Is a limit on damages the right way to reform the legal system?

by keith on 02/05/12 at 3:06 pm

It seems an article of faith that the legal system needs to be reformed. While this may or may not be true, one of the common arguments against the way the legal system works is the large verdicts that often end up in the news. One of the main ideas for “tort reform” is to impose upper limits (caps) on the damages that plaintiffs can receive from a jury.  In Illinois, the legislature has attempted to do this in 1995 and again in 2005.  Both times, the Illinois Supreme Court overturned the caps as unconstitutional.

One of the first states to impose caps on damages is Texas. In 2003, the Texas legislature imposed a cap of $250,000 on non-economic damages (all damages not including lost wages and medical bills). The rationale was that doctors were ordering unnecessary tests because of concerns about litigation. The insurance companies also claimed that they were forced to charge higher prices for malpractice insurance to offset high jury awards.

Unfortunately for the citizens of Texas, the caps on damages haven’t worked. A recent study by the Centers for Medicare and Medicaid Services (get the report here) shows that Texas now has the second highest per-enrollee Medicare spending in the country. This is an increase of 4% from 2003 when Texas was seventh in the nation. In 2009, Per-enrollee Medicare Part A and B costs were 14% higher than the national average (up from 10% higher in 2003). This means that there was NO decrease in the numbers of procedures performed as a result of the caps on liability. So the arguments about defensive medicine have been proven false.

If defensive medicine isn’t caused by litigation, what about the increases in malpractice premiums? Obviously, if plaintiffs you take away or severely limit someone’s ability to file a lawsuit, the payouts on those suits will decrease. This is what happened. From 2003 to 2010, medical liabilty insurers malpractice payouts decreased by 74%. But somehow, strangely, the medical liability premiums decreased only 50%. That means the insurance companies increased their profits by nearly 25%.

If the insurers benefited, who paid for those benefits? The people of Texas. Average family health insurance premiums increased 13% faster in Texas than the national average. That’s a net increase of over 50% from 2003 to 2010. As a result, the number of families forced to go without any health insurance at all increased to nearly a quarter of all families (24.6% as opposed to a national average of 16.2%).

So what do damages caps mean, increased profits for insurance companies, no changes in the number of procedures doctors perform and increased costs for the people of Texas. Insurers are the only ones who win.

55 Responses to “Is a limit on damages the right way to reform the legal system?”

  1. Rick

    Nov 30th, 2014

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    Nov 30th, 2014

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    Dec 1st, 2014

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    Dec 1st, 2014

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    Dec 1st, 2014

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