Abstract
In this paper, we examine the influence of medical malpractice tort reform on the level of private health insurance company losses incurred. We employ a natural experiment framework centered on a series of tort reform measures enacted in Texas in 2003 that drastically altered the medical malpractice environment in the state. The results of a difference-in-differences analysis using a variety of comparison states, as well as a difference-in-difference-in-differences analysis, indicate that ameliorating medical malpractice risk has little effect on health insurance losses incurred by private health insurers.
Highlights
The motivations for reforming the medical malpractice tort environment, beginning in some states several decades ago, include assertions that limitations on liability would reduce expenditures on unnecessary health care services, those services provided solely in defense of potential liability claims
A provider who perceives an increase in liability exposure could order more tests for insured patients, see fewer patients with specific health issues, or even exit the geographic market altogether. These behavioral changes will generate a change in levels of health insurance claims, and we might expect to find a significant relationship between changes in the legal environment for medical malpractice and losses incurred by health insurers
If we are able to reject the null hypothesis, we find in favor of an alternative hypothesis that medical malpractice reform leads to changes in provider behavior that significantly increases or decreases health insurance losses
Summary
The motivations for reforming the medical malpractice tort environment, beginning in some states several decades ago, include assertions that limitations on liability would reduce expenditures on unnecessary health care services, those services provided solely in defense of potential liability claims. In reducing defensive medicine practices, these reforms would thereby reduce overall health care costs. This assertion relies on health care providers’ responses to a reduction in perceived malpractice risk. Many studies find that the tort reform is associated with lower levels of incurred losses and lower loss ratios for medical malpractice insurance companies (for example, [8,9,10, 11, 12, 13, 14]). Of particular relevance to our analysis is that these studies suggest that caps on non-economic damages have the greatest influence on loss levels incurred by medical malpractice insurers
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