EconTalk Alex Tabarrok on the Economics of Medical Malpractice
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May 30, 2006 
Alex Tabarrok, economist and George Mason professor known for Marginal Revolution and health-economics work, explores rising malpractice premiums, why costs vary wildly by state and specialty, whether insurers are profiteering, how judges and politics shape awards, defensive medicine like higher C-section rates, and policy ideas such as caps, specialized courts, and arbitration rules.
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Rising Payouts Drive Premium Spikes
- Medical malpractice premiums rose sharply because jury awards and payouts have increased, not primarily because insurers raised profits.
- Alex Tabarrok points to 50–100% premium jumps since ~1999 with OBGYNs paying $50k–$150k depending on state and specialty.
Gouging Argument Fails Profit And Market Tests
- The claim that insurers are 'price-gouging' doctors is weak because insurer profits did not spike and many firms exited the market.
- Tabarrok and co-author tested market-share vs. price and found larger firms often have lower premiums due to efficiency.
Long Run Premiums Mirror Payouts Exactly
- Premiums eventually track payouts one-for-one in the long run because entry and exit enforce that relationship.
- Short-run mismatches occur because insurers struggle to forecast future awards and adjust rates belatedly.