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Medicaid Costs and Malpractice Insurance

One of the most destructive and maddening phenomena in modern public policy debates is the “urban policy myth.” Whether it results from twisting an isolated anecdote (say, one wealthy person’s decision to move to another state) into the grounds for remaking the state’s entire tax code, or from repeating a half-baked piece of “research” from a special interest group or extremist “think tank” so many times that it starts to become accepted as fact, the urban policy myth is a persistent problem that regularly afflicts North Carolina’s policymaking process. Urban policy myths are particularly pernicious when they come at the expense of the poor, the vulnerable and other groups that lack the wherewithal to respond.

“Setting the Record Straight” is a new and occasional N.C. Policy Watch feature that seeks to debunk urban policy myths and other instances of policy nonsense before they (or those who propagate them) can do any more harm. In this initial installment, we highlight the recent comments on the North Carolina Medicaid program by state Representative David Lewis of Harnett County [1].

As reported in the January 9 edition of the Dunn Daily Record [2], Lewis was asked at recent town meeting what can be done to address the rising costs of the state Medicaid program. Here’s the article’s description of his response:

“Rep. Lewis said reforming medical liability would help, since much of the cost of medical care comes from increased insurance costs due to malpractice suits.”

The article continued – this time with a direct quote:

“‘Four out of $10 in Medicaid cost goes to preventative tests to keep from getting sued,’ Rep. Lewis said. ‘We have got to do something to figure out how to transfer our health care system from one that treats people to one that keeps folks from getting sick.’"          

 
Setting the Record Straight

Rep. Lewis is one of the General Assembly’s nice guys – a sincere and apparently well-meaning person who is liked by folks of all different philosophies. The second half of his statement makes some sense. Unfortunately, in the case of his remark about malpractice, Lewis has fallen prey to the urban policy mythmaking of the doctors’ and insurance lobbies, who have long blamed just about every ill that afflicts the modern health care system (including the cost of malpractice insurance) on those convenient whipping boys – the “evil” trial lawyers.

Here’s what the nonpartisan Congressional Budget Office had to say about the issue in a 2004 “Issue Brief” entitled “Limiting Tort Liability for Medical Malpractice” [3]:

“Evidence from the states indicates that premiums for malpractice insurance are lower when tort liability is restricted than they would be otherwise. But even large savings in premiums can have only a small direct impact on health care spending–private or governmental–because malpractice costs account for less than 2 percent of that spending.(3) [4] Advocates or opponents cite other possible effects of limiting tort liability, such as reducing the extent to which physicians practice "defensive medicine" by conducting excessive procedures; preventing widespread problems of access to health care; or conversely, increasing medical injuries. However, evidence for those other effects is weak or inconclusive.”

In short, limiting medical malpractice liability can lead to some minimal savings –maybe even in the area of unnecessary testing. But to assert that 40% of Medicaid expenses are attributable to malpractice suits is ridiculous.

Rep. Lewis’s comments also help to propagate another urban policy myth – the one in which hikes in the cost of Medicaid can somehow be divorced from the rising cost of health care generally. The fact is that while Medicaid is a large and growing component of state and federal budgets that must be addressed, it is growing at a slower rate than the cost of private health care [5]. Moreover, most of the growth in Medicaid spending goes to pay for the cost of caring for the elderly and disabled. Any significant cuts in Medicaid spending in the foreseeable cannot help but hurt these most vulnerable groups.

For more information on Medicaid and other health policies that serve people in need, be sure to visit the website of the North Carolina Justice Center [6] and its special health policy project the North Carolina Health Access Coalition [7].