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October 22, 2004



PAUL GIGOT: Just under the radar in this busy election season, there are referenda in five states which attempt to deal with the costs of medical malpractice lawsuits and insurance premiums, which have gone so high they threaten our health care. The American Medical Association claims there's a medical liability crisis in 20 states. Others say it is not that widespread, but it is clear that insurance premiums have become so expensive in some states that doctors especially obstetricians, surgeons, and emergency room doctors -- have stopped practicing or moved to states where premiums are cheaper. This week we looked at how health care is suffering through the eyes of the Smith family -- two generations of doctors who think the public should be paying close attention.

Dorothy, that piece described what seems to be a real problem. The fact I've seen is that each year, every year, 50 percent of all neurosurgeons in this country get sued, every year. It's become a big issue in the presidential election. Who's getting the better of it? President Bush or Senator Kerry?

DOROTHY RABINOWITZ: Oh, I think President Bush is. And that's really because Senator Kerry's pulpit put out the notion that all this is a myth, that there are no runaway juries offering awards of incredible kinds. But Americans, the public, see what is before them. Pragmatically, they can see, I can't find a doctor. My doctor's practicing defensive medicine. I can't find an obstetrician. In addition to all of that. They're just bombarded with stories about insane jury awards in the culture. And so they see the truth. And I think that tells you who's getting the better of it.

PAUL GIGOT: There's no question, you can tell. One of my rules in politics is you can tell who's getting the better of an argument by the side that is saying, "I'm for that, but ..." It means that they're conceding some points on the issue. Is that what's happening here, Dan?

DAN HENNINGER: Yeah, exactly. And that's the way politics works. I mean, I think there's a positive aspect to this story. Medical malpractice is not social security, where one side is saying A and the other one is saying Z. John Kerry himself has acknowledged that there are terrible abuses in the system, and that access to care is threatened. And he has proposed some reform. Which is to say, we're getting kind of toward the point where we did with welfare reform, which was resisted for so many years until finally both sides decided the system was so broken that something had to be done. And there's no question that that system is broken.

PAUL GIGOT: The big difference that it seems to come down between Bush and Kerry is this idea of tapping non-economic damages, sometimes called "pain and suffering damages," of $250,000. Is that something that you think will work to keep down malpractice premiums?

SUSAN LEE: Well, first let me cover myself by saying I agree with Dan. It's now like welfare reform. Something is going to be done. I don't think that tapping, as an economist, is a very good idea. It's a sledgehammer. And it's price controls, and price controls always create distortions. I think I would like to see a little variation of the Edwards-Kerry suggestion that all these cases are vetted before they even get into the legal system. Or, my own idea, we have tax courts and bankruptcy courts. We should probably also have medical malpractice courts. And price caps -- I think it's going to be more trouble than it's worth.

PAUL GIGOT: Well, but you have a California experience. California is not a great innovator, necessarily, in conservative economic reform. But in 1975 they did pass, put a cap on non-economic damages. And they have slowed the growth of premiums about one-third the national rate.

SUSAN LEE: This is true. But they also had a major reform of the insurance industry. And I think most economic studies, the government studies that have looked at this, say that part of the problem are insurers themselves.

PAUL GIGOT: In what way?

SUSAN LEE: Well, they had a bad several years in the equity market. They're jumping up premiums to cover that. There are also something called these little mini-cycles in the insurance industry. As some companies go out of a particular kind of insurance it takes awhile for another company to come in. I'm fairly persuaded that this is a highly complicated thing and we shouldn't do a sledge hammer on it.

PAUL GIGOT: The House passed caps on non-economic damages in 2003 by 229 to 196, Dan. But it's bottled up in the Senate. This is something that, if it's going to get done, not only does the presidential race matter but so does control over the Senate.

DAN HENNINGER: Yeah, well it's going to be harder to do, I think, than welfare reform. I mean John Kerry and John Edwards have both opposed that bill in the Senate because, whether Susan is right or not, it does threaten the tort lawyers. And the tort lawyers have now become a fundamental constituency for the democratic party and one of their primary sources of funding. And to the extent that's true, it's going to be very difficult to pass a bill in the Senate.

PAUL GIGOT: Okay, Dan, thank you. Next subject.