Billed vs paid medical bills: collateral source rule and LOPs

The amount a hospital bills and the amount a health insurer actually pays for the same care can differ by many multiples, and states disagree about which number an injured person may claim from the driver who caused the crash. California limits recovery for past medical expenses to the amounts paid or still owed, Ohio lets a jury see both figures, and since 2023 and 2025 Florida and Georgia have passed statutes that put payment evidence in front of juries. The disagreement matters to every driver because the answer shapes settlements, liability claim costs and, over time, premiums.

This article follows one hypothetical injury claim from the emergency room to the settlement check. It explains the collateral source rule and how states have cut into it, how letters of protection work and why they are contested, how the reasonableness of a charge is proven, where the issue sits in the debate over social inflation, and what the claimant is likely to keep. State rules differ and change, so for a real claim a licensed attorney or the state insurance department is the place for specifics.

One claim, two bills

Say Dana is rear-ended at a red light and goes to the emergency room by ambulance. The numbers below are invented to show the mechanics and are not market data.

The hospital's first number, the chargemaster or list price, is rarely what anyone pays. When a plan has negotiated rates, the hospital agrees to accept the contract amount as payment in full and writes off the difference. Dana owes the hospital nothing more. The question for the lawsuit is whether she can ask the at-fault driver's insurer to pay $38,000, $9,500 or something between.

The collateral source rule in plain terms

The collateral source rule is an old common-law principle: a wrongdoer's liability is not reduced because the injured person received help from an independent source, such as health insurance, sick pay or a gift from family. The reasoning is that the benefit was bought or earned by the plaintiff, and it would be a windfall to the wrongdoer if the payment lowered his bill. Many courts also apply it so that a jury is not told that insurance exists.

The rule was designed for exactly the situation in the table: Dana, or her employer, paid premiums for a health plan, and the driver should not benefit from that. The modern dispute is about the write-off. Is the $28,500 a benefit Dana received from a collateral source, or is it a charge that she never owed in the first place?

How courts split on the write-off

Courts and legislatures have reached different answers.

• California: only what was paid or owed. In Howell v. Hamilton Meats & Provisions, 52 Cal. 4th 541 (2011), the California Supreme Court held that an injured plaintiff could not recover the undiscounted amount in the provider's bill that was never paid by or on behalf of the plaintiff, because the plaintiff "did not suffer any economic loss in that amount." The court stressed that the collateral source rule still applies "with full force": the plaintiff recovers what the health insurer paid and her own out-of-pocket expenses, and the negotiated-rate difference is simply not a collateral payment (opinion on Case.law).
• Ohio: both numbers are admissible. In Robinson v. Bates, 112 Ohio St. 3d 17 (2006), the Ohio Supreme Court concluded that the collateral source rule does not bar evidence of the amount a provider accepted as full payment, and held that both the original bill and the amount accepted should be admitted to prove the reasonable value of the treatment (opinion on Case.law).
• Texas: a statute limits recovery. Section 41.0105 of the Texas Civil Practice and Remedies Code provides that recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant (Tex. Civ. Prac. & Rem. Code 41.0105).

These three decisions and statutes are examples, not a count of states. Other states follow one of these approaches or their own, sometimes with different rules for Medicare and Medicaid, for uninsured plaintiffs and for amounts paid by a no-fault insurer. For your own state, ask a licensed attorney or check the statute directly.

Why legislatures have stepped in

The pressure behind recent statutes is the cost of injury claims. Insurers and defense groups argue that large billed amounts, especially for care that nobody pays at list price, inflate settlements and verdicts, and they connect the trend to the broader pattern called social inflation. Plaintiff lawyers answer that the injured person, not the wrongdoer, should be the one to benefit from insurance premiums, and that hiding what care costs can leave seriously injured people with too little. The wider policy discussion is in social inflation and nuclear verdicts: how lawsuits raise premiums and tort reform and car insurance; how medical costs feed into rates is in how medical costs and injury claims shape what you pay for liability.

Two recent examples show what reform looks like. Both are described as of November 2026, and they are examples of how states have chosen to change the evidence, not proof of what the changes do to premiums.

