One Little Discussed Way to Solve America's Healthcare Crisis
Healthcare is Complicated, but the Solutions Aren't
Unless you have buried you head in the sand for three decades, you must recognize by now that America’s healthcare system is a mess. I dare say that you almost couldn’t design a more utterly useless, expensive, and chaotic excuse for a “healthcare” system if you tried. The current system leaves millions of people out in the cold, costs far more per person than any other nation, and yet American’s aren’t living longer or healthier. In fact, American’s are living shorter and more miserable lives than much of the world. If there ever was a time for a total reset and rethinking of healthcare…it is now, in the midst of a pandemic.
There are many reasons that healthcare in America is so insanely expensive, but for this article we are going to focus on one particular cause: the high cost of medical malpractice insurance. In America’s litigation-happy culture, doctors have to purchase ever more expensive insurance plans (some over $200,000 a year) to cover them in the event that they are sued….and this cost is trickling down to you, your insurer, and your employer.
Understanding Tort Reform
In malpractice claims, there are typically three types of compensation or “damages,” Special Damages, General Damages, and Punitive Damages. Special Damages are those that have a fixed dollar amount (like lost wages or medical bills), General Damages are those that are intangible (pain and suffering, emotional distress…etc), and Punitive damages are intended to punish (usually a court will order punitive damages if the offender has been grossly or willfully negligent.)
Tort Reform is one potential means of making healthcare more affordable. Tort Reform is a broad term encompassing a number of actions all intended to 1) Reduce the potential cost of lawsuits and 2) Reduce the incentive to file frivolous lawsuits. Here are some examples of Tort Reform actions:
1) Reduce the statute of limitations for filing claims.
The evidence needed to defend against lawsuits diminishes over time. Shortening the Statute of Limitations ensures that defendants are able to defend themselves and not forced to settle.
2) Cap total General Damages that can be awarded.
Jury verdicts, often in the millions of dollars for pain and suffering, are providing a perverse incentive to dramatically inflate accusations and while forcing defendants to settle early to avoid immense losses.
3) Amend Joint and Several Liability
In many states, plaintiffs can collect money from anyone found liable, regardless of their degree of liability. This results in lawsuits directed against the deepest pocketed party…even if that party is only tangentially connected to the claim.
4) Amend the Collateral Source Rule
In many states, plaintiffs can double dip on damages. If they have medical bills as the result of an accident, for example, but those bills were paid by their own health insurance, they can still sue for those damages and collect what their health insurance already paid.
But How Does Tort Reform Help Anyone?
You might be thinking, but doesn’t this curtail the ability of people to sue bad doctors for their negligence? That is a fair point, but the problem is, like many areas of litigation in America, the deck is stacked against defendants. Even though we pride our judicial system’s alleged presumption of innocence, the reality is that many Plaintiffs attorneys work for free (in exchange for a portion of the final settlement) while doctors/insurers are forced to outlay huge amounts of money to defend themselves when sued.
Even if a doctor did nothing wrong, they or their insurance will likely spend $50,000+ just beginning to defend a lawsuit. Total attorneys fees can easily run into the hundreds of thousands of dollars and are often higher than the damages being sought. Plaintiffs attorneys know this: even if they don’t have a great case, they know that they can likely win a settlement simply because the defense will pay tens of thousands to settle early to stop bleeding red ink.
But there are indirect losses too. In order to protect themselves against future lawsuits, doctors are practicing what is called “defensive medicine.” That is, doctors are ordering additional and unnecessary tests and procedures on patients not because they think they are needed, but in hopes that it will bolster their defense should they be sued for malpractice. It is estimated that about one in four dollars spent each year in healthcare is done so defensively…or an incredible $650 billion a year.
All of this is to say, shake down settlements, attorneys fees, and defensive medicine are running up the costs of healthcare….eating directly into your paycheck. This needs to change.
This isn’t purely anecdotal or theoretical, there is evidence that Tort Reform works to lower healthcare premiums. The American Action Forum found a statistically significant negative relationship with states that adopted Tort Reform on insurance premiums, with some states seeing total premium declines of 2.7%.
Of course, the above evidence shows that Tort Reform, while an important step, is far from a total and comprehensive solution for the high cost of healthcare. It is a fair bet, however, if Tort Reform were implemented on a national scale, the dividends would be considerably greater than those illustrated on a state by state basis due to the multiplier effect of being scaled up nationally.
An alternative to Tort Reform would be a total re-imagining of the system along the lines of the existing Workers Compensation System. Such a system, called the Patient Compensation System, would transfer the processing of claims from the litigation system to an administrative one. Instead of juries and judges adjudicating claims, an independent board of specialists would determine if a claim has merit, while a separate compensation board would determine the compensation due. The intent is to reduce the time required to conclude claims from years to months, make compensation more predictable, and eliminate the attorneys fees that greatly increase expenses and risks, thereby discouraging defensive medicine and reducing healthcare costs.
The Bottom Line
The pandemic has illustrated the painful weaknesses of America’s healthcare system. If America is going to improve healthcare quality and coverage, it needs to first get the price per person under control. Tort Reform is but one arrow in the quiver that gets us closer to quality and affordable care for everyone.