The Impact of Tort Reform on Employer-Sponsored Health Insurance Premiums

Ronen Avraham, Leemore S. Dafny and Max M. Schanzenbach

The Journal of Law, Economics, and Organization, 2012, vol. 28, issue 4, 657-686

Abstract: We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of health plans representing over 10 million Americans annually between 1998 and 2006, we find that the most common set of tort reforms during this period reduces premiums of employer-sponsored self-insured health plans by 2.1%. Of the four individual reforms comprising this set, caps on noneconomic damages and collateral source reforms have the greatest impact. We do not find reductions in premiums for fully insured plans, which in our sample are almost entirely Health Maintenance Organizations (HMOs). Further analysis reveals that self-insured HMOs are also unresponsive to reforms. Taken together, these findings suggest that HMOs reduce "defensive medicine," even absent reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has largely focused on particular medical conditions. (JEL I1, K3, K13, K20) The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2012
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