Tort Reform is a myth…‘Frivolous Lawsuits’ Amount to Pennies on the Dollar Compared to Insurer Profits

“Tort Reform, Tort Reform, Tort Reform,” the phrase has almost become a song. Nobody likes to see undeserving people win huge, unjustified damage awards, but the fact is, it doesn’t really happen in California, except on maybe on TV. Los Angeles Times business columnist Michael Hiltzik couldn’t be more correct when he writes that one of the biggest fans of so-called tort reform is the insurance industry, “because the less money they pay out to plaintiffs, the more they get to keep.” See “Why Tort Reform Is a Frivolous Diversion.”

While that statement is enough to make sensible people wary of the deep pockets behind tort reform movements, Hiltzik clears the confusion and makes a very good case about why limiting an injured victim’s ability to use the legal system to be made whole is not the great fix for rising medical costs insurers and many politicians claim.

The argument for tort reform, as Hiltzik explains, is that plaintiff lawyers are filing too many “frivolous” lawsuits and claiming millions of undeserved dollars. Doctors are ordering unnecessary tests to ensure they don’t misdiagnose or fail to diagnose something that could end up in court. As a result, medical costs escalate.

“The truth is that medical liability isn’t a big driver of health costs overall,” Hiltzik writes. “[T]he cost of malpractice litigation, in court and through defensive medicine, [is] roughly 2% to 3% of all U.S. healthcare spending.”

In California, since 1975, the Medical Injury Compensation Reform Act (MICRA) has capped recovery for pain and suffering to $250,000. That’s next to nothing when to compared to what plaintiffs can receive in other types of cases. Lawyers’ fees are also limited.

But did MICRA help consumers? According to a 2004 Rand study, the MICRA caps don’t amount to a fair distribution of justice. Victims of medical errors who had small economic losses but suffered major damage to their quality of life are unfairly compensated. Women are disproportionately affected. The MICRA cap isn’t adjusted for inflation. In today’s dollars, the award has the same purchasing power as $62,000 did in 1975. And the most unsettling result of all is that may unjustly injured people won’t even pursue a case because the award may not even cover the litigation cost.

The big MICRA winners are insurers, who last year paid out only 17 cents of every dollar they collected on medical malpractice insurance. And carriers don’t even have the good sense to be humble about it.

“At American Physicians Capital,” writes Hiltzik, “claims were falling so fast in 2007 that its chief executive publicly compared his underemployed claims managers to ‘the Maytag repairman.’ The next time you find yourself nodding in assent while some politician carries on about tort reform, remember that its benefits will go to characters like this.”

Clearly, this only reinforces what we’ve been saying all along: If you want real reform, start with the perpetrators, not the victims.

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