Bush’s Solution to Rising Health Care Costs

As has been pointed out here in several posts over the past few months (e.g., see here, here, and here), the rapidly rising cost of health care in the US is a large and growing problem. In his speech the other night, Bush reiterated his plan to get the rising cost of health care in the US under control:

To make health care more affordable and accessible, we must pass medical liability reform now.

That’s his plan. He will try to contain rising health care costs by limiting the awards that people can receive from malpractice lawsuits.(*)

What effect is that likely to have on health care costs in this country? According to a CBO briefing on the subject, the total cost of malpractice lawsuits in the US was about $24 billion in 2002, up from about $21 billion in 2000. Their estimates are that significant tort reform may be able to cut these costs by 25 to 30 percent, thereby reducing some of this country’s health care costs by $6 or $7 billion per year.

Unfortunately, the total cost of health care in the US was about $1,557 billion in 2003, an increase of about $110 billion from 2002. If tort reform had been passed earlier this year, and every dollar saved from reduced malpractice suits was passed on to consumers, then the effect on the country’s health care bill would (with luck) have been to reduce it from perhaps $1,670bn in 2004 all the way down to $1,663bn. Instead of a 7.2% increase in health care costs, we would have been faced with a 6.8% increase in health care costs this year. Of course, this would only be a one-time savings, and would have little or no impact on the growth of our health care costs in subsequent years.

Such figures suggest that tort reform would effectively do absolutely nothing to reduce health care costs in this country.

What about possible gains through the reduction in “defensive medicine,” which is the possibility that physicians may be ordering unnecessary procedures due to fear of malpractice lawsuits? Some partisan groups (e.g. the Bush White House) have argued that such reductions in health care expenditures would be so large that they would reduce health care costs by around 3 percent. Even if such large estimates were correct, this means that there would be a one-time slowdown in the growth of health care costs from 7% p.a. to 4% p.a., with the rate rising back to 7% p.a. thereafter. Not exactly a major change in the country’s health care bill.

But such large estimates are not correct. The best non-partisan estimate of the effects on defensive medicine again comes from the CBO report. That report agrees that a few studies have shown some reduction in a few specific medical procedures when state-by-state tort reform has been enacted. However, the CBO then says that it “found no evidence that restrictions on tort liability reduce [overall] medical spending.” The CBO’s best guess right now is that there would be little to no savings due to a reduction in defensive medicine.

In a nutshell, medical liability tort reform is a red herring. Malpractice lawsuits have an insignificant impact on the nation’s overall health care spending, and curbing them will do virtually nothing to change the cost of health care in this country. Bush has no interest in policies that would have a real impact on health care costs. His solution is no solution.


(*) To be fair, Bush also has floated a couple of health care policy proposals that would shift the burden of health care costs from some people to others; but this is his only proposal designed to actually try to limit the overall cost of health care.