This commentary is by Tom Pelham, formerly finance commissioner in the Dean administration, tax commissioner in the Douglas administration, a state representative elected as an independent and who served on the Appropriations Committee, and now a co-founder of Campaign for Vermont.
[I]n Campaign for Vermont’s first in a series of Don’t Agonize, Advocate opportunities, we point to a way to reduce property taxes by at least $88 million and redirect millions in general fund dollars to enhance the seriously depleted teachers retirement pension fund, now only 58 percent funded. Folks may agree with some of these opportunities while disagreeing with others, but the conversation about the state’s fiscal woes should be broader than just raising more taxes and fees on cash strapped Vermonters.
In this, our second “Don’t Agonize, Advocate” opportunity, we point to $143 million in health care reductions including tens of millions of dollars in state budget savings at the Agency of Human Services.
Tort Reform and Defensive Medicine – state budget savings target not less than $35 million
It’s been more than a decade since Vermont seriously considered tort reform, an approach to reducing the cost of litigation associated with the provision of health care. This 2005 report by the Vermont Medical Malpractice Study Committee resulted in some minor changes in Vermont law but nothing of measurable consequence.
However, much has changed since 2005. The Affordable Care Act (Obamacare) has been enacted at the federal level and Act 48, Vermont’s so-called landmark health care bill, has dramatically changed Vermont’s health care landscape. Now that additional millions of taxpayer dollars finance Vermont’s health care services and public oversight via the Green Mountain Care Board as it now guides statewide health care expenditures, in the interests of protecting taxpayers, it is quite reasonable to revisit possible savings from tort reform and the reduction of defensive medicine.
The technical foundation for Act 48 was the 2011 Hsiao Report. One recommendation of the Hsiao Report that the Legislature did not adopt was tort reform. The Hsiao Report took an extensive look at how tort reform might reduce health care spending in Vermont by 2.6 percent annually, with .6 percent assigned to lower costs of malpractice insurance and 2 percent assigned to reduced instances of defensive medicine. These estimates were conservative as they reflected the low end of the range of savings estimates in the report. Tort reform comprised almost 30 percent of the $500 million estimated savings from implementing Hsiao’s recommended health care reform recommendations.
Many other states have already enacted tort reform; why isn’t our Legislature exploring this opportunity?
With Vermont’s health care spending at $5.5 billion, such savings equate to $143 million. Given Vermont’s publicly funded health care costs of about $1.4 billion, tens of millions of state and federal dollars now spent on liability insurance and defensive medicine can be saved and redirected to stabilize premiums, increase provider rates and lessen the cost-shift onto those with private insurance.
Here are key quotes from the Hsiao Report with regard to tort reform:
“From literature and national experience, we estimate that conventional reforms such as capping non-economic damages would result in at most an overall decline of 0.6 percent in overall healthcare spending.” (Page 62)
“The Vermont Medical Malpractice Study Committee’s actuarial consultant concluded that, because of Vermont’s already low malpractice rates, a popular tort reform of capping non-economic damages at $250,000 would produce a 5.7 percent premium reduction, as opposed to a 10 percent national decrease assumed by the CBO.” (Page 59)
And with regard to defensive medicine:
“Lastly, Vermont can reduce health spending through a change to a no-fault system of medical malpractice. The main effect of this change would be to alter provider perceptions of the risk of law suits thereby reducing defensive medicine. While rigorous studies document the existence of defensive medicine, it is difficult to quantify and estimates of defensive medicine range from 2 percent to 9 percent of total health spending.” (Page xiii)
“Likewise, changes to medical malpractice will take time to translate into altered physician behavior with respect to defensive medicine. We assume it will take five years to capture the potential savings.” (Page 37)
“As noted, estimates of defensive medicine vary widely, from 2 percent to 9 percent of total health spending. We use the lower-bound estimate that 2 percent of total health expenditure can be saved through the elimination of defensive medicine practices resulting from a transition to a no-fault insurance system. We use the lower-bound due to uncertainties surrounding implementation and the resulting impact.” (Page 63)
As the Vermont state budget crumbles beneath the fiscal pressures of Obamacare and Act 48, Vermont’s taxpayers might find significant relief through the cost constraints of tort reform and the reduction of defensive medicine. Many other states have already enacted tort reform; why isn’t our Legislature exploring this opportunity?
