Hoover Daily Report

Who Pays for the Patients' Bill of Rights?

Monday, October 1, 2001

A so-called patients' bill of rights would actually restrict the freedom of employers, employees, and insurance companies. How so? Because such a law would make certain kinds of insurance policies illegal, even if health insurance companies want to offer such policies and even if employers and employees want to buy them. The particular policies that would be made illegal under legislation that Congress is currently considering are policies that limit patients' power to sue insurers and employers. Many people see that this would violate the rights of insurers and employers, and many of them, unfortunately, don't care. But the legislation Congress is considering would also violate the right of every patient reading this article; none of us would be able to work for an employer who offers health insurance that limits our power to sue.

Why would patients ever want less power to sue? For the same reason that many ladder buyers want to limit the liability of ladder manufacturers. Just as lawsuits against ladder manufacturers have added a hefty markup to the price of a ladder, so also would increased liability for health insurers drive up the cost of insurance, making rates higher. Some of the more extreme proponents deny that increased liability would raise costs. But if it wouldn't raise insurers' costs, why on earth are insurers spending millions lobbying against the legislation?

You might say, "Even if employers have to pay higher premiums for insurance, so what?" Here's what. Your pay roughly equals the value of your output to your employer. If your health insurance costs an extra $300 a year because of Congress's legislation, your monetary compensation or your other fringe benefits or both will fall by about $300 a year. This basic economic reasoning is backed up by hefty economic research done by MIT economist Jonathan Gruber and others. The people who actually pay the higher cost of employer-provided benefits are employees.

But what if employees value the increased power to sue more than that power costs? That would mean that the wage cut they would willingly take to pay for that increased power would exceed the cost of the insurance. A profit-maximizing employer would be happy to oblige, and all—employer, employee, and insurance company—would be better off. In that case, the legislation would not be needed. The fact that we don't see insurers offering liberal powers to sue means that they, employers, and employees have all judged that employees don't value the power to sue as much as it would cost, which means that the legislation would harm employees. Interestingly, when California voters got to vote directly on regulations that limited managed-care insurers in 1996, they voted the measures down by 58 percent to 42 percent and by 62 percent to 38 percent. That same year, Oregon voters rejected a similar measure. The political pressure for a patients' bill of rights comes, not mainly from employees, but from two other groups: doctors and nurses, who want to increase the demand for their services, and trial lawyers.