November 13, 2013

Mandatory SpendingOption 4

550 - Health

Limit Medical Malpractice Torts

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Mandatory Outlaysa -0.1 -1.1 -3.5 -5.3 -6.4 -7.1 -7.5 -8.0 -8.8 -9.3 -16.4 -57.1
Change in Revenuesb * 0.1 0.3 0.5 0.8 0.9 1.0 1.0 1.1 1.1 1.6 6.7
Change in Discretionary Outlays * * -0.1 -0.2 -0.2 -0.2 -0.2 -0.3 -0.3 -0.3 -0.5 -1.8

Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.

Notes: This option would take effect in January 2014.

* = between -$50 million and $50 million.

a. Estimates include potential savings by the Postal Service, whose spending is classified as off-budget.

b. Estimates include the effects on Social Security payroll tax receipts, which are classified as off-budget.

Individuals may pursue civil claims against physicians, hospitals, and other health care providers for alleged torts, which, in the medical field, primarily include 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 (such as lost wages, medical expenses, and pain and suffering) because of an injury caused by negligence. Malpractice claims are generally pursued through state courts, and states have established various rules by which those claims are adjudicated.

To protect against the risk of having to pay a very large malpractice claim, nearly all health care providers obtain malpractice insurance. The cost of that insurance results in higher medical costs because providers charge their patients higher fees to pay for their insurance premiums. In addition, providers’ efforts to reduce the risk of malpractice claims lead to greater use of health care than would be the case in the absence of that risk.

This option would limit medical malpractice torts nationwide in several ways:

  • Capping awards for noneconomic damages (also known as pain and suffering) at $250,000.
  • Capping awards for punitive damages at $500,000 or at two times the value of awards for economic damages (such as for lost income and medical costs), whichever is greater.
  • Shortening the statute of limitations to one year from the date of discovery of an injury for adults and to three years for children.
  • Establishing a fair-share rule (in which a defendant in a lawsuit is liable only for the percentage of a final award that is equal to his or her share of responsibility for the injury) to replace the current rule of joint-and-several liability (in which all of the defendants are individually responsible for the entire amount of the award).
  • Allowing evidence of income from collateral sources (such as life insurance payouts and health insurance) to be introduced at trial.

Many states have enacted some or all of those limits, whereas other states have very few restrictions on malpractice claims.

Limiting malpractice torts nationwide would reduce total health care spending in two ways. First, tort limits would lower premiums for malpractice insurance by decreasing the average size of malpractice awards (which would also have the effect of decreasing the number of tort claims filed). That reduction in the cost of malpractice insurance paid by providers would flow to health plans and patients in the form of lower prices for health care services. Second, research suggests that placing limits on malpractice torts would decrease the use of health care services to a small extent because providers would prescribe slightly fewer services if they faced less pressure from potential malpractice claims. Together, those two factors would cause this option to reduce total health care spending by about 0.5 percent, the Congressional Budget Office estimates. (For this option, CBO expects that changes enacted in January 2014 would take four years to have their full impact, as providers gradually modified their practice patterns.) Spending for Medicare would decline by a larger percentage than spending for other federal health care programs or national health care spending, CBO projects. That difference is based on empirical evidence that states’ restrictions on malpractice torts have had a greater impact on the use of health care services in Medicare than in the rest of the health care system.

The changes in this option would reduce mandatory spending—for Medicare, Medicaid, the Children’s Health Insurance Program, subsidies for coverage purchased through health insurance exchanges, and health insurance for retired federal employees—by $57 billion between 2014 and 2023, CBO estimates. Savings in discretionary spending, such as for health insurance for current federal employees, would amount to $2 billion over that 10-year period, if the amounts appropriated for federal agencies were reduced accordingly.

By decreasing 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 health insurance, which is a nontaxable form of compensation. Because the premiums that employers pay for that insurance are excluded from employees’ taxable income, lowering those premiums would increase the share of employees’ compensation that was taxable. That shift would increase federal tax revenues by an estimated $7 billion over the next 10 years.

A rationale for tort limits is the reduction in national health care spending that they would bring about. Another rationale is that, by leading to lower premiums for malpractice insurance, tort limits could help alleviate shortages of certain types of physicians in some parts of the country. For example, annual malpractice premiums for obstetricians exceed $200,000 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 limits on torts could make it harder for people to obtain full compensation for injuries caused by medical negligence. Another argument against tort limits is that reducing the amount of money that could be collected in the case of a medical injury might cause health care providers to exercise less caution, which could increase the number of medical injuries attributable to malpractice. However, the evidence is mixed about whether tort limits have an adverse effect on health outcomes. Some researchers found that when the risk of litigation declined, the use of health care services decreased and mortality rates increased. Another study found that changes to joint-and-several liability had positive effects on health but that caps on noneconomic damages had negative effects. Other studies concluded that tort limits had no impact on mortality or other measures of health.