September 01, 2006
2 min read

Noneconomic damage caps cut claims, malpractice premiums

But tort reforms reduce overall health care costs only slightly, Congressional Budget Office says.

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Noneconomic damage caps and other tort limits would reduce medical liability awards and liability insurance premiums, according to a recent Congressional Budget Office report.

The CBO report cited a paper in which Emory University Professor Kenneth E. Thorpe, PhD, contended that a noneconomic damage cap would reduce per-physician malpractice insurance premiums about 13%.

"Though there is some debate over the strength of the link between losses incurred by medical malpractice insurers and the premiums they charge, it is reasonable to assume that reductions in insurers' losses would, at least over the long term, lead to reductions in medical malpractice premiums," the CBO report said.

However, lower premiums alone would not cut overall health care costs, according to the report.

"A reduction of 25% to 30% in medical malpractice premiums would not, by itself, have a significant impact on total health care costs," the report said. "Malpractice costs amounted to an estimated $24 billion in 2002, less than 2% of overall health care spending. Thus, even a reduction of that magnitude in malpractice costs would lower health care costs by only about 0.4% to 0.5%, and the likely effect on health insurance premiums would be comparably small."

In another report, Daniel P. Kessler, JD, PhD, of Stanford University, called tort reforms the "best proven instrument for reducing medical liability premium growth," according to a report summary.

Kessler cited increased claim costs as the primary cause of premium increases. He also found that tort reforms decrease claim costs and physicians' premiums. He found no evidence that lacking competition, weak regulation, insurer investment decisions or other capital market dynamics contribute significantly to increasing premiums.

Kessler used data from the National Association of Insurance Commissioners and Texas Department of Insurance. The Physician Insurers Association of America (PIAA) sponsored Kessler's study. A report summary appears on the PIAA and Doctors for Medical Liability Reform (DMLR) Web sites.

DMLR Chairman Stuart Weinstein, MD, cited a Texas Tech Law Review study showing that, under the state's reform law, liability insurance carriers increased from about 4 to 30, with increased competition and lower premiums. Also, 3,000 new physicians have moved to Texas, especially those in the high-risk specialties of obstetrics-gynecology, orthopedic surgery and neurosurgery. The reforms have also attracted primary care physicians to many areas, said Weinsten, who is also immediate past president of the American Academy of Orthopaedic Surgeons.

Association of Trial Lawyers of America Communications Director Chris Mather dismissed caps as a "one-size-fits-all" solution to medical negligence.

"There's nothing to back up the correlation between the high cost of premiums the doctors pay for medical malpractice insurance and lawsuits," Mather said. "This is about the insurance company wanting to pay the least amount possible for injury. ... The civil justice system, the courtroom, is [victims'] last resort. It's the last place they can go to get what they need."

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