THE RIPPLE EFFECT OF HEALTH CARE REFORM

Health care reform has been painted as only affecting access to and payment for health care. But health care reform would have a positive ripple effect beyond the direct delivery of care that would benefit even those who are happy with their current health care. Here is where some of those ripples go:

TORT VERDICTS

Republicans in Congress champion tort reform, yet health care reform would be a huge step toward reducing tort verdicts.

A. Costs

1. Cost Efficiency. It’s been widely reported that the U.S. pays more for health care than other developed nations, both in pure dollar amount and as a measure of ratio to results. Because raw costs are higher, tort verdicts that reimburse health care costs are higher.

2. Cost Efficiency Multiplied. There’s another cost component to tort verdicts: pain and suffering. This is a normal part of a tort verdict. There is no additional threshold or requirement to show intent to cause pain; it’s just a given. Nor does any court try to measure an individual’s degree of pain and suffering. “Pain and suffering” is usually calculated as a multiple of actual costs. Jurors tend to perceive that higher medical bills means more pain and suffering. Though some states like California have a cap on pain and suffering awards, even in California, three times costs is not unusual, and ten times costs is not unheard of. Thus, high health care costs can affect tort judgments exponentially.

3. Precluding Lawsuits. Finally, consider that the biggest tort awards to individuals start with someone suing to recover medical expenses. However, if medical bills were taken off the table completely—if no one had to sue to recover medical expenses because everyone received care—there would be no medical bills to worry about. If everyone had disability insurance, there would be no loss of income as a result of injury. In short, for many plaintiffs who would otherwise receive high awards, there would be no need to sue.

Eliminating lawsuits for those suing to recover only medical costs would in turn reduce taxpayer-funded court costs, make room for speedier civil trials (criminals must be tried immediately, but civil cases can drag on for years) and reduce the need for civil jurors.

B. Compassionate Awards. The second way tort awards are affected by health care is really about how juries are influenced by how health care is delivered. The law recognizes that there will be times where a plaintiff is clearly injured, that the defendant may have contributed to the result, but that what the defendant did or didn’t do doesn’t warrant legal liability. Put another way, accidents happen. In these multitude of cases, juries are supposed to deny the plaintiff any recovery.

Many compassionate people serve on juries. They see that a plaintiff is truly injured, and they want that person to have adequate care, especially when the plaintiff is a conscientious, innocent victim. Though it is forbidden to even mention insurance during a trial (on pain of mistrial), juries are also not stupid. They know that companies and institutions have liability insurance and sick/injured people are far less likely to have health insurance. Thus, they may return a verdict of negligence just to make sure the plaintiff can pay medical bills and continue to receive care.

If paying for adequate care was not an issue—if everyone received care without question of cost—the motivation for these awards would disappear.

INSURANCE PREMIUMS

A. General Liability. Property and Casualty (P&C) insurance is very different from health insurance and largely sold by different companies. Liability insurance, part of P&C, is far more expensive because liability insurance pays for lawsuit expenses, settlements, and judgments. Reducing medical costs reduces court costs and verdicts, which reduces liability insurance premiums. For common types of coverage like home, auto, and business liability, P&C offers many choices and is priced competitively. Home, business, and auto insurance each have a property insurance component and a liability insurance component.

B. Medical Malpractice. Medical malpractice is a very specialized type of coverage offered by only a few companies, and only state by state. The reason is that the pool of buyers, health care providers, is small, and award sizes are large. Thus, there is a smaller pool among which to spread higher claims, which increases the business risk for the insurance company and premiums for insureds.

Med mal is considered a P&C coverage, albeit a specialized one. It exists to pay liability costs. Med mal is particularly hard-hit by “sympathy” verdicts because it’s just more likely that any little mistake by a doctor can result in injury. People make mistakes. We’d all hate to think that we could be sued for an ordinary lapse of concentration at work, but that’s what doctors face every day.

If med mal awards are reduced overall and “sympathy” awards eliminated, med mal premiums for health care providers can be substantially reduced. Since these premiums are factored into fees, reducing med mal premiums will reduce total health care costs, synergistically reducing verdicts further, and so on. Reduced awards would reduce the ratio of risk to number of insureds, and would result in more accurate pricing (less padding in premiums to protect against unusually high awards—lower premiums).

The more specialized the insurance coverage is, the less competitive it becomes, and the more the market is controlled by the insurance companies offering it.

BARRIERS TO COMPETITION

In addition, the roller coaster nature of the med mal insurance business creates a barrier to compete. A company had better be very sure it knows what it’s doing and have a lot of cash reserves before it enters the med mal market because it may not survive mistakes. It better also be prepared to slice a state’s insured pool even smaller.

If an auto insurance company has to pay unusually high awards in a year, it takes a notch off of profits. If a medical malpractice insurance company with its smaller pool of insureds has to pay unusually high awards in a year, it could go out of business. It’s not surprising then that even large states have few choices for required med mal insurance.

Reduced awards would have the ancillary benefit of lowering the business risk of med mal insurers and result in lower barriers to enter the med mal market. More carriers could reasonably compete (as they used to when verdicts were lower).

AGE DISCRIMINATION

Employers pay for group insurance based on statistics about their employee population, including age. The higher the average age, the higher the group premium. This is not the biggest factor contributing to age discrimination, but it’s not insignificant.

The biggest factor impacting age discrimination is still salary: older workers have worked their way up to earning more. But while an employer can negotiate salary with an older worker, especially during a recession, there is no negotiating benefit premiums.

REAL ESTATE

Real estate? Yes, real estate. Or more specifically, foreclosures. Even with unusually high unemployment rates, the number one reason for home foreclosures is medical bills.

LABOR EFFICIENCY

Thousands of people put off retirement they could otherwise afford so that they can keep job-related health benefits until they are eligible for Medicare. Those people are keeping others from moving up. Thousands more stay in jobs with benefits rather than strike out on their own. This reduces entrepreneurism, the backbone of economic progress and our competitive position in the world. These are inefficiencies that keep our GNP from developing to its full potential. Plus, a few jobs opening up would improve unemployment during this recession.