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Report: Malpractice lawsuits don't drive high healthcare costs, administrative costs of insurance do

A recent Washington Post article summarized a new report from the International Federation of Health Plans on healthcare prices. The report concluded that prices are "far higher in the United States than anywhere else." Here were the things that caused prices to be so much higher:

  • 21% of excess spending was caused by high administrative costs (underwriting, sales, and marketing), mostly by private insurance companies
  • Preventable medical errors are higher in the United States than in any other developed country except Switzerland and New Zealand
  • The United States badly trails Canada, Japan, Germany, Britain, France, Brazil, India, and China on 19 measures of health value scores, meaning that our citizens are generally unhealthier than those in other countries

One thing the article addressed was the effect of medical malpractice lawsuits on total U.S. healthcare costs. Fear of lawsuits is often cited as a reason healthcare costs are so high. However, according to the Congressional Budget Office:

  • Aggressive reforms to the medical malpractice system "would reduce total national health care spending by about 0.5 percent." That's one-half of one percent, or fifty cents out of a hundred dollars.

No one likes high healthcare costs. However, in order to reign in those high costs, it seems like we should pick all the low-hanging fruit possible. If private insurers are soaking up nearly a quarter of the cost increases through high administrative costs, then their administrative processes should be streamlined or eliminated.