Effects of Malpractice Reforms on Private Health Insurance Premiums

Tort reform is one of the major policy goals of many doctors groups. The American Medical Association claims that ”To preserve patients’ access to care, the AMA will continue to lead an aggressive, multi-year campaign to reduce medical liability premiums.” But as , malpractice expenses do not fully explain the drop in physician incomes in the recent years. 

This study explored the effect of non-economic damage caps on premiums. However, instead of malpractice premiums (upon which malpractice reforms do have an effect), these researchers looked far downstream to see if there were any effects on private health insurance premiums. Employer premium data were derived from Kaiser/HRET Employer Health Insurance Surveys and were matched to malpractice damage caps as noted in state codes.

The theory behind tort reform is that eventually the number and amounts of malpractice awards will decrease. Subsequently, malpractice premiums and the practice of “defensive medicine” should decrease. It is further thought that this will decrease health care costs and utilization, respectively, ultimately resulting in decreased health insurance premiums for consumers. This article examines this theory.

A literature review done for this article identifies empirical evidence that damage caps reduce malpractice premiums and limit the practice of defensive medicine. These data compare the effects of damage caps which range from a very tight $100,000 (2004 dollars) in Louisiana to $1,750,000 in Virginia. The study produced a power capable of detecting  a statistically significant $23 difference in monthly health insurance premiums. In this study, no statistical difference could be detected in health insurance premiums as a result of malpractice caps.

Commentary:

This study  opposes the argument held by doctor’s groups that tort reform (in the shape of malpractice caps) benefits patients or purchasers of health services. Perhaps the benefit of such reforms does not trickle down to patients because malpractice costs represent a very small amount of overall practice costs . Similarly, the effect of malpractice awards on malpractice costs is minimal (for every 1 percent increase in awards there is a corresponding 1 percent increase in malpractice premiums).

Policy makers should keep in mind that while malpractice caps are advantageous to doctors, the economic benefit to patients is non-existent. However, preserving a patient’s access to care means more than lowering premiums. If doctors perceive that it is too costly to practice in one place, they may move to a more favorable location, thus negatively impacting access to care in the area from which they emigrated.

Health Services Research. 2008. 43 (6): 2124-2142.

by

Cedric K. Dark, MD, MPH