Florida, 2023

Florida's section 768.0427, added by chapter 2023-15, regulates the evidence of medical expenses in personal injury and wrongful death actions:

• For past care that has been satisfied, evidence is limited to the amount actually paid, regardless of the source of payment.
• For unpaid charges, the statute lists what may be offered. If the claimant has health coverage, that includes the amount the coverage is obligated to pay plus the claimant's share. If the claimant has coverage but treats under a letter of protection, it includes what the coverage would have paid. For a claimant with no coverage or with Medicare or Medicaid, it includes 120 percent of the Medicare reimbursement rate, or 170 percent of the Medicaid rate if no Medicare rate exists. Evidence of reasonable amounts billed for medically necessary care is also allowed.
• Recoverable damages for medical care may not exceed the evidence admitted under the statute and may not exceed amounts paid, amounts due and owing but unsatisfied, and amounts needed for reasonable future care.
• The contracts between providers and commercial insurers are not discoverable or admissible.

Georgia, 2025

Georgia's 2025 tort reform bill, SB 68, added Code section 51-12-1.1. It limits special damages for medical and healthcare expenses to "the reasonable value of medically necessary care, treatment, or services," decided by the trier of fact. If the plaintiff has any form of public or private health insurance, including governmental workers' compensation, relevant evidence includes both the amounts charged and the amounts actually necessary to satisfy the charges under the insurance contract, whether or not the insurance is used. The section states the legislature's intent to abrogate the common-law collateral source rule to the extent needed to introduce that evidence, allows courts to give jury instructions to avoid confusion, and keeps each side's right to challenge the reasonableness and necessity of expenses. It applies only to causes of action arising on or after the Act's effective date, which was its approval by the governor (SB 68 as signed).

Notice the difference. Florida narrows what is admissible and ties recoverable damages to payments. Georgia keeps billed amounts in evidence but adds the amount needed to satisfy them. Because the statutes are recent, appellate courts are still deciding how they apply in specific situations, so treat any summary, including this one, as a starting point.

Letters of protection and treating on a lien

Not everyone has health insurance, and many injured people cannot pay a surgeon or imaging center upfront. A letter of protection (LOP) is an arrangement under which a provider treats the patient in exchange for a promise of payment out of the patient's eventual settlement or judgment. Florida's statute defines it that way, and Georgia's uses nearly the same words.

The arguments on each side:

• Why advocates support them. They can give low-income or uninsured people access to care, and providers who accept them often wait years to be paid, if at all. A KFF Health News investigation (2021) noted both of these points.
• Why defendants object. In an LOP arrangement there is no insurer negotiating the price. The provider sets the charge, the patient owes the full balance if the settlement is smaller, and the claim's value can swell with the bill. The same investigation reviewed cases in Florida in which bills under LOPs were far above what insurance or Medicare would pay; in one example a billing expert reviewing a $430,000 spine-surgery bill said usual and customary charges would be less than one-fourth of what was billed (KFF Health News). The article describes allegations against particular providers, which those providers have contested, and one example does not describe every LOP provider.
• Why patients should read the paper. A typical LOP makes the patient responsible for the balance if the settlement falls short. The KFF Health News report gave an example in which the document said the patient would be charged what was usual and customary for the area, yet the actual fees were far higher.

Both new statutes respond with disclosure. Florida makes a series of disclosures a condition precedent to asserting a claim for expenses under an LOP, including a copy of the letter, itemized and coded billings, whether the provider sold the account to a factoring company and for how much, whether the claimant had health coverage, and whether and by whom the claimant was referred to the provider. Georgia makes most of the same items (the letter, itemized charges, any sale of the account and the referral source) relevant and discoverable. Florida's statute adds that a referral from a lawyer is admissible and that the financial relationship between law firm and provider is relevant to bias.

How reasonableness is proven or challenged

Even where the billed amount is admissible, the claimant must show the charges were reasonable and the care was necessary. The usual tools:

1. Treating provider testimony or records custodians. The provider or a billing custodian testifies that the bills are accurate, and the treating doctor that the care was needed because of the crash.
2. Billing experts. A coder or health-economics witness compares the charge with what insurers, Medicare and other payers pay for the same service, or with typical charges in the region.
3. Medical experts. A defense physician may agree the injury happened but dispute that months of injections or a surgery were necessary.
4. Records of what was actually accepted. Where the law permits, the payment amount, the write-off and the contract rate are used to show what the market price is.
5. The fee schedule or a statutory benchmark. Florida's 120 percent of Medicare figure is an example of a legislated yardstick for patients with no coverage.

