I wrote this note in October 2011, to sort out some of my ideas. I am putting it on the websirte, because it represents a step on the way to some important developments in my thinking on the role of tort law and social insurance.
Keywords: Social Policy;
My thinking on a number of issues related to market regulation is in a fluid state at the moment. Best at this stage to list some factors; they are focused here on treatment injury, but the issues are linked to ACC generally, and even Leaky Buildings. Here is a list that I have been turning over in my mind.
Some years ago, Rob Bowie pointed out in the NZ Medical Journal that efficiency was an equity issue; that is to be inefficient is unjust. Fair enough, providing the term inefficient means to waste resources (and not necessarily some of the odd meanings that economists give to it).
I have been finding increasingly James Reason’s ‘Swiss cheese causative model’, in which there are a series of slices with holes in them. It is when there is an alignment of the holes a particular untoward event occurs. [Reason, J. (1990) Human Error, New York: Cambridge University Press; see also Peter Robert’s Snakes and Ladders – http://www.eastonbh.ac.nz/?p=548]. It is a useful way to think about the Woodhouse ‘no-fault’ approach. The fault approach tends to focus on the last cheese slice, yet it is the alignment of holes that matters, and it is not always obvious that when an accident has happened the last holey slice holder should be blamed and all the others get off scot free.
I have only recently realised a feature of treatment injury, is that the injured is invariably innocent. Am I sure about theat invariably? Let’s assume I am. That simplifies the fault issue considerably, in that when we are thinking about remediation and compensation the victim is not at fault. It also simplifies non-fault arrangements.
But is the victim always innocent? Does not he or she make the decision to proceed with the treatment informed (in aan ideal world) what the risks are? I agree that the treated should take some of the risk of treatment failure, but I have worried about how much. Is the line right under current practices. We also assume that there is a condition which means that the patient has to consider treatment. But what about cosmetic surgery (for instant). Are they as innocent in this case as say from a need for cancer treatment? (And is ‘treatment’ failure the same as diagnosis failure? You might understand if the doctor said there was a 1 percent probability this treatment