Common Sense Political Thought

Although I’m not sure that Dana agrees with me on this point, he has graciously offered to allow me to cross-post my thoughts on tort reform from PFB Blog. I even took the liberty of adding a new category to CSPT: “Tort Reform.” Thanks, Dana.

From PFB Blog:

Despite the asinine inclusion of tort reform, there are some great ideas in the GOP bill.

Absent from the republican proposal are key features of the democrats’ own legislation, such as mandates for employers to insure employees. Such a requirement creates additional burdens on small businesses that already struggle to keep their doors open. The republican draft also does not require Americans to purchase insurance, another feature of the democrats’ bill to which many object, nor does it force insurance companies to insure those with pre-existing health conditions, as the democrats’ bill would do, driving up insurance premiums dramatically.

Yet the draft offered by republicans does more than simply strike out elements of democrats’ faulty legislation. The proposal contains many key elements of genuine health care reform that citizens have encouraged their representatives to offer. The republican plan includes increased incentives for people to use health savings accounts, and caps non-economic jury awards in medical malpractice cases at $250,000. It also offers multiple incentives to states in order to drive down premiums, and allows health insurance to be sold across state lines, a move which would increase competition and help lower insurance premiums.

I’ve mentioned numerous times about the obvious benefit to allowing insurance to be sold across state lines. Incentivising private behavior is also preferable to any government-run solution.

But the tort reform… I’ll address the constitutionality of the matter, the statistics regarding the practicality of it all, as well as some frequently asked questions about litigation and its costs, but first I have to mention the free market assault.

Isn’t $250,000 a completely arbitrary number? How can we possibly know that no case is worth more than $250,000? Mind you, this does not mean every case gets a $250,000 payout. This is not like the workers’ compensation industry where employers are free from litigation costs, but in return they must pay out for any on-the-job injury – fault being irrelevant. You get hurt on the job, you get paid. Pretty sweet for the employee. What does the employer get? Immunity from suit. Win/win. No, this bill simply shields doctors – or, more correctly, the insurance industry. Your $10,000 case is still worth $10,000. Your $50,000 case is still worth $50,000. Your $250,000 case is still worth $250,000. But your $300,000 case is now worth $250,000. Your $500,000 case is now worth $250,000. Etc. So you gain nothing, the doctors and insurance companies basically get immunity.

Think about that number: $250,000. Obama’s photo-op over the Statue of Liberty cost $250,000. The minimum major league salary is $390,000. 12 US States have average home listing prices in excess of $413,000 (38 US states have average listing prices greater than $250,000). Of course, no cite is needed for the absurd costs of military weaponry, or even the cost of a prized racehorse.

But we have now decreed that the value of your child, dead due to the negligence of a doctor or medical facility, is worth $250,000. What is worse – we have not decreed that a dead child is only worth so much, or even that law suits for dead children are frivolous. We have simply decreed that damages for dead children who are dead as a result of a doctor’s negligence are capped. If your child dies in a fire there is no cap; if your child dies in a plane crash there is no cap; if your child dies because of the reckless behavior of some drunk in his car there is no cap; but if your child dies because of the negligence of a doctor, well, suddenly your child just became worth less…for some reason. If reforming the legal system is such a necessity, then why wouldn’t all damages for personal injury be capped at $250,000? What possible relevant distinction can be made to those injuries caused be a doctor and those caused by a driver?

Mind you, I have no problem with the average salary of a baseball player, the average listing price of a home, or even the absurd price one might pay for a purebred racehorse. Those numbers are all market-driven. Thus, the numbers indicate the true cost of those items – their true value. But when we arbitrarily limit the amount a mother can receive for the death of her child due to negligence by members of a specific industry, or the amount a son can receive for the death of his father, we take the market out of the equation. As I’ve said before, no one gets paid a dollar in any medical malpractice action unless a) the hospital/doctor settles in lieu of trial (market-driven risk assessment), or b) a jury of local, average individuals hear the evidence from both sides (which includes expert testimony from doctors who live in the same locale and work in the same area of expertise who testify, based on their medical experience and based on the standard of care also established by local doctors, that the defendant breached the standard of care) and find in favor of the plaintiff. That same jury then decides what the value of the death (or injury) is worth. Each case is decided differently, and each case is unique.

But now we are deciding, at some bureaucratic level, that the market is unnecessary and/or that we already know the maximum possible value of any death caused by a doctor’s negligence. It is ridiculous to think that conservatives actually buy in to this nonsense.

We should also remember that the empirical data suggests that legal costs are a pittance.

According to the actuarial consulting firm Towers Perrin, medical malpractice tort costs were $30.4 billion in 2007, the last year for which data are available. We have a more than a $2 trillion health care system. That puts litigation costs and malpractice insurance at 1 to 1.5 percent of total medical costs. That’s a rounding error. Liability isn’t even the tail on the cost dog. It’s the hair on the end of the tail.

We have approximately the same number of claims today as in the late 1980s. Think about that. The cost of health care has doubled since then. The number of medical encounters between doctors and patients has gone up — and research shows a more or less constant rate of errors per hospitalizations. That means we have a declining rate of lawsuits relative to numbers of injuries.

So not only is the idea preposterous on its face, it won’t fix anything simply because it doesn’t address an actual problem.