Do not assume that a lower figure is automatically fair. A Medicare-based benchmark is a policy choice, not a finding that billed charges are unreasonable or that Medicare rates are right for every provider. That is part of the policy argument, not a proof either way.

What the claimant keeps

The settlement figure and the claimant's net recovery are different. Here is a continuation of Dana's hypothetical.

Dana also spent $1,900 of her own on the deductible and coinsurance before the settlement, which is included in her damages. These figures assume a contingency fee and plan reimbursement terms that vary in real life.

The health plan's reimbursement claim is the piece many people miss. Plans often reserve a right to be repaid from the claimant's recovery. In US Airways v. McCutchen, 569 U.S. 88 (2013), a case arising from a car crash, an employer's self-funded ERISA plan sought repayment of the $66,866 it had paid after the employee settled with the at-fault driver for $10,000, the driver's limited coverage, and collected another $100,000 from his own auto insurer. The Supreme Court held that equitable doctrines such as the common-fund rule cannot override the clear terms of the plan, but that the common-fund rule helped interpret the plan because it was silent about allocating the costs of recovery (opinion on Case.law). The result depends on the plan type, plan terms and state law, which is why you should ask for the plan's reimbursement language before a settlement is final. Settlement paperwork: releases, liens and Medicare reimbursement covers liens and Medicare in detail.

In a claim under a letter of protection the provider is paid from the proceeds, and any balance remains with the patient unless the provider agrees to reduce it. Many providers negotiate reductions at the end, but that is a negotiation, not a right.

What to do if you are injured or defending a claim

1. Ask your providers whether they will bill your health insurance or auto coverage (such as medical payments coverage or personal injury protection) and what happens if they do not. In some states, such as Florida, what your coverage would have paid can become evidence even if it was never used.
2. Do not sign an LOP without reading it. Look for who owes the balance, whether the provider can sell the debt, and whether interest accrues.
3. Keep every bill, explanation of benefits and write-off notice. The explanation of benefits is the proof of what was paid and what was written off.
4. Ask your lawyer which evidence rule applies in your state and whether your health insurer has a reimbursement right.
5. If you are a defendant, expect the claimant to be asked about insurance coverage and referrals, and tell your insurer promptly about any claims so that it can evaluate the bills.
6. Before settling, get a written reimbursement figure from every lienholder or plan.

Common questions

Can I choose to use my health insurance or an LOP?

Often yes, but the choice has consequences. Using your health plan generally means contract rates apply and the plan may seek reimbursement. An LOP means the provider's full charge is owed from your recovery. The choice can also affect the evidence available at trial in states with statutes like Florida's.

Does the collateral source rule still exist after these statutes?

Yes. The statutes modify it for medical expense evidence. Georgia's statute says the legislature intends to abrogate the common-law rule only "to the extent necessary" to introduce the evidence it describes. California's decision in Howell said the rule still applies with full force to what insurers actually paid.

Do these laws change what I pay for car insurance?

The link is indirect. Liability claim costs are one input into premiums, and rate filings use claim cost trends. A reform that lowers payouts could reduce them over time, but any effect depends on the claims that follow and on what regulators approve, and this article did not find a verified figure that settles the question. attorney involvement in auto claims and what it does to claim costs looks at related data.

What about the other driver's own insurer paying my bills early?

Some policies include medical payments or personal injury protection coverage that pays regardless of fault, and in no-fault states it is the first source. It may reduce what you can recover from the at-fault driver or create reimbursement rights, depending on the state. See Personal injury protection (PIP) explained.

Key takeaways

• Billed charges and paid amounts are different numbers, and states disagree about which one the injured person can claim or a jury may hear. California and Texas lean toward paid amounts, Ohio admits both, and Florida and Georgia legislated their own rules in 2023 and 2025.
• The collateral source rule exists to stop a wrongdoer benefiting from the plaintiff's insurance, and the write-off dispute is about whether it covers amounts nobody ever owed.
• A letter of protection delays payment until the claim resolves, leaves the patient owing the balance, and is the focus of disclosure rules in Florida and Georgia.
• The claimant's net recovery is lower than the settlement after fees, costs and a possible reimbursement claim from a health plan, so ask for reimbursement terms before signing a release.
• For any specific claim, a licensed attorney or the state insurance department can say which rule applies; these statutes are recent, and courts are still interpreting them.