The impact of tort reform on employer-sponsored health insurance premiums

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

34 Scopus citations

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)

Original languageEnglish (US)
Pages (from-to)657-686
Number of pages30
JournalJournal of Law, Economics, and Organization
Volume28
Issue number4
DOIs
StatePublished - Oct 1 2012

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management
  • Law

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