Is What I Hear True?

I heard that...

...tort reform will decrease the cost of healthcare and should have been priority for healthcare reform. Is that true?

Tort reform, which deals with laws that affect personal injury cases, is very complicated. While some people believe that tort reform can lower healthcare costs, states that have enacted tort reform have not seen reductions in healthcare costs.

Tort law is a complicated system that deals with personal injury cases. Tort reform is the attempt to limit or cap the amount of money, or “damages,” an injured person can get from a medical malpractice lawsuit. Each state governs its tort law individually because there is no federal tort law. As of September 2009, over 30 states have enacted some form of tort reform, including Ohio and Indiana.

Some people think that tort reform can lower healthcare costs, but they differ on how it would accomplish this. Many people want tort reform to eliminate or reduce frivolous lawsuits, others want it to reduce medical malpractice insurance premiums, and others want it to allow doctors to stop practicing defensive medicine.

The arguments that malpractice lawsuits (frivolous or not) and malpractice insurance premiums are driving the increasing costs of the total healthcare system appear to be unfounded. The Congressional Budget Office (CBO) reports that total healthcare spending in the United States was just over $2.2 trillion in 2007. The total cost of malpractice insurance, legal costs for malpractice claims, and malpractice claims paid to patients was just over $30 billion in 2007. The $30 billion seems large, but it’s only about 1% of the total healthcare costs that year (Searcey and Goldstein, 2009).

Tort reform is often mentioned as a healthcare reform solution. Some believe that capping payments in lawsuits will reduce malpractice insurance premiums. In 2006, the cost of malpractice insurance began to stabilize nationally; it decreased in 2007 and 2008 (Sorrell, 2008). Rates are still high due to large increases in rates in the early 2000s. Several states that enacted tort reform, including Ohio, are seeing fewer malpractice lawsuits and their malpractice insurance premiums are stabilizing or decreasing (Searcy and Goldstein, 2009). Ohio remains one of the most expensive states to purchase malpractice insurance (Sorrell, 2008).

Cheaper malpractice insurance may be a result of tort reform. However, states that have not enacted tort reform are also experiencing decreases in malpractice insurance. Lower malpractice rates could help keep doctors in practice, encourage medical students to go into high risk practices like OB-GYN, and reduce the number of doctors that move to states with cheaper malpractice insurance. All of these are benefits to the healthcare system. However, reducing filed lawsuits and high malpractice insurance premiums will still not make much of a dent in total healthcare costs.

Some people also argue that the current status of tort law encourages doctors to practice defensive medicine, which in turn drives up healthcare costs. Defensive medicine is when a doctor orders more tests or procedures than might be necessary so that, if sued, the doctor can say that he or she did everything he or she could. When doctors are asked if the fear of being sued influences medical decisions, most doctors say that it is one of the factors leading to those decisions. Other factors include wanting to provide the best possible care, uncertainty about treating complex ailments, or wanting to increase profit (Searcey and Goldstein, 2009). It is unclear how much defensive medical practices increase total healthcare costs, but some estimate it is 2% of healthcare spending (Thomas, 2009). If tort reform truly reduced the practice of defensive medicine, you would expect to see lower healthcare spending in states that have tort reform. Ohio and Texas both enacted tort reform in 2003 and capped non-economic damages (for example, "pain and suffering") at $250,000, which is considered the strictest reform. Medicare data indicate that healthcare spending in Ohio and Texas continues to increase, not decrease. In the three years after reform was enacted, Medicare spending per patient increased 5.2% to 8.4% annually in Texas and in Ohio, 3.8% to 10% annually. These increases are consistent with the increases prior to tort reform (Dartmouth Atlas). Likewise, the CBO states that it "has not found consistent evidence" that tort reform reduces defensive medical practices (CBO, 2004).

National tort reform may be something Congress should address at some point, but it is not something that will drastically reduce healthcare costs. Since 34 states have already enacted some form of tort reform, many of the effects of tort reform have already occurred. If the estimates are accurate and all medical tort costs are 1% of healthcare spending and defensive medicine is 2%, we are still only talking about $90 billion out of $2.2 trillion. These are big numbers, but in perspective of the total picture, they are not a significant portion of healthcare spending. For more information, please see “The Numbers in Perspective.”

Locally, Ohioans ranked tort reform lowest on a list of priorities for healthcare reform in the Fall 2009 Ohio Health Issues Poll. For more information on Ohioans’ thoughts on tort reform and other healthcare reform issues, please click here.

Sources

Davis, Karen, Barbara S. Cooper, Rose Capasso. 2003. The Federal Employee Health Benefit Plan: A Model for Workers, Not Medicare. November 1. www.commonwealthfund.org/Content/Publications/Fund-Reports/2003/Nov/The-Federal-Employees -Health-Benefit-Plan-A-Model-for-Workers-Not-Medicare.aspx.

Merlis, Mark. 2003. The Federal Employee Health Benefit Plan: Program Design, Recent Performance, and Implications for Medicare Reform. May. www.kff.org/medicare/upload/The-Federal-Employee-Health-Benefit-Plan-Program-Design-Recent-Performance-and-Implications-for-Medicare-Reform.pdf.

Rand Compare. n.d. Overview of Allow Open Access to the Federal Employees Health Benefit Program (FEHBP) Policy Options. www.randcompare.org/options/mechanism/open_enrollment_in_fehbp.

Shapiro, Joseph. 2009. For Federal Employees, Insurance Plan Offers Choice. Morning Edition. National Public Radio. September 21. www.npr.org/templates/story/story.php?storyId=112893393.

 

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