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

Author

Listed:
  • Ronen Avraham
  • Leemore S. Dafny
  • Max M. Schanzenbach

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.

Suggested Citation

  • Ronen Avraham & Leemore S. Dafny & Max M. Schanzenbach, 2012. "The Impact of Tort Reform on Employer-Sponsored Health Insurance Premiums," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(4), pages 657-686, October.
    • Handle: RePEc:oup:jleorg:v:28:y:2012:i:4:p:657-686
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    File URL: http://hdl.handle.net/10.1093/jleo/ewq017
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    Citations

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    Cited by:

    1. Christopher Carpenter & Sebastian Tello-Trillo, 2015. "Do 'Cheeseburger Bills' Work? Effects of Tort Reform for Fast Food," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    2. Paul Heaton, 2017. "How Does Tort Law Affect Consumer Auto Insurance Costs?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 691-715, June.
    3. Erin M. Johnson & M. Marit Rehavi, 2016. "Physicians Treating Physicians: Information and Incentives in Childbirth," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 115-141, February.
    4. Galasso, Alberto & Luo, Hong, 2016. "Tort Reform and Innovation," CEPR Discussion Papers 11358, C.E.P.R. Discussion Papers.
    5. Michael D. Frakes & Jonathan Gruber, 2018. "Defensive Medicine: Evidence from Military Immunity," NBER Working Papers 24846, National Bureau of Economic Research, Inc.
    6. Hyman, David A. & Silver, Charles & Black, Bernard & Paik, Myungho, 2015. "Does tort reform affect physician supply? Evidence from Texas," International Review of Law and Economics, Elsevier, vol. 42(C), pages 203-218.
    7. Charles L. Baum, 2020. "The effects of medical malpractice tort reform on physician supply an analysis of legislative changes from 2009 to 2016," Southern Economic Journal, John Wiley & Sons, vol. 87(2), pages 540-575, October.
    8. Andrew I. Friedson, 2017. "Medical Malpractice Damage Caps and Provider Reimbursement," Health Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 118-135, January.
    9. Alberto Galasso & Hong Luo, 2016. "Tort Reform and Innovation," NBER Working Papers 22712, National Bureau of Economic Research, Inc.
    10. Stadhouders, Niek & Kruse, Florien & Tanke, Marit & Koolman, Xander & Jeurissen, Patrick, 2019. "Effective healthcare cost-containment policies: A systematic review," Health Policy, Elsevier, vol. 123(1), pages 71-79.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • K3 - Law and Economics - - Other Substantive Areas of Law
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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