What Are Paid and Incurred Medical Expenses in Texas?

In a Texas personal injury case, paid and incurred medical expenses are the only medical damages you can recover: the dollars actually paid to your providers plus any balance you are still legally obligated to pay. The larger “sticker price” on the original bill does not count if insurance negotiated it away. This cap comes from Section 41.0105 of the Texas Civil Practice and Remedies Code, and it can move your recoverable medical damages by tens of thousands of dollars depending on how your treatment was paid for.¹

What Section 41.0105 Actually Caps

The statute is short. Your recovery of medical expenses is limited to the amount actually paid or incurred by you or on your behalf.¹ It applies across the board in Texas personal injury litigation: car and truck collisions, slip-and-fall claims, medical malpractice, and the rest. The point of the rule is to keep juries from awarding money on bills nobody was ever going to collect.

What “Paid” Means and What “Incurred” Means

“Paid” is the easy half. It covers every dollar that has already moved to a provider, whether the check came from you, a private health insurer, Medicare, or Medicaid. If your insurer sent the hospital $3,200 for an emergency room visit, that $3,200 is paid.

“Incurred” is where the fights happen. An expense is incurred when you are still legally on the hook to pay it. The test is whether the provider retains the right to collect a balance. If the insurance contract with the hospital wiped out the remaining $8,000 on an $11,200 bill, that $8,000 is neither paid nor incurred, and you cannot recover it.² If you still owe a provider money and no contract or write-off has erased that debt, the outstanding balance counts as incurred.

How Insurance Write-Offs Shrink Recoverable Damages

Hospitals and clinics keep chargemaster rates, which are essentially list prices. Almost nobody pays them. Insurers negotiate contracts with providers that set discounted reimbursement rates, and the gap between the chargemaster figure and the negotiated rate gets written off. Once the provider accepts the contracted payment, it gives up the right to bill you for the rest.

That write-off is the heart of the paid-versus-incurred problem. The written-off portion was never paid and you have no legal obligation to pay it, so it does not qualify as “incurred” under Section 41.0105.¹ Provider billed $25,000, insurer paid $7,500, provider wrote off the rest? Your recoverable medical damages for that treatment top out at $7,500. This is where many plaintiffs feel the rule bite, because the damages number they can put in front of a jury is a fraction of what appeared on their bills.

Letters of Protection Flip the Math

Not every plaintiff has insurance, and not every insured plaintiff uses it. In many Texas personal injury cases, the injured person is treated under a letter of protection, an agreement among the plaintiff, the plaintiff’s attorney, and the provider under which the provider defers collection until the case resolves and then gets paid from the proceeds.

Because no insurer negotiated a discount and the provider still holds the full right to collect, the entire billed amount is “incurred” under Section 41.0105. A plaintiff treated under a letter of protection with $80,000 in chargemaster charges can present that $80,000 as damages, while a plaintiff with identical injuries whose insurance paid the same providers $22,000 is capped at $22,000. That asymmetry is one of the most consequential features of Texas personal injury practice.

The tradeoff is real. If you lose the case, you still owe the provider. And defendants routinely challenge whether the charges billed under a letter of protection are “reasonable,” which opens the door to expert fights over what the treatment was actually worth.

What the Jury Is Allowed to See

In Haygood v. Garza de Escabedo (2011), the Texas Supreme Court held that Section 41.0105 limits not just what you can recover but also the evidence a jury can hear.² A plaintiff cannot show the jury the original chargemaster bills for amounts that were written off. The jury sees only the expenses a provider has a legal right to be paid.

The reasoning was straightforward. Letting jurors see a $50,000 hospital bill when the real obligation is $14,000 would inflate apparent losses. Before Haygood, plaintiffs regularly introduced the full billed amounts, and juries had no way to know most of it was fictional. The fight over paid versus incurred now often plays out in pretrial motions, before the jury sees any numbers at all.

At the same time, Haygood preserved the collateral source rule. The jury sees the reduced number without being told why it is reduced.² Jurors do not hear that your insurer paid the bill or that the hospital wrote off $30,000, and the defendant cannot argue you were already made whole by coverage you had the foresight to carry.

Future Medical Costs Are Handled Differently

Section 41.0105 governs past medical expenses, meaning treatment you have already received. It does not cap future medical costs the same way.³ Nothing has been billed yet, no insurance adjustments exist, and the question shifts to what the care you still need will reasonably cost.

Proving those numbers usually requires expert testimony. A life care planner, often a nurse or rehabilitation specialist, reviews your records, consults with treating physicians, and projects a lifetime of anticipated care: future surgeries, therapies, medications, equipment, home modifications. In less catastrophic cases, a simpler medical cost projection may be enough, using existing billing data and standard pricing. The figures are presented at their projected reasonable cost, not reduced by any hypothetical future insurance discount.

Liens Can Take the Recovery Back

Recovering medical damages and keeping them are two different things. If your health insurance paid your bills, your policy almost certainly has a subrogation or reimbursement clause that gives the insurer the right to be repaid from your settlement. The insurer’s position is that the at-fault party’s liability coverage should bear the cost, not your health plan.

Repayment obligations can be created by the insurance contract or by statute. ERISA-governed employer health plans are especially aggressive because federal law generally preempts state-level limits on subrogation. Texas law places some restrictions on subrogation for non-ERISA plans, but most plaintiffs who settle a Texas personal injury case will owe something back to their health insurer.

Government payers have stronger recovery rights still. Under the Medicare Secondary Payer Act, Medicare is not supposed to pay for treatment when a liability insurer may be responsible, and any conditional payments Medicare does make must be reimbursed from a settlement, judgment, or award.⁴⁵ Medicaid works similarly. Federal law designates Medicaid as the payer of last resort, and states are required to pursue reimbursement from third-party liability sources.⁶

The result can feel counterintuitive. The paid-or-incurred rule already shrinks the gross medical damages you can present, and then subrogation may pull the paid portion back out of your settlement. A plaintiff whose insurer paid $15,000 in bills recovers that $15,000 as “paid” damages under Section 41.0105, then hands $15,000 back to the insurer.¹ Net medical recovery in that scenario is zero. Negotiating lien reductions is often where the real money in a personal injury case is won or lost.

1
State of Texas. Texas Civil Practice and Remedies Code 41.0105 – Evidence Relating to Amount of Economic Damages
2
Justia. Haygood v. Garza de Escabedo
3
National Center for Biotechnology Information. Recovery of Medical Expenses in Texas
4
Centers for Medicare & Medicaid Services. Medicare Secondary Payer
5
Centers for Medicare & Medicaid Services. Medicare’s Recovery Process
6
Medicaid and CHIP Payment and Access Commission. Third Party Liability