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Throwing Money at Maryland’s Med-Mal Problem

By Thomas A. Firey
Published on Sunday, January 09, 2005
OP-EDS

Late last month (12/28), Maryland lawmakers were called into special session to amend the state’s medical malpractice laws. Policymaker feared that, without changes, malpractice costs will soon lead to higher health expenses and less access to medical care.

After several days of haggling, legislators emerged with a solution: subsidize malpractice insurance through an HMO tax that will lead to higher health expenses and less access to medical care.

The legislation demonstrates Maryland lawmakers’ willingness to throw money at a problem—even when the problem is that costs are too high.

In fairness, the reform package also includes such provisions as a freeze on the maximum amount that plaintiffs can receive in “pain and suffering” awards, a halving of the maximum amount that can be awarded for “non-economic” damages in wrongful death suits, tighter limits on the qualifications of expert witnesses and a mandate that plaintiffs and defendants try mediation before going to court.

But very large non-economic damage awards comprise only a small portion of overall med-mal costs and most med-mal disputes end in settlements anyway. Those changes will have a minor effect at best. The only difference-making provision is the HMO tax–provided “reinsurance fund” that malpractice insurers can dip into as tort costs rise.

If the fund operates as lawmakers intend, it will please all three discordant special interests at the heart of the med-mal crisis: the doctors, the lawyers and the malpractice insurers. The fund will lessen med-mal insurers’ need to build up financial reserves to protect against growing malpractice costs. As a result, there will be less upward pressure on physicians’ insurance premiums, which will improve the doctors’ profits. Meanwhile, plaintiffs’ attorneys will have a new set of deep pockets to dip into.

The only losers in the deal are taxpayers and consumers.

Depending on whom you listen to, at least one of the following groups is the culprit in Maryland’s malpractice crisis: negligent doctors, greedy lawyers pursuing undeserving claims or profit-hungry med-mal insurers. Instead of reigning in the culprits, the reinsurance fund will reward them at taxpayers’ and consumers’ expense. If negligent doctors are to blame, the fund will subsidize their insurance and diminish the economic incentive for them to do better. If greedy lawyers and undeserving claims are at fault, the fund will provide a new pot of money for them to pursue. And if med-mal insurers are the problem, the fund will give them tens of millions of taxpayer dollars in economic security.

In other words, instead of identifying and solving Maryland’s malpractice problem, lawmakers will shift some of the problems’ costs onto taxpayers and consumers who certainly are not at fault for the crisis.

Several lawmakers have defended the fund, saying its financing comes from simply lifting a questionable tax loophole for HMOs. To be sure, giving different tax treatment to HMOs over other forms of health insurance does raise an important equity issue. But the proper response to that fairness concern would be to lower the overall tax on health insurance while extending the tax to HMOs. It certainly would not be to create a new pool of money to benefit whoever is responsible for Maryland’s med-mal problem.

Gov. Robert Ehrlich has threatened to veto the legislation. Unfortunately, his reason for doing so isn’t because the fund is improper; instead, he wants to finance it with general revenue money. But it’s difficult to argue that putting all state taxpayers on the hook is any better than putting just HMO customers on the hook.

Instead of creating a subsidy for the culprits behind Maryland’ medical malpractice woes, lawmakers should have determined what is causing those problems and what—if anything—should be done about it. Maybe between now and the opening of the 2005 General Assembly, some responsible legislators will realize that.

Thomas A. Firey is a senior fellow at The Maryland Public Policy Institute (www.mdpolicy.org).