Tort Reform: a Dangerous Catch-phrase (part 1)

People trying to survive the current economic downturn are looking to economize in every possible way. From car-pooling or (gasp) using public transportation to buying generic groceries and cutting back on luxury goods, people who have lost their job or fear they will lose their job are seeking to save precious dollars. Unfortunately, their attempts to economize run headlong into rising costs in all sectors of the economy, especially health care. Squeezed between shrinking income and costs they cannot cut, people are finally raising a hue and cry about the astronomical price of health care in this country.

Trying to capitalize on the terror of the masses, demagogues, largely inspired by industry lobbyists, have taken up the banner of "tort reform" as the way to reduce costs. Their argument claims that frivolous medical malpractice<, product liability, premises liability and other lawsuits cost us money, about $3250 a year for a family of four ($880 per person) according to an add run simultaneously in the Wall Street Journal, the Chicago Tribune, and the Washington Post. This cost, they say, is passed on to you in the form of higher prices, which is why so many people are having a hard time affording gas, food, medical care, and house payments. In addition, they say, this cost stunts the growth of the economy, which is part of the reason why so many people's jobs are currently being threatened. They also claim that even frivolous lawsuits cost local governments, business, and medical organizations in terms not only of settlements, but in the ongoing cost of rising insurance rates.

However, you should not be fooled. Tort reform is a new brand of supply-side, trickle-down economics that may provide some modicum of economic benefit to the average consumer, but that benefit will be dwarfed by the resulting increase in profits for corporations, and by the real costs that individuals pay through greater exposure to risk and by a lack of access to legal recourse when they suffer harm as a result of dangerous cost-cutting methods practiced by corporations such as manufacturers, health care conglomerates, and pharmaceutical companies.

First, let's consider the tort reformers' arguments. Note that they try to use the costs of "frivolous" lawsuits twice, which makes no logical sense. Either companies pass the costs on to consumers, in which case the companies have the money and can use it for expanding business and improving facilities and hiring employees, or they do not pass the cost on to us, and they do not have the money to reinvest into economic growth. In other words, the cost must be divided between the two arguments, let's say evenly between the two at $440 per person in increased cost, and $440 in reduced economic growth. Now let's consider the cost of "frivolous" lawsuits in context.

If we consider that we pay $440 per year in higher costs related to "frivolous" lawsuits, does this constitute an undue burden on corporate America? Are frivolous lawsuits threatening to eclipse the profits of corporations? Not by a long shot.

Corporate profits, that is, money they take in free and clear above all costs (including the inflated cost of CEOs in terms not only of salary but bonuses and expense accounts), are the equivalent of $4514 per year for every man woman and child in the United States, over ten times the cost of "frivolous" lawsuits. And, if you are concerned about being able to pay your bills with a salary that doesn't seem to stretch far enough, consider that corporate profits are at their highest level as a share of GDP since the 1960s, while the real pay rate for workers has been level or in decline, despite the continual rise in productivity. In addition, when we had our so-called recovery from the economic downturn of 2001-2003, corporate profits grew at three times the rate of salary growth. Corporations were making money, but not passing it on to workers, and this ensured that many people, offered mortgages based on the expectation that salaries would rise with or above interest rates, could not meet loan payments.

So, do you pay for "frivolous" lawsuits? Yes, but it pales in comparison to what you pay for corporate profits.

But what about the second argument, that lawsuits stunt economic growth? That argument is even more complex, and we will take it up in part 2. Then, in part 3, we will consider the corollary argument that states with legal systems susceptible to abuse will suffer both an economic downturn and a "flight" of doctors in comparison to states with legal systems more friendly to corporations and doctors. Finally, in part 4, we will consider alternate solutions to the so-called "tort crisis" that can reduce costs even more than tort reform without restricting access of individuals to legal recourse, leading to a win-win situation for everyone but profiteering insurance companies.