Medical Malpactice Costs - They're Lower Than You Think

There's a supposed healthcare crisis with regard to medical malpractice costs. However, the facts don't seem to support the idea of a crisis. For example, total healthcare expenditures in 2001 were $1.42 Trillion dollars. Medical Malpractice expenditures were $7.3 billion - less than one half of one percent of medical expenditures. (From 2001 US Census) That one half of one percent figure doesn't sound like a crisis to me. But, let's assume that it is. How would we fix it?

Well, not by enacting tort reform; just ask the VP of State Farm:

"[W]e believe the effect of tort reform on our book of business would be small. ... [T]he loss savings resulting from the non-economic cap will not exceed 1% of our total indemnity losses." - Robert J. Nagel, Assistant VP State Farm

State Farm isn't alone, either. In Florida, a $450,000.00 cap on noneconomic damages was put into effect. Aetna then analyzed their previous malpractice payouts to determine whether the new cap would be able to lower their costs. Here's what Aetna had to say: "[T]he review of actual data submitted on these cases indicated no reduction of cost."

OK, so State Farm and Aetna don't think that tort reform lowers costs or premiums. Let's keep looking to see if any insurance company does.

In the eighties, Washington state enacted some of the most draconian tort reform ever in an attempt to lower malpractice premium rates. Did it work? Not according to General Accident Insurance Company (GAI), one of the largest malpractice carriers in Washington state. GAI said this immediately after the legislation they lobbied for took effect:"Given that liability losses constitute such a low proportion of business owners' losses, GA feels it is prudent to continue with its original proposal of a 10 percent increase in base rates."

Just in case you missed it. GAI raised insurance rates right after tort reform took effect because liability lossed constituted such a "low proportion" of their costs. Allstate was even worse: "[O]ur proposed rate would not be measurably affected by the tort reform legislation." Allstate then wanted to raise rates by a whopping 22%! Thankfully, the Washington Supreme Court ruled the tort reform laws to be unconstitutional in 1987.

Will tort reform lower malpractice caps? No. Ask the insurance carriers - they'll tell you! And so will their trade groups:

"We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates." - Sherman Joyce, President of the American Tort Reform Association.

The only sure way to lower malpractice premiums is to regulate the insurance industry to cap premiums.