Medical Malpractice Liability Reforms, Health Care Benefits Up for Vote

By Staff Report

Dec. 2, 2010

A high-profile commission is expected to vote Dec. 3 on a series of wide-ranging recommendations—including medical malpractice reforms and phasing out the tax-favored status of employer-provided health care benefits—as part of a comprehensive plan to reduce the federal budget deficit.

The bipartisan National Commission on Fiscal Responsibility and Reform formally released its report Dec. 1. Among other things, the report says that medical malpractice reform could save $17 billion through 2020.

The commission recommends several policies, including modifying the collateral source rule to allow outside sources of income, such as workers’ compensation, collected as a result of an injury to be considered in determining awards and imposing a statute of limitations on medical malpractice lawsuits. The report also calls for the creation of special “health courts” to hear medical malpractice cases.

Although the commission does not specifically endorse statutory caps on punitive and noneconomic damage awards in medical malpractice cases, the report notes that many commission members support caps and that “we recommend that Congress consider this approach and evaluate its impact.”

The report, in what it calls an “illustrative proposal,” suggests that gradually, starting in 2014, employees would be taxed on employer health care plan contributions. By 2038, all employer health care plan contributions would be added to employees’ taxable income.

Under current law, employer contributions—regardless of the amount—are excluded from employees’ taxable income. However, under the new health reform law, starting in 2018, a 40 percent excise tax will be imposed on costs exceeding $10,200 for individual coverage and $27,500 for family coverage. The tax would be paid by insurers and, in the case of self-funded plans, by third-party claims administrators.

The report also recommends giving the board of the Pension Benefit Guaranty Corp. authority to raise premiums that employers with defined benefit plans pay the PBGC.
The base annual premium now is $35 per plan participant, and sponsors of underfunded plans pay an additional premium of $9 per $1,000 of underfunding.

Under the current law, except for an automatic adjustment based on the growth in wages, only Congress has authority to boost PBGC premiums.

Giving the board of the PBGC, which has a $23 billion deficit, authority to raise premiums “would sharply reduce the likelihood of a government rescue” of the PBGC in the future, the report said.

The likelihood of Congress acting on any of the proposals isn’t known. Taxing health care benefits, for example, is extremely controversial, and it would be a big “stretch” for Congress to completely eliminate the tax exclusion, said Frank McArdle, a principal with Aon Hewitt Inc. in Washington.  

Filed by Marc A. Hofmann and Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail


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