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Tort Reform’s Effects: Intended Versus Actual

by rachaelkennedy on April 23, 2012

As we saw in this Tort Reform article, the proposed U.S. H.R. 5 Act is a big issue to Americans.  The act will place a $250,000 cap on noneconomic damages in all U.S. medical malpractice lawsuits.  Most think this is a good thing.  According to the Congressional Budget Office (CBO), tort reform could save the U.S. government $54 billion dollars in 10 years.  This is because “Tort reform could affect costs for health care both directly and indirectly: directly, by lowering premiums for medical liability insurance; and indirectly, by reducing the use of diagnostic tests and other health care services when providers recommend those services principally to reduce their potential exposure to lawsuits.”  But the question is: Will tort reform really do as it is predicted?

The Act tells citizens what it wants to do and how it wants to do it; but what it doesn’t specify is how the plan will work.  And the way it will work is a ripple of cause and effects that will ultimately lead to a decrease in medical malpractice lawsuits.

First, in placing a federal cap on noneconomic damages, tort reform will diminish lawyers’ incentive to both specialize in medical malpractice and take medical malpractice cases.  In limiting how much plaintiffs can receive for in noneconomic damages, i.e. compensation for the pain and suffering caused by a negligent health care professional, the federal act will ultimately limit how much money lawyers can take home when they win a case.  And because, as with anyone trying to make a living, lawyers work to make money, they will change professions or be highly selective in the medical malpractice cases they take.  This was seen in Texas, which implemented a $250,000 cap on noneconomic damages in medical malpractice cases in 2003.  The state saw nearly 95 percent of its medical malpractice lawyers either stop taking medical malpractice cases or leave the state.

Second, because there will be fewer lawyers to take medical malpractice cases and those that do will be incredibly selective in the cases they take, a dramatic decrease in the number of medical malpractice claims filed will be seen throughout the United States.  And because the majority of such claims are not frivolous despite media and political rhetoric, what this means is that those injured due to medical negligence will have high long-term medical bills that they might not be able to afford.  In Texas, both Medicaid and private health care costs increased in the 4 years following the caps implementation.

Third, with fewer claims filed, medical malpractice insurance companies will see a decrease in indemnity payments, i.e. insurance payouts for lawsuits brought against their insured physicians.  In addition to paying out less due to less lawsuits, medical malpractice insurance companies will being paying out less on medical malpractice cases in which the plaintiff settled or won their case because of the federal caps.

And this is where federal tort reform seems to be a success.  However, what it seems and what it is are two different things.  The idea was that in decreasing medical malpractice insurance companies’ expenses, said companies would lower the insurance premiums their insured doctors must pay.  This, in effect, would be savings passed down the line to patients and would lower health care costs.  Instead, insurance companies have pocketed the savings tort reform brought them.  According to the American Association for Justice, “In states with caps, the average loss ratio is 24 percent better than in states without caps. The same is true if profitability is measured by other methods.  ‘Profits on insurance transactions,’ the amount of money the industry makes on premiums alone was 25 percent in states without caps, but a significantly higher 45 percent in states with caps….  In states without caps, insurance companies took in just over twice what they paid out in 2008. However, in states with caps, insurance companies took in 3.5 times what they paid out. In effect, insurance companies continue taking in the same level of premiums, but pay out less in states with tort reform.”

So what will tort reform really accomplish?  The answer is three things.  It will save the government money by cutting down the number of lawsuits in courthouses nationwide.  It will increase the profits medical malpractice insurance companies make.  If states with caps are any indication of the effects federal tort reform will have, citizens, doctors, and personal injury lawyers specializing in medical malpractice can be sure to suffer while big business and government benefit.

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