Addressing the Medical Malpractice Insurance Crisis: Alternatives to Damage Caps

Abstract

This article examines the history of damage caps as a means of tort reform and their effect on past medical malpractice crises. The article then proposes alternative solutions for future reform. Statistical evidence is presented demonstrating that damage caps are an ineffective means of reducing malpractice insurance premiums because they do not address the underlying causes of rising premiums. "Malpractice crises" correlate with market fluctuations and changes in the supply and demand of malpractice insurance, rather than with any increase in malpractice litigation or verdicts. In order to address the economic source of malpractice crises, the author proposes two alternative means of reform. First, malpractice insurance should be merit-rated, meaning that statistical information regarding a physician's payout history should be used to assess his or her individual risk of incurring future malpractice payouts, and premium prices set according to that risk. Second, in the event that damage caps are inevitable, a system should be devised in which the severity of the plaintiff's injury is assessed and damages calculated according to an established sliding scale. The article concludes by advocating an economic approach to tort reform, and suggests that legislators study the precise economic causes of malpractice crises in order to devise effective solutions.