Individuals may pursue civil claims against physicians, hospitals, and other health care providers for alleged torts, which are breaches of duty that result in personal injury. That system of tort law has twin objectives: deterring negligent behavior on the part of providers and compensating claimants for losses they incur (including lost wages, medical expenses, and pain and suffering) as the result of an injury caused by negligence. Malpractice claims are generally pursued through the state courts, and states have established various rules by which those claims are adjudicated. Nearly all health care providers obtain malpractice insurance to protect against the risk of having to pay a very large malpractice claim. The cost of that insurance results in higher medical costs because, in order to pay for the premiums, providers charge their patients higher fees. Furthermore, research suggests that placing limits on malpractice torts will reduce the quantity of prescribed health care services by a small amount.
This option would impose certain nationwide curbs on medical malpractice torts. Many states have enacted some or all of these limits, whereas others have very few restrictions on malpractice claims. The tort limits include caps on noneconomic damages (also known as pain and suffering) and on punitive damages; a shortened statute of limitations; restrictions on the use of joint-and-several liability; and changes to rules regarding collateral sources of income.1 The specific components of medical malpractice tort reform under this option are as follows:
Malpractice tort limits would reduce total health care spending in two ways. First, by reducing the average size of malpractice awards, tort limits would reduce the cost of malpractice insurance premiums. That reduced cost of malpractice insurance paid by providers would flow through to health plans and patients in the form of lower prices for health care services. Second, as noted above, tort limits would also reduce utilization of health care services by a small amount as practitioners prescribed somewhat fewer services when faced with less pressure from potential malpractice claims. In the estimation of the Congressional Budget Office, the combined effect of those two factors would be a reduction of about 0.5 percent of total health care spending. For this option, CBO assumed that a change enacted in October 2011 would have an impact that increased over time, achieving its full effect after four years, as providers gradually changed their practice patterns. In terms of federal health care spending, the percentage decline in spending for Medicare is estimated to be larger than the decline in spending for other federal health programs or for national health spending. That estimate is based on empirical evidence showing that the impact of tort reform on the use of health care services is greater for Medicare than for the rest of the health care system.
By reducing spending on health care in the private sector, this option would also affect federal revenues. Much private-sector health care is provided through employment-based insurance that represents nontaxable compensation. Because premiums paid by employers for health insurance are excluded from employees' taxable income, reducing such premiums would, on average, increase the share of employees' compensation that was taxable and thereby increase federal tax revenues by an estimated $13 billion over the next 10 years.
This option would reduce mandatory spending for Medicare, Medicaid, the Children's Health Insurance Program, subsidies for coverage purchased through health insurance exchanges, and the Federal Employees Health Benefits program by a total of roughly $50 billion from 2012 to 2021. Discretionary savings would amount to $400 million over the 2012-2016 period and $1.6 billion over the 2012-2021 period, if the amounts appropriated for federal agencies were reduced accordingly.
An argument in favor of this option is that it would reduce spending for health care services. Another rationale is that, by reducing premiums for medical malpractice insurance, the option could help alleviate shortages of certain types of physicians in some areas of the country. For example, annual malpractice premiums for obstetricians exceed $100,000 in some areas. Such high premiums may deter some obstetricians from practicing in those areas or from practicing at all.
An argument against this option is that tort limits could prevent those who have suffered substantial harm as a result of medical negligence from obtaining full compensation for their injuries. In addition, reducing the amount of money that could be collected in the case of a medical injury might cause providers to exercise less caution, resulting in an increase in the number of medical injuries attributable to negligence.
The evidence is mixed on whether tort limits have an adverse effect on health outcomes. Some researchers who have observed a reduction in the use of health care services as the risk of litigation falls have also found that reducing that risk produces a small increase in the mortality rate. Another study found that reform of joint-andseveral liability had positive impacts on health but caps on noneconomic damages had negative impacts. Other studies have concluded that tort limits have no effect on mortality or other measures of health.