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Analysis: Will tort reform and fewer restrictions on insurance keep health costs down?

This article first appeared in the St. Louis Beacon, March 16, 2010 -Throughout the national health-care debate, the Republican leadership has focused on two issues -- tort reform and allowing the sale of policies across state lines -- as way to tamp down health-care costs. Addressing malpractice awards and limits on selling insurance, the party has said repeatedly, would fix much of what's ailing the system.

GOP leaders reiterated those themes last week during a rally to counter President Barack Obama's speech later that afternoon at St. Charles High School. Sen. Christopher "Kit" Bond and U.S. Rep. Roy Blunt of Springfield, two of the state's leading Republicans, didn't attend the GOP rally, but they denounced the Democrats' legislation as costly, job-killing measures on a conference call.

The debate over health care is likely to become even more heated as Democrats move within what they say is striking distance of approving a comprehensive health bill. This week is said to be so crucial that Obama is delaying his trip to Asia, hoping that Democrats are only days from rounding up the votes for health reform.


Republicans are urging Democrats to reduce the scope of the legislation and address the GOP's concerns, particularly medical malpractice and tort reform.

Tort reform has many meanings, but in this context, it relates to limits on non-economic damages for medical errors. These typically involve pain and suffering and aren't always easy to calculate. If a surgeon botches an operation or a patient develops a staph infection during a hospital stay, the parties might have no problem agreeing on the proper treatment. But they might be miles apart on how much the victim should receive for pain and suffering or for other side effects that might develop months or years after the error. 

Republicans argue that non-economic damages cause runaway health-care spending. Doctors and hospitals add that high malpractice awards for non-economic damages lead to excessive liability insurance premiums for them. The providers, in turn, practice defensive medicine by running more tests and performing more medical procedures to protect themselves against potential lawsuits. Defensive medicine has been listed repeatedly as one cause of health-care inflation.

Missouri already has a cap on non-economic damages.  Although the Missouri Medical Association has no immediate figures, it says that doctors began to pay less for liability insurance after the state imposed a cap on non-economic damages. What providers are charged for liability insurance depends in part on payouts for medical malpractice lawsuits.

A report in 2008 by the Missouri Department of Insurance said malpractice insurers, who used to barely break even or operate at a loss, reported returns of nearly 24 percent in 2008. Part of the reason, the state agency said, was due to fewer malpractice lawsuits being filed and roughly a 20 percent drop in the amount of claims since 2005, before the state imposed the cap.

Meanwhile the courts have issued mixed rulings on tort reform. Last month, for example, the Illinois Supreme Court threw out as unconstitutional a state law that had capped non-economic damages in medical malpractice cases. As a result, patients in Illinois will be able to collect higher awards for pain and suffering, which the challenged law had limited to $500,000 or $1 million. The award depended on whether the case involved a doctor or a hospital.


The Obama administration and Republicans agree on the need for malpractice reform; they disagree on how -- and how much. The president supports what's called medical liability alternatives. This involves giving states financial incentives to adopt alternative medical liability laws to reduce medical errors, disclose errors right away, and encourage prompt resolution of disputes, while making doctors' liability insurance more affordable.

The American Medical Association, among others, has praised Obama's approach as far as it goes. But the AMA and Republicans are disappointed that the president has consistently refused to support caps on non-economic damages. The GOP points to a Congressional Budget Office study showing that medical liability reform would reduce health spending by $54 billion over a decade. That estimate is based on a $250,000 cap on non-economic damages, which is lower's than Missouri's, and a deadline no later than one year after the alleged error occurred to sue.

Tort reform would move the nation only inches at best toward the broader goals of reducing health-care spending and covering the uninsured, according to many studies. Malpractice lawsuits are thought to make up 1-2 percent of the nation's $2.5 trillion health-care bill. One Congressional Budget Office report says that about 2 percent of hospital costs stem from malpractice premiums and awards and that doctors who say they practice defensive medicine as protection against lawsuits "may be motivated less by liability concerns than by the income it generates for physicians."


Tort reform is an issue on which both sides have entrenched positions. Equally tricky is the GOP's argument that the price of health care would drop if Congress allowed insurers to write policies across state lines. Republican Sen. John McCain embraced this idea during his presidential race; Bond and Blunt argue that the approach would give consumers more choices. While the idea seems simple, implementing it could lead to some unintended consequences, such as fewer consumer protections.

