The Collateral Source Rule is a common issue in almost every personal injury case, but its application can vary significantly from state-to-state. At its core, the rule is intended to ensure that the party responsible for the harm (the tortfeasor) is held fully accountable for the injuries they caused – and that they do not benefit from the plaintiff’s decision to obtain insurance or other benefits. While both Texas and Louisiana recognize the collateral source rule, they apply it with notable differences, particularly concerning statutory exceptions and its impact on medical damages.

Texas – Collateral Source Rule

In Texas, the collateral source rule is well-established and frequently applied in personal injury litigation. However, several key exceptions can significantly impact how medical expenses are calculated and what the plaintiff may ultimately recover from the tortfeasor.

  • General Rule – The rule generally prohibits the defendant from introducing evidence that the plaintiff’s medical bills were paid by a third party (i.e., health insurer, workers’ compensation carrier, etc.). The rationale behind this rule is that the wrongdoer should not benefit from the victim’s foresight in securing their own insurance.
  • Medical Expense Exception – Texas law does not allow a plaintiff to recover more than the amount actually paid for medical expenses by an insurance provider. This principle is commonly known as the “Paid or Incurred” rule and is codified in Texas Civil Practice and Remedies Code § 41.0105. The Texas Supreme Court has explained that if a plaintiff’s insurer has negotiated a lower rate and the healthcare provider accepts that reduced rate as payment in full, the plaintiff can only recover the lower rate. The difference between the billed amount and the paid amount is considered a “phantom damage” because the plaintiff was never responsible for it. This is a significant limitation on the collateral source rule, when applied and argued correctly.
  • Other Notable Exceptions
    • Tortfeasor’s Insurance: In cases where the alleged tortfeasor’s own insurance company has paid the plaintiff’s expenses, the collateral source rule should not apply to those payments, and those payments should be deducted from the damages ultimately owed.
    • Subrogation: The collateral source rule does not impact or eliminate an insurer’s right of subrogation. If an insurer has paid the plaintiff’s expenses, it may still seek reimbursement for those expenses from the tortfeasor or from the plaintiff’s recovery.
    • Impeachment Evidence: In limited instances, evidence of collateral source payments may be admissible to impeach a witness, though such situations are rare and depend entirely on the witness’s testimony.
  • Impact on Evidence at Trial – Typically, the jury is not informed of the source of the payment (i.e., insurance). Rather, the jury is shown only the amount paid. This rule can cut both ways – as it prevents the jury from seeing the full, billed amount of the medical expenses, and also prevents evidence of the amounts written off due to negotiated discounts (i.e., the “phantom damages”).

Louisiana – Collateral Source Rule

For the longest time, Louisiana’s approach to the collateral source rule was considered one of the “stricter” collateral source states by comparison to other states. In recent years, there has been extensive change to the collateral source rule in Louisiana – through both the courts and the legislature.

