The Cost of Malpractice Insurance and Malpractice Litigation is a Major Force in Driving Up Health Care Costs - Annals of Economic Idiocy, Part III

Fighting Economic Illiteracy One Idea at a Time

[Editor’s Note:  Conventional Wisdom has it that as the population in general and Policy Makers in specific have become more educated and more experienced over time, they would have more intellectually consistent and accurate thoughts on economics and economic policy.  Alas, this has not proven to be the case. Hence this series of articles]

The usual refrain from Conservatives is that out of control lawyers who sue Physicians for malpractice with no basis and receive outrageous awards are what is driving up the cost of health care in the U. S.  They point to very high jury awards in some cases as their proof.

Well, first of all in many cases a judge will substantially reduce the awards.  But the main point is that if one studies the role of malpractice insurance and costs in the health care system, the conclusion is that it has almost no impact.

The highly respected website The Incidental Economist has a report, and concludes.

In the same issue of Health Affairs, another study showed that tort reform, which might lead to a 10 percent reduction in malpractice premiums (not small), which might translate into a health-care spending reduction of 0.1 percent.

Yes, one tenth of one percent of health care costs could be reduced with Tort reform.

Well, has it ever been tried?  Yes, Texas enacted Tort reform to great fanfare.  What happened?

·         That’s actually an answerable question. You could look at areas where tort reform has already happened and see how things have changed. For instance, we could look at Texas, where non-economic damages on malpractice lawsuits were capped at $250,000 about eight years ago. You might remember when Rick Perry and Newt Gingrich said:

“Texas, for example, has adopted approaches to controlling health-care costs while improving choice, advancing quality of care and expanding coverage. Consider the successful 2003 tort reform.”

And the results

·         If anything, Texas’s Medicare spending (per enrollee) seems to have gone up faster than the nation’s since 2003. Hardly a persuasive argument for tort reform = cost control.

Why didn’t it work?  Well maybe Gov. Perry was too busy handing out state subsidies for Formula 1 racing.