What about frivolous lawsuits? Again, no one gets a dime unless the defendant voluntarily pays or the jury decides they (the plaintiffs) are entitled to it. But everyone likes good statistics, so here are some:

The best data on medical errors come from three major epidemiological studies on medical malpractice in the 1970s, 1980s and 1990s. Each found about one serious injury per 100 hospitalizations…Those same studies looked at the rate of claims and found that only 4 to 7 percent of those injured brought a case. That’s a small percentage. And because the actual number of injuries has gone up since those studies were done — while claims have remained steady — the rate of claims is actually going down.

Then there is that pesky little study that shows that caps don’t actually limit the number of lawsuits (frivolous or otherwise):

The Congressional Budget Office in December filed a report, based on a study of states that do have caps on damages, that showed little effect of lawsuits on the cost of health care.

“In CBO’s estimation, the effect would be relatively small – less than 0.5 percent of total health care spending,” the report of the nonpartisan agency stated.

And I’ve said before with regard to the claim that so many “frivolous lawsuits” are bringing up costs:

The whole idea has been debunked in studies, but also fails even the basic “smell” test. Lawsuits cost a lot of money to bring. You have to pay for experts, depose witnesses, pay for records, travel, etc. Plus, prosecuting the claim requires untold hours – weeks and weeks of time. No attorney is going to take a completely frivolous case and sink tens of thousands of dollars and hundreds of man hours in to it. It makes no sense. The principle that makes the market work so well in other respects – the assessment of risk on the part of individuals doing business with each other – is what keeps frivolous lawsuits down. No one is going to take such a risk and lose so much. 99 times out of 100 there must be a definite “case” before a lawyer is going to take it.

Certainly, some lawyers will misjudge the risk and take poor claims, but they are a small percentage. And they are not very good lawyers and they will not be around to make future claims. In any event, good and bad lawsuits, combined, only account for 1-1.5% of medical care costs.

And:

Nor can any of you, or I, determine the the viability of a claim simply by reading a newspaper account of the case, much less a newspaper account of just the demand. But even if you could: how does tort reform reduce frivolous lawsuits? Lawsuits that are truly frivolous collect nothing for the plaintiffs. So why would capping the damages matter? If someone “would have” recovered $500,000, but now only recover $250,000 because of a cap, the case was not frivolous (they recovered either way)! And whether or not there is a maximum or not, a frivolous lawsuit goes nowhere. People only get paid if a jury believes them (i.e. claim was not frivolous) or a defendant assesses the risk and decides there is a real risk of a jury finding against them (again, claim was not frivolous) and, thus, settles the case for less than what they feel they may be forced to pay should a jury make the final decision. Simple negotiation.

Finally, to that charge that costs are up because doctors must practice “defensive medicine” (recall that these so-called “big costs” are 1-1.5% of health case costs):

I’ve always found it interesting that we label a doctor’s choice to run MRIs and other sophisticated tests on patients as “defensive medicine.” This is a label concocted by the insurance companies and their lobbyists to cause people to believe that the testing is somehow illegitimate or wasteful.

The truth is that no doctor would run these tests if the doctor already knew what the patient’s particular health issue was.

And although no one will care to actually consider it, let’s also recall that it is certainly unconstitutional. Negligence law was developed through the common law dating back to England, and developed uniquely within each individual state in our Union. When a doctor is sued in Iowa he is subject to Iowa law (which has developed and/or been codified throughout Iowa’s history). Likewise, a doctor sued in Illinois is subject to Illinois law. No medical malpractice action is based on “American” or “federal” common law. Where would the federal government get the authority, or the right, to preempt each individual states’ common law development, or even those parts of the common law that have been codified? This area of the law has been strictly state-controlled since the dawn of our Union. See Article I, Section 8 of the US Constitution. Said section lays out the enumerated powers for the legislature. Then see Amendment X of the US Constitution, which specifically reserves all rights to the States except those specifically granted to the United States.

Bottom line: health care is expensive because insurance companies have a virtual monopoly in their business and in their state, because health insurance covers everything, unlike auto insurance (imagine the cost of your auto insurance if it covered every oil change, gas fill-up, or brake job), and because doctors do not have to deal directly with patients when setting costs – they treat you, then bill a third-party. The doctors and the third-party (insurance) only need to consider medical costs insofar as the two of them can continue to make a profit. The rest of us just get slammed with higher premiums. But what can we do? The cost of medical care (the same costs that make our premiums so high) makes it unthinkable to not have insurance – it’s like jumping without a parachute. The higher the doctors raise their costs, the more we need the insurance company’s insurance.

The solution? If conservatives want to tackle health care costs, they need to permit insurance companies to do business across state lines (Interstate Commerce Clause gives Congress this power) and increase competition. The individual states, which already regulate insurance 100%, need to set out what is and is not covered by a health insurance policy (just like they do with auto insurance). Routine appointments (oil changes, gas fill-ups) should be excluded. Completely foreseeable check-ups and physicals (new brakes every 50,000 miles) should also be excluded. If you can foresee these events, you can save for them. Reducing the insurance costs (from payouts to paperwork) for all the incidentals would drive premiums down – most of us will never see the doctor for a catastrophic loss, yet we routinely bill the insurance for little bits of this-and-that. Saving insurance for catastrophic events (which is the whole point of insurance in the first place), thus creating an actual risk pool between and among the insureds, would also drive premiums down. Do this at the state level so that the legislation can be responsive to the particular needs of the people and to cut down on bureaucratic costs.