In ObamaCare Part Two, I pointed out that we are still paying for a Supreme Court decision during WW II that exempted employer benefits from wage and price controls.  Seventy years later, we suffer the distortions and inequities in health care markets this decision caused.

However, that example of long-term effects from short-term stupidities pales in comparison to the great-great granddaddy of all legacy follies, one that also needlessly increases our medical costs today, and one that could easily be corrected by Congress.  This is the legacy that gives trial lawyers a free shot at the defendant’s pocketbook, no penalty for misses.

This is called the American Rule, in which each side in a lawsuit bears its own court costs, win or lose.  This contrasts to what’s called the English System, really “The Everywhere But America System,” where the loser pays the court costs of both sides.  Under the American Rule, frivolous law suits are common, and out-of-court settlements typical.  After all, it’s frequently cheaper to pay off the plaintiff rather than incur the expense of a trial, even one where winning is certain. This wouldn’t be the case under the English System.

As an example, years ago I was riding in a car that was slowly winding through an industrial area when a five or six year old boy ran out into the street and bounced off the REAR fender of the car. There was no way the driver of the car was at fault.  His insurance company settled out of court for about $750. It was cheaper than taking the frivolous charge of driver negligence into court where the case would have been easily won.

The American Rule came about in the aftermath of the American Revolutionary War, which officially concluded with The Treaty of Paris in 1783.  That agreement required British creditors to sue American debtors in American courts.  Seeing a chance to stick it to the Brits, state legislations passed The American Rule. Naturally, many British creditors viewed long distance law suits as suddenly too big a gamble to take.

Two hundred and thirty years later, we pay for that nonsense throughout our society, but especially in our medical bills. Perhaps it’s just a coincidence, but medical malpractice lawsuits really took off about the time Medicare was passed in 1966.  For every malpractice suit in 1960, there are 300 today.

The contingency fee system, where lawyers get about 30% of the settlement, plus juries that want to beat up insurance companies, means this is a great business for trial lawyers. Throw in a little “junk science”, and lawyers have gotten rich suing hospitals and doctors, amongst many others.

The despicable John Edwards (remember him?) was a trial lawyer who became a multi-multimillionaire in part by suing obstetricians for the “malpractice” of not performing C-sections in certain pregnancies, which if done would have allegedly prevented cerebral palsy.  The result has been a big increase in C-sections and NO decrease in cerebral palsy, probably because there is no connection. (http://healthewoman.org/2009/03/06/why-cesarean-section-has-not-reduced-the-incidence-of-cerebral-palsy/)

The bottom line is that medical malpractice is a big, risk free business for American lawyers. Malpractice awards run about $3.5 billion annually, all of which is passed through to patients and taxpayers via higher malpractice insurance fees paid by doctors and hospitals.  This is not much relative to overall medical spending of almost $3 trillion, but there is the hidden cost of defensive medicine, when physicians over prescribe treatments as a defense not against the patient’s illness, but a defensive against the doctor’s potential liability.

ObamaCare doesn’t lay a glove on this racket run by the trial lawyer one percenters.   In part, that’s because the American Association for Justice, formerly the Association of Trial Lawyers of America, has give 85% of their $42 million in political donations since 1989 to the Democratic Party.  From opensecrets.org, Center for Responsive Politics: “The association favors Democrats, who oppose most attempts to initiate tort reform.”

In fairness, neither major political party has done anything to put a stop to the lawyers’ gravy train, probably because so many of our elected officials in both parties are lawyers.  There have been some efforts at the state level, but all of the “loser pays” state laws have been complex and riddled with exemptions and procedural difficulties. In Texas, for example, the much ballyhooed law Governor Perry signed in 2011 doesn’t apply to people who represent themselves. Have to hire a lawyer. What a surprise.

Tort reform is an area where Federalism doesn’t work. A national law is needed, one that would standardize “loser pays” across the nation and also put a stop to “forum shopping” by lawyers, which is the practice of filling a lawsuit in the state with the most amenable courts.  Not only is this the right thing to do, it would save the nation many billions of dollars.

The most thorough proposal I’ve come across is a study by Marie Gryphon, an attorney, published by the Manhattan Institute for Policy Research, December of 2008.  Google “Gryphon loser pays.”  She notes our litigation costs as a percent of gross domestic product are twice those of Germany and over three times the cost in France or the United Kingdom.

How much longer must we put up with the tort system one percenters?