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Adding Tort Reform to Healthcare Reform Could Lower Costs

Janice Simmons, for HealthLeaders Media, October 12, 2009

Based on new research, total national healthcare spending could drop by about 0.5%—or $11 billion—if tort reform was enacted by 2010, according to the Congressional Budget Office (CBO).

In response to a query from Sen. Orrin Hatch (R-UT), a member of the Senate Finance Committee, CBO said in a letter from CBO Director Douglas Elmendorf that tort reform could affect costs for healthcare both directly (by 0.2%) through lowering premiums for medical liability insurance, and indirectly (by 0.3%) by reducing the use of diagnostic tests and other healthcare services when providers recommend those services specifically to reduce their potential exposure to lawsuits.

Enactment of a tort reform package also could reduce mandatory spending for Medicare, Medicaid, the Children's Health Insurance Program, and the Federal Employees Health Benefits program by an estimated $41 billion over the next 10 years, CBO said.

That figure includes a larger rate of decline in Medicare's spending than many other private sector programs because the bulk of Medicare's spending has been on a fee for service basis—rather than managed care basis. Managed care plans are more likely to limit the use of services that have marginal or no benefit to patients, and less likely to encourage greater use of defensive medical practices. In the long run, this can control costs and keep premiums lower, CBO said.

Since much of the private sector healthcare is provided through employment based insurance—which is nontaxable compensation—lower costs for healthcare arising from those proposals addressing tort reform could lead to higher taxable wages. This could mean an increase in federal tax revenues by an estimated $13 billion during the next decade, according to estimates from the staff of the Joint Committee on Taxation. In the long run, federal budget deficits by could decrease by a total of $54 billion over the next 10 years.

The CBO estimate already takes into account the fact that many states already have implemented some of the changes in the package, a "significant fraction of the potential cost savings" that has already been realized, CBO said.

The impact on health outcomes is less clear cut, according to CBO. For instance, some recent research has found that tort reform may adversely affect outcomes, but other studies have concluded that "tort reform generated no significant adverse outcomes for patients' health."


Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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