Updated CBO Look At Malpractice Costs

Physicians and other health care providers have long complained about the costs of malpractice insurance.  Providers have also said, and evidence suggests, that they deliver some care which may not be necessary to avoid potential liability.  How much might be saved by reducing providers’ malpractice liability has been controversial.  At the request of Senator Hatch, the Congressional Budget Office has updated its estimates of potential savings from malpractice reforms.  (CBO Letter)  (Vita Advisors has an issue brief on malpractice and defensive medicine available on this website.)

The CBO says that about $35 billion a year is spent by providers on malpractice insurance premiums and other costs related to malpractice suits that aren’t covered by insurance.  This is around 2% of total health care spending.  A cap of $250,000 on noneconomic damages, a cap of $500,000 on punitive damages, a shorter statute of limitations, ending joint and several liability and modification of the collateral source rule, applied nationwide would reduce premiums about 10%, or would save about $3.5 billion per year.  The figure would be larger, but many states already have these reforms in place.

Looking at recent studies on the effect of malpractice liability on providers’ practice of medicine, CBO concludes that passage of the reforms described about would save about $5-6 billion more per year, for a total savings of $8-11 billion a year.  (CBO’s calculations described in the letter appear a little off, because the savings for premiums and the savings for defensive medicine appear to be calculated off different gross spending amounts.)  The effect on the federal budget over ten years would be a deficit reduction of $54 billion.  The reduction in total health spending over that period of time would appear to be at least $100-125 billion dollars.  That would pay for a lot of additional coverage.