Left out of this discussion is the litigiousness of American culture. I know from experience that 1) doctors and hospitals tend to over treat and over-test, fearing that if they do not perform every test known to man, that should they err, it will come up against them in court. Likely it wont even get to that point, as the cost of defending a case alone would force the E/O insurance to settle out.
I also suspect that the frequency of liability lawsuits is playing a significant role. Right now, the insurance market is collapsing in Florida...why? One of the big drivers is the frequency of liability lawsuits. Florida is the worst, but certainly not the only state, where there is an incredibly perverse incentive for people to file lawsuits and claim injury. It works like this:
1) A small grocery store has a $1M million liability policy that they purchased for $1400 a year. Person slips and falls on a banana peel, they blame the grocery store, even if they dropped the banana themselves (I am serious here).
2) Person gets a lawyer who sends them to wink wink nod nod doctors. Doctor does an MRI of Person's back, revealing common degenerative imperfections like disc bulges/herniations. Doctor writes in their notes that, to their knowledge, this was caused by the fall and refers Person for spinal surgery.
3) Spinal surgery is performed, all billed under a Letter of Protection, an agreement where no one owes anything, but payment is contingent on the outcome of the lawsuit. To ensure the doctor/surgeon get paid and to give the case “shock value” for the grocery’s insurer and a jury, they pad the bills 5-10 times. $40k of treatment now becomes $400k.
4) Now the insurer has a choice. They can spend $120k defending the case, going to trial, and possibly losing, or they can settle for $500k now. They choose to settle almost every time. Why?
5) Say they choose not to settle, but fight it in court. They are not liable, right? After all Person droped their own banana! The grocery did nothing wrong. Imagine that the case goes to trial and Person wins. The jury is won over by the $400k in "medical bills" that the plaintiff owes and the “insurance company can afford it! (but remember they don't actually owe anything). The jury awards Person $2 million, including pain and suffering.
6) Now the insurer, which only insures the property for $1 million, has to pay the $1 million. But because of the way the law works, the court will look at the prior offer to settle at $500k and say “well you had a chance to settle, why didn’t you? Now you pay the whole thing” In the end, the court will remove the cap of insurance. That, or they risk getting sued by their insured for bad faith and paying treble damages.
Fact is, it doesn’t matter if the business owner is responsible or not. It does not matter if there actually was an injury or what the bills actually were. The insurer is left paying out huge sums of money so long as the billing is heavily inflated, and they are, every time. This is a strong incentive for people to get “injured” AND for the billing to be inflated. Not everyone is doing this, of course, but these outliers could be having a disproportionate effect on the cost of E/O insurance and the perceived health of Americans, and the cost of care.
Here, the “cost” of care is literally driving the claimed health issues, not the other way around.
yeah, you are 100% right. I plan to write about defensive medicine and torte reform in the future, didn't include it here because I didn't want it to get too long.
Brilliant article that is clear and illuminating. I would vote for you to run healthcare policy if such a thing were possible
Left out of this discussion is the litigiousness of American culture. I know from experience that 1) doctors and hospitals tend to over treat and over-test, fearing that if they do not perform every test known to man, that should they err, it will come up against them in court. Likely it wont even get to that point, as the cost of defending a case alone would force the E/O insurance to settle out.
I also suspect that the frequency of liability lawsuits is playing a significant role. Right now, the insurance market is collapsing in Florida...why? One of the big drivers is the frequency of liability lawsuits. Florida is the worst, but certainly not the only state, where there is an incredibly perverse incentive for people to file lawsuits and claim injury. It works like this:
1) A small grocery store has a $1M million liability policy that they purchased for $1400 a year. Person slips and falls on a banana peel, they blame the grocery store, even if they dropped the banana themselves (I am serious here).
2) Person gets a lawyer who sends them to wink wink nod nod doctors. Doctor does an MRI of Person's back, revealing common degenerative imperfections like disc bulges/herniations. Doctor writes in their notes that, to their knowledge, this was caused by the fall and refers Person for spinal surgery.
3) Spinal surgery is performed, all billed under a Letter of Protection, an agreement where no one owes anything, but payment is contingent on the outcome of the lawsuit. To ensure the doctor/surgeon get paid and to give the case “shock value” for the grocery’s insurer and a jury, they pad the bills 5-10 times. $40k of treatment now becomes $400k.
4) Now the insurer has a choice. They can spend $120k defending the case, going to trial, and possibly losing, or they can settle for $500k now. They choose to settle almost every time. Why?
5) Say they choose not to settle, but fight it in court. They are not liable, right? After all Person droped their own banana! The grocery did nothing wrong. Imagine that the case goes to trial and Person wins. The jury is won over by the $400k in "medical bills" that the plaintiff owes and the “insurance company can afford it! (but remember they don't actually owe anything). The jury awards Person $2 million, including pain and suffering.
6) Now the insurer, which only insures the property for $1 million, has to pay the $1 million. But because of the way the law works, the court will look at the prior offer to settle at $500k and say “well you had a chance to settle, why didn’t you? Now you pay the whole thing” In the end, the court will remove the cap of insurance. That, or they risk getting sued by their insured for bad faith and paying treble damages.
Fact is, it doesn’t matter if the business owner is responsible or not. It does not matter if there actually was an injury or what the bills actually were. The insurer is left paying out huge sums of money so long as the billing is heavily inflated, and they are, every time. This is a strong incentive for people to get “injured” AND for the billing to be inflated. Not everyone is doing this, of course, but these outliers could be having a disproportionate effect on the cost of E/O insurance and the perceived health of Americans, and the cost of care.
Here, the “cost” of care is literally driving the claimed health issues, not the other way around.
yeah, you are 100% right. I plan to write about defensive medicine and torte reform in the future, didn't include it here because I didn't want it to get too long.