  • General Rule – Louisiana courts consistently hold that a defendant is not entitled to any credit for payments the plaintiff received from a collateral source. This includes insurance, social security, workers’ compensation, or even charitable donations.
  • Medical Expense Exceptions – While Louisiana does not have the “Paid or Incurred” rule that Texas has, there are a few exceptions to the collateral source rule’s application dependent upon the source of the medical expense payments. In the last 20 years, the Louisiana Supreme Court has addressed whether medical expenses or rates set by Medicaid, the Workers’ Compensation Medical Reimbursement Fee Schedule, or by an agreement negotiated between the plaintiff’s lawyer and plaintiff’s doctor should be subject to the collateral source rule. However, it was not until recent years that the Louisiana legislature addressed these issues with the enactment of various versions of La. R.S. 9:2800.27.
    • No “Paid or Incurred” Limitation: Unlike Texas, Louisiana law does not always limit a plaintiff’s recovery to the amount actually paid by insurance in every situation.
    • Medicaid Payments: The collateral source rule does not apply to medical expense write-offs from Medicaid. Plaintiff’s recovery for medical expenses paid by Medicaid should be limited to the amount Medicaid actually paid to the healthcare provider. Medicaid is a form of free medical service. Applying the collateral source rule to these payments would allow the plaintiff to recover the written-off amount and “pocket the windfall” of charges plaintiff was never obligated to pay. This is codified in La. R.S. 9:2800.27(C).
    • Workers’ Compensation Medical Payments: The collateral source rule does not apply to amounts that were written off pursuant to the Louisiana Workers’ Compensation Medical Reimbursement Fee Schedule – a statutory list of charges for medical treatment, typically less than charges made outside of the workers’ compensation system. (Note: This Fee Schedule is currently undergoing a legislative update). Again, because these charges are statutorily set, the plaintiff would never be obligated to pay the full charges. This is codified in La. R.S. 9:2800.27(D).
    • Attorney Negotiated Reduced Rates: In many cases, the plaintiff’s lawyer has a relationship with the plaintiff’s doctor and as a result of that relationship the doctor may agree to accept a lower amount for the medical services than what the doctor actually bills. When this happens, the collateral source rule does not apply to these medical expense write-offs resulting from attorney’s negotiation. The plaintiff’s recovery should be limited to what was actually paid to the medical provider. This is in La. R.S. 9:2800.27(G).
    • Medicare and Health Insurance Payments: In cases where the medical expenses have been paid, in whole or partially, by a health insurer or Medicare to a healthcare provider, the recovery of those medical expenses should be limited to the amount actually paid, plus any applicable cost sharing amounts paid or owed by the claimant – not the full amount billed. The phrase “cost sharing” is defined in the new 2025 legislation as, any “copayments, coinsurance, deductibles, and any other amounts which have been paid or are owed by the claimant to a medical provider.”
    • Louisiana Civil Justice Reform Act: Originally passed in 2020, this legislation was amended again in 2025, addressing the collateral source rule and recovery of past medical expenses. Due to the infancy of this act, time will tell how it impacts medical expense in personal injury litigation recovery moving forward. The full, current version can be found here – La. R.S. 9:2800.27.
  • Impact on Evidence at Trial – The factfinder should be informed of both the amount billed by the medical provider and the amount actually paid for the medical services. This is a fairly new change in the law, as the jury was previously only told of the amount billed – not what was paid.

Examples of Using These Tools to Reduce Damages

Kean Miller’s team has repeatedly used the above law and arguments to successfully reduce our client’s exposure prior to trial.  Below are a few examples of Kean Miller’s team reducing the plaintiff’s claimed medical special damages (what was charged) to the amount actually paid.

  • From $345,233 to $79,854 – Reduction based on workers’ compensation payments. Products liability claim, amputated leg.
  • From $311,684 to $83,542 – Reduction based on Medicaid payments and attorney negotiated write-offs. Automobile accident, neck and lower back injuries.
  • From $278,457 to $104,652 – Reduction based on workers’ compensation payments and attorney negotiated write-offs. Industrial accident at petrochemical facility, head trauma and spinal injuries.
  • From $153,468 to $86,342 – Reduction based on workers’ compensation payments. Industrial accident at natural gas storage and processing facility.
  • From $106,789 to $22,861 – Reduction based on workers’ compensation payments and attorney negotiated write-offs. Automobile accident, neck and lower back injuries.

Takeaway

Despite being neighboring states, Texas and Louisiana’s application of the collateral source rule can differ significantly. If you or your company are found defending a personal injury matter in either state, understanding the distinction in each state’s application of the collateral source rule is crucial to accurately evaluate potential damages, implement a defense to minimize tort exposure, and strategize a defense.

Forrest Guedry and John Hogg are members of Kean Miller’s Casualty and Mass Tort Litigation group, which manages litigation dockets and tries cases for some of the leading companies in the United States. The team defends clients locally, regionally, and nationally in a wide variety of claims involving wrongful death, bodily injury, industrial accidents, chemical release or exposure, products liability, medical malpractice, workers compensation, as well as breach of contract and business disputes.