CBO: Tort reform would reduce deficit by $54 billion
posted at 11:10 am on October 10, 2009 by Ed Morrissey
Lost in the shuffle of the CBO scoring of Max Baucus’ non-existent bill on the health care overhaul system this week is another analysis by the CBO on tort reform. According to CBO director Douglas Elmendorf on his blog, the CBO studied the impact of both the reduced cost of litigation and the elimination of defensive medicine that would result with tort reform. Elmendorf says that tort reform would reduce the federal deficit $54 billion over the next ten years, more than the fee Baucus plans to charge insurers for the privilege of existence (via MarySue at Ruby Slippers):
CBO now estimates that implementing a typical package of tort reform proposals nationwide would reduce total U.S. health care spending by about 0.5 percent (about $11 billion in 2009). That figure is the sum of a direct reduction in spending of 0.2 percent from lower medical liability premiums and an additional indirect reduction of 0.3 percent from slightly less utilization of health care services. (Those estimates take into account the fact that because many states have already implemented some of the changes in the package, a significant fraction of the potential cost savings has already been realized.)
Enacting a typical set of proposals would reduce federal budget deficits by roughly $54 billion over the next 10 years, according to estimates by CBO and the staff of the Joint Committee of Taxation. That figure includes savings of roughly $41 billion from Medicare, Medicaid, the Children’s Health Insurance Program, and the Federal Employees Health Benefits program, as well as an increase in tax revenues of roughly $13 billion from a reduction in private health care costs that would lead to higher taxable wages.
But that’s not the end of the savings, either. A 0.5% reduction in health-care costs would mean $11 billion in savings per year overall, with roughly 40% of that benefiting the federal government in Medicare and other federal program costs. That amounts to a whopping $110 billion in cost savings over ten years to the entire medical industry, which would help keep premiums in check for consumers.
Unlike other mechanisms in the various Congressional plans, this would actually benefit consumers and accomplish what reformers claim to want — an end to overuse in the American system. By eliminating the defensive medicine that providers must practice to avoid predatory malpractice actions, tort reform will actually make the system more responsive and more flexible for patients. Less time will get wasted, fewer claims will get filed, and patients will get the care they need and not what the providers’ lawyers require.
Of course, tort reform isn’t in any of the packages Congress has under consideration for the coming health-care overhaul. Instead, Congress wants to play class warfare with “fees”, excise taxes, “windfall profits taxes” on an industry averaging a 3.3% profit margin while trial lawyers earn an average 14% profit margin — all of which will result in those costs getting passed to the consumer, making health care even more expensive than it is now. Why won’t Congress pass tort reform, an effort that would really reduce costs and reform the health-care system?
Update: The first headline was awkward; I’ve changed it.