separate high-risk pool, with likely increased cost in premiums, even with federal subsidies. Since both Medi-Cal and Medicare have repayment requirements that make their use of no value to defendants in medical malpractice cases attempting to reduce damages, it is likely that any high-risk pool will have similar repayment requirements.

Even if the ACA is not repealed, the federal subsidies for low-income Americans is currently subject to a federal court decision that held such subsidies were unconstitutional, though the decision was stayed pending appeal. The Trump administration has not decided if it will appeal and is still authorizing such subsidy payments.

This Achilles heel of the ACA will likely come into play if Trump does not get the Senate to pass an Obamacare repeal and replacement - that is, if the federal government stops paying subsidies to the health insurers, the ACA will collapse. Either way, when the dust settles, the defendants in medical malpractice cases may not have much to show a jury in the way of offsets for future medical care costs, even though the Cuevas decision will allow them to admit such evidence at trial.