Medical malpractice insurance has skyrocketed in the last 5-6 years, hitting certain specialties extremely hard. As a result, many health care providers feel they have been forced to raise prices to compensate for the increase in insurance premiums. This may well be the case, but a simple solution based on free-market principles has not received much attention and would alleviate much of the price inflation. Not only would doctors benefit, but the vast majority of patients – and insurance companies – would be left paying reduced prices and lowering the cost of care for those willing to participate.
Currently, only a small percentage of cases involving perceived malpractice are brought to court and plaintiffs awarded hefty sums for their suffering. But that small handful – who are largely responsible for raising liability insurance premiums over the past half-decade – are charged the same as the vast majority who avoid using the legal system as a means of redress.
One possible solution is the following: at the time of purchasing an insurance plan, individuals would determine their own cap for non-economic damages in the case of malpractice on the part of their provider. Poorer people might be willing to forego more expensive plans in exchange for a promise not to bring lawsuits against doctors and hospitals except in extreme cases of negligence. As a result, healthcare providers will know their personal level of liability ahead of time and price their services accordingly. Patients less inclined to seek damages in the case of something going wrong will likely be charged less, while those more inclined to do so could be charged more.
When punitive damages are either unlimited or capped at one global rate, many in need of care are still priced out of the market. On the other hand, if that limit is adjusted on the basis of one’s willingness to avoid litigation, price discrimination may just do a better job matching what the doctor is willing to charge with what the patient is willing to pay.
In turn, liability insurance will decrease as a result of insurance providers being able to more accurately predict what a policy will cost them based on the category of patients (those more willing to seek damages versus those who are not) a doctor is treating.
Ultimately, poorer patients benefit from reduced prices for the same services, doctors benefit from peace-of-mind as well as lower liability insurance, and insurance companies benefit from improved mechanisms of gathering information on what patients and doctors will cost if they choose to offer them a policy.