Lowering the Cost of Care and Medical Malpractice Insurance


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.



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Three points

1) My health insurance company (A) is not going to give me a break on my insurance rates for making a concession that benefits my doctor's malpractice insurance company (B), becasue A has no connection to and does not give a damn about B.

2) My doctor might be interested in charging some of his patients X and some of his patients X plus 33% for the same procedure, but it won't work, becasue A is just going to reimburse the same amount in both cases. In other words, sure, he can submit a bill for X plus 33%, but he's only going to get paid for X.

3) Our health insurance crisis is being caused by A, not B.

Interestingly, the one surefire way to get a discount on health care is to pay by personal check - the doctor is so relieved to not have to work with A that he'll charge you less.

In response

Let me first address your third point, and then come back to the first two.  You're right, the health care crisis is not being caused by B, a doctor's malpractice insurance.  Most estimates say that B may only cause a 1 or 2 percentage increase in total costs and therefore solving that problem will not do much for the overall system.  But, talk to any doctor (or any med student) and hear the horror stories that some specialties (OBGYN's, especially) have to pay tens of thousands of dollars towards malpractice insurance and you'll understand why this issue needs to be addressed nonetheless.

As for your first points, you're thinking of the price discrimination backwards.  Instead of charging one person X and another X + 33%, doctors will continue to charge X to most patients but instead X - 33% to those who ahead of time have acknowledged that they will not bring suit against him or her.  Maybe it would be for purely economic reasons, or maybe, as you suggested, a headache (for different reasons, of course) over a possible lawsuit is alleviated and so doctors won't mind discounting somewhat (maybe not as much as 33%, maybe less).  The point is, your health insurance company will get charged less, presumably, and so they will pass some of those savings on to you, presumably.  Perhaps it's wishful thinking, but I see it as a possibility if malpractice insurance continues to rise as it has in the past half decade. 

Ah but A....

You are assuming that the doctor is tells A how much he is entitled to be paid for each patient. He doesn't. A tells the doctor how much he will be reimbursed for each procedure. The doctor reports to A what he has done via a code, and A pays a certain amount for that code. The identity or the particulars of the patient are involved, other than to determine whether or not that person has a policy. Would A introduce a two-tiered system to accomodate those who will and those who will not accept a cap on tort claims? No, becasue A's overheads are already enormous and he won't accept an additional burden on them to help out B.

A "solution" without a problem

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.

...except for the fact that those who sue are not awarded "hefty sums," and are not responsible for rising malpractice insurance premiums. Public Citizen just crunched the latest numbers, back in July:“For the third straight year, 2008 saw the lowest number of medical malpractice payments since the federal government’s National Practitioner Data Bank began tracking such data in 1990. The 11,037 payments in 2008 were 30.7 percent lower than the average number of payments recorded by the NPDB in all previous years. Ratios of payments per capita and per physician have fallen even lower compared to historical norms."

The spikes in malpractice insurance premiums don’t come from lawsuits (which are dropping every year). They’re a consequence of greed (the same thing driving up health care costs in general), economic downturn (such as the sustained miserable economic performance of the Bush administration and its current wretched recession), and, most importantly, are always tied to a lot of incredibly stupid financial decisions by the insurance companies. When times get hard, and when they put their money in things that go bust, they use their doctor clients to make up the difference. The data show no real connection between the  cost of malpractice premiums and malpractice suits.

Anyone serious about dealing with malpractice suits (which, contrary to well-funded mythology, aren't really a problem anyway) would focus on weeding out the handful of abusive physicians who are responsible for most malpractice, yet are allowed to continue practicing medicine year after year. From 1990 (when the NPDB was created) to 2005, 57.8% of malpractice payments were made by only 5.9% of doctors. By contrast, 82% of all doctors in that time had never had a malpractice payment at all.