An issue that must be resolved under any health insurance policy is the locus of decisions about treatment. There will be times when a patient may want some treatment that the insurance company or health maintenance organization (HMO) will not want to provide. There may be other times when a decision must be made about the amount to spend on care. Such decisions can be made through contract or through tort law. It is possible to specify in advance what sort of payments will be provided through a contract between the patient and the HMO; it is also possible to wait until after an illness occurs and a treatment decision is made and then use tort or malpractice law to decide whether the treatment was adequate.
One question is whether malpractice liability under tort law should applyto managed care offered by employers. Currently, such HMOs are exempt frommalpractice liability. Several proposals would extend malpractice byallowing patients to sue an HMO under tort law if they believe that the HMOhas harmed them or has unreasonably refused treatment. The proposals wouldalso open to liability the employer who chose the HMO, unless the employergives up any effort to monitor the HMO and thus control costs.
Such proposals are flawed and would ultimately harm consumers. They wouldlead to smaller enrollments in HMOs, and those who would be excluded wouldbe the poorer members of society. Many employers would cease offeringhealth care benefits if the proposals passed.
The provision of medical care through voluntary contract promotesefficiency and has other desirable properties. Primarily, it allowspeople to decide how much they want to spend on medical care. Although itmay appear that one needs a certain amount of care depending on one'shealth, such is not the case. For many conditions, there are alternativeamounts of medical care available, each with a different cost.
One example is the amount of care to be given at the end of life. Somepeople may want all possible efforts taken to keep them alive; others mayprefer to end life sooner. But cost is a factor; it may cost hundreds ofthousands of dollars to prolong life for a short time. Some may be willingto spend such an amount, either directly or through higher insurancepremiums for a policy that provides such care. But if other people do notwant to spend so much, they should not be forced to do so, nor should theybe forced to pay for those who do. Allowing contractual freedom is thebest way to make such decisions. If we do not allow free contract, theneither the government or medical professionals will make decisions bestleft to patients.
Contractual freedom can also be used to determine the penalties forcontractual violation. That is, a contract itself can indicate the natureof the liability of an HMO for failing to provide the level of care forwhich a patient contracted. If policies providing for increased liabilitywere worthwhile, then some HMOs would offer them and some customers wouldbuy them, without the need for a law. Instead, HMO contracts provide forother remedies--usually, that the treatment be provided. But the contractsdo not include tort liability.
The costs of such protection would not be trivial. By one estimate,theimposition of liability on HMOs would increase costs by between 2.7 and 8.6percent, leading more consumers to choose not to carry insurance at all.Indeed, estimates are that the number of insured persons would decrease by500,000 to 1,800,000 as a result of subjecting HMOs to malpracticeliability. Most of those who would drop insurance are low-income consumers.We may ask whether consumers would find the right to sue HMOs and employersworth the ultimate price they would pay. Analysis shows that the damagepayments consumers might collect are not worth their cost to consumers.
That explains why imposition of liability on HMOs and employers would leadto a reduction in insurance coverage: many would not find the increasedbenefits worth the amount they would be forced to pay for them. Moreover,because employers might become liable for malfeasance of HMOs, impositionof liability might cause many employers to stop offering plans to workers,again reducing the number of insured consumers.
Proposals to require additional benefits through law, and particularlyproposals to require tort liability, have the effect of harming the poorand reducing their access to insurance. Those proposals do so by requiringpoorer consumers to subsidize insurance for richer consumers and byincreasing the price of medical insurance so that fewer low-income workerswill find the insurance worth purchasing. The proposals make little senseeither in terms of economic efficiency or in terms of equity.