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How Medical Malpractice Insurance Impacts Healthcare Costs

, How Medical Malpractice Insurance Impacts Healthcare Costs

American healthcare costs have skyrocketed in recent years and show no signs of slowing down. Some industry experts claim the reason for this is (1) Americans use too many healthcare services, (2) private health insurance companies have a monopoly on the market, and, (3) physicians are paid too much. On the other hand, healthcare providers are quick to cite medical malpractice insurance as the primary contributor to increased healthcare costs. The cost of medical malpractice insurance, while significant for individual healthcare providers, is dwarfed by other costs in the healthcare sector, such as the progressive price increases levied by private healthcare providers and the actions of health insurance companies that have no local competition.

Part of the problem surrounding the medical malpractice issue is that many members of the public overestimate the incidence of medical malpractice lawsuits. Publicity for medical malpractice is typically very visible, similar to the insanity defense in criminal cases. In reality, medical malpractice and the insanity defense, represent an extremely small part of the costs associated with their respective spheres of influence. The Congressional Budget Office estimated that in 2004, the costs incurred by medical malpractices amounted to no more than 2% of the total amount the US spends on healthcare. As one might imagine, cutting spending on what was a miniscule part of the healthcare industry to begin with will not have much of an effect on total spending.

Instead, we must look at where the real spending problems are in American healthcare. As it turns out, the most significant portion ($500 billion, by some estimates) of total US healthcare spending is a direct result of disproportionate product and service price increases by healthcare providers, manufacturers, and insurance companies. What this means for the average consumer is that patients have very little control over pricing. Patients face the problem of inelastic demand: because our health is vital to our survival, we are willing to pay whatever is requested. Healthcare providers and insurance companies realize this, and in absence of a competitive public option, prices continue to rise at unsustainable rates.

The Affordable Care Act of 2010 (also known as the ACA or Obama care) was designed in part to address this spending problem by extending health insurance to millions of uninsured Americans. Under the Affordable Care Act, small business owners with more than 50 full-time employees are obligated to provide health insurance for their full-time staff or face a financial penalty for each full-time employee left uninsured.

Though the ACA takes steps toward covering more American citizens, it does not provide local citizens and governments with the leverage they need to negotiate effectively with healthcare providers and health insurance companies. Until such time, the increase in healthcare cost in the United States will continue.

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