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?

Oh, yeah.

Update: The first headline was awkward; I’ve changed it.


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Just push H.R. 3400, it has what most people want…not just conservatives.
It has a tort reform, it makes insurance more competitive, it has provisions for creating more medical care, it does not have a governement take over mentality. It does allow pre-existing, you can carry your insurance from work place to work place, or replace it.
Is it perfect? No, but it resolves all the issues that the vast majority want resolved.
H.R. 3400 is what we need to push…it is the Republican answer, it is a real legitimate answer.

right2bright on October 11, 2009 at 9:47 AM

‘Lawsuit reform’ certainly sounds better than ‘tort reform’.

This isn’t all – and it’s a bit more complex than it may sound at first, but verdict caps are wrong – it is simply more government regulation that is bound to go wrong, and impose injustices along the way. Verdict caps basically mean that you (as a juror) are not to be trusted when it comes to money. Reform of closing argument rules would correct the problem without resorting to legislating a cure for juror-stupidity.

ManUFan on October 10, 2009 at 11:29 AM

Sure we can put a cap on punitive awards. Why can’t the formula be simply 3x damages as suggested in ?

To whit, Say a 25 year old, whose annual income at time of injury is $60K is crippled for life and unable to work.

1) If a one time payment is made based on a reasonable lifetime expectancy that he had 40 years of work ahead of him, and @ 4% COLA. The award would be $180K/yr + 4% annual compounding for 40 years is approx $7.9 million. Alternatively, the damages could be for the total life expectancy, instead of just till retirement age. In either case, this is a far cry from 100s of million dollar awards.
2) An alternative would be to put funds in escrow and payout the award annually – however, that could cause the unscrupulous to find a way to terminate the victim prematurely.

On the other hand, if the victim is killed, there could be several approaches:
1) no dependents – $180K to next of kin.
2) Spouse only – $180K compounded for 7 years.
3) Spouse and children – $180K compounded until the last child is of age or 7 years, which ever is greater.

In the case that the victim is the spouse or child, use the highest wage earner’s rates.

For partial disabilities, i.e. 20% loss of functionality, then pro-rate accordingly for the duration of expected life expectancy.

As for damages that are temporary, such as lost time, then it’s 3x the total damages incurred.

That’s a change I can believe in

AH_C on October 11, 2009 at 3:25 PM

I have practiced law for many years, and I cannot stand the tort lawyer industry.

Most of them are little mor than merchants of misery who try to scam insurance companies and the business community.

It is a racket (I’m thinking RICO) which needs to be stopped.

The tort bar contributes very little to our country and to our citizenry.

I am in favor strict tort reform.

Conservatives and Republicans who wish to be re-elected need to make this an issue in 2010 and 2012.

Tort law run amock is the reason John Edwards (or at least his wife) lives in a 27,000 square foot house.

molonlabe28 on October 11, 2009 at 3:28 PM

The question is, is Tort reform, the way that the GOP presents it, Constitutional? NO and for the same reason that National Healthcare Legislation is unconstitutional, Congress doesn’t have authority under the Constitution. Tort reform at the State level seems perfectly copacetic with the Constitution.
Does the GOP want to be another version of the left and just ignore the Constitution?

nelsonknows on October 11, 2009 at 4:43 PM

You don’t recover punitive damages in 98%+ of the situations. So you already have your reform in almost all of the cases.

Economic damages also include health care expenses. If someone is severely crippled and needs medical care 24 by 7, that cost can easily run $500,000 or more each year. It’s not simply lost wages that go into the equation for economic losses (as opposed to non-economic losses for pain and suffering, loss of consortium, etc.).

75% of the states have already adopted a portion of tort reform, BTW, which suggests that much of the benefit to these laws has already been implemented.

Jimbo3 on October 11, 2009 at 6:38 PM

How can someone dispute that a plaintiff in one state suing a defendant in another state for substatial monetary damages is interestate commerce within the meaning of the US Constitution?

molonlabe28 on October 11, 2009 at 6:43 PM

Just push H.R. 3400, it has what most people want…not just conservatives.
It has a tort reform, it makes insurance more competitive, it has provisions for creating more medical care, it does not have a governement take over mentality. It does allow pre-existing, you can carry your insurance from work place to work place, or replace it.

–Right2bright, I don’t see anything in HR 3400 that requires states to mandate that insurance companies cover pre-existing conditions in private insurance policies. There is a provision that gives states $300 million to establish coverage for high risk individuals, and another provision which denies tax credits if they don’t, but there is no provision that requires states establish those pools, just like there is no provision that limits the amounts those individuals can be charged for premiums.

Jimbo3 on October 11, 2009 at 6:55 PM

I greatly admire the illustration. Reminds me of some jokes

What is the difference between a lawyer and a shark?
The shark kills you first

What is the difference between hitting a deer with your car, and hitting a lawyer with your car?
With a deer, you leave skid marks

What is the difference between a lawyer and a hyena?
The hyena has table manners

The one that makes me laugh

A truck driver had a grudge against lawyers. If he saw one while out on the road, the trucker would run the lawyer over if he could get away with it. One day on the highway the trucker picked up a priest who whose car had broken down. As they headed to town the trucker spotted a lawyer crossing the road and he hit the gas. Remembering the priest in the car, he served hard to avoid the lawyer and had to go off the road with a thump.

Turning to the priest, the trucker said, “sorry Father, I almost hit the lawyer”

“no problem” said the priest, “I got him with the door”.

entagor on October 12, 2009 at 1:54 AM

While lawsuit abuse is a problem, the real cause of the ridiculous cost of health care, is third party payers removing the free market controls of price.

Requiring a large minimum deductible, (say three months income,) will encourage shopping around for the best deals, and limit the number of people clogging emergency rooms with hangnails and such.

Using an income based system rather than a fixed dollar amount, both adjusts for economic means, and prevents the need of the law being revisited to adjust for inflation, reducing the ability of the legislators to quietly make fundamental changes to the law.

darktood on October 12, 2009 at 12:17 PM

While lawsuit abuse is a problem, the real cause of the ridiculous cost of health care, is third party payers removing the free market controls of price.

Requiring a large minimum deductible, (say three months income,) will encourage shopping around for the best deals, and limit the number of people clogging emergency rooms with hangnails and such.

–That would be possible if hospitals and doctors had a price sheet that lists prices for various procedures on an all-in basis. I haven’t seen that happen much in the real world.

Jimbo3 on October 12, 2009 at 1:55 PM

If a significant number of people started requiring pricing information before accessing care, it would change.

darktood on October 13, 2009 at 7:47 AM

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