Insurers cannot easily write policies across state lines because each state regulates insurance sold inside its borders. Insurers can get licenses to sell in many states, but companies prefer to do business in places where they have the least competition and regulation. Market dominance, according to the AMA, is one reason insurers have been able to hike premiums by double digits. This market dominance, the AMA argues, has forced both doctors and patients to accept "take-it-or-leave-it pricing." Because the federal government has no direct control over price hikes by insurers, the Obama administration has tried to use the court of public opinion to pressure companies to back down whenever they propose to raise premiums to levels that the administration feels are excessive.

Obama says he supports the GOP idea of allowing companies to sell across state lines, but with ground rules that include minimum benefits for cross-state policies like those called for in the Senate's reform bill.

The president advocates giving the federal government more power to regulate insurance companies, a move that some states and federal lawmakers have decried as encroaching on state responsibilities.

For the most part, the GOP prefers to let the market decide pricing and benefits for insurance policies sold across state lines. Democrats saythat the GOP approach would create policies that would be cheaper, but might not provide the benefits the consumer needs most.

According to the Congressional Budget Office, allowing insurers to sell across state lines won't save much money or cover more of the uninsured. The CBO said in a report in 2005 that the measure would cut the price of individual health insurance by about 5 percent on average.


In his speech in St. Charles, Obama targeted waste and fraud in the Medicare and Medicaid programs as a way to save money and expand coverage to the uninsured. He seemed to be following up on a commitment he made to Sen. Tom Coburn, R-Okla. and other Republicans. Coburn, a physician, implied at the president's recent health-care summit that addressing fraud and waste would go a long way to reducing costs and suggested that the Democrats should focus on that rather than comprehensive health reforms.

After the health summit, the president promised to look at Coburn's ideas, perhaps as a gesture to bipartisanship. Still, Obama won't abandon his own comprehensive approach, saying that starting over, as some Republicans had urged, would amount to doing nothing. Instead, he has stuck by the principal argument that the GOP's go-slow approach won't do enough to fix health care.

The only issue both parties agree on is that the current level of health-care spending is unsustainable. Even so, it's far from clear whether Obama, whose party controls Congress and who invoked President Harry Truman during his visit to St. Charles, will be able to say that he didn't pass the buck on health-care reform.

What you need to know

This may be make-or-break week for health reform. House Democrats will take up the Senate's bill and make any changes they think necessary to round up the 216 votes needed for passage.

Then both chambers could pass a budget reconciliation bill by simple majorities. Contrary to some claims, the majority votes aren't about passing the entire Senate bill. Rather, the votes cover only the changes the House makes in the Senate bill. If the bill becomes law, the Congressional Budget Office estimates the cost at $875 billion over 10 years. That's $4 billion higher than an earlier projection.

The House is expected to consider changes, including some from Obama:

* Eliminate special Medicaid breaks to Nebraska and some other states.

* Close the so-called "doughnut hole" in Medicare prescription drug coverage.

* Strengthen the Senate's provisions to attack fraud and waste in Medicare and Medicaid -- included in response to comments by some Republicans.

* Increase the threshold for the excise tax on so-called "Cadillac" plans -- a move sought by labor unions.

* Create a Health Insurance Rate Authority to help states examine allegations of unreasonable rate increases and other unfair practices.

Although many changes would go into effect over time, others would be more immediate. These include: preventing insurers from denying coverage to children with pre-existing conditions (this won't apply to adults until 2014); setting up state-run, high-risk insurance pools; preventing insurers from placing lifetime dollar limits on coverage; and allowing children to remain on their parents' insurance plans up to age 26.

Over time, the basic Senate bill would extend health care to tens of millions of uninsured Americans through an expansion of Medicaid and other programs, and subsidies for premiums. A family of four with household income of $88,000 could get a subsidy.

The self-employed and small businesses could buy coverage through an insurance exchange. It would give people a range of private insurance choices, similar to how federal workers and members of Congress get their insurance. People who lose their health insurance also could get coverage through an exchange.

Funding for health reporting is provided in part by the Missouri Foundation for Health, a philanthropic organization whose vision is to improve the health of the people in the communities it serves.

Robert Joiner has carved a niche in providing informed reporting about a range of medical issues. He won a Dennis A. Hunt Journalism Award for the Beacon’s "Worlds Apart" series on health-care disparities. His journalism experience includes working at the St. Louis American and the St. Louis Post-Dispatch, where he was a beat reporter, wire editor, editorial writer, columnist, and member of the Washington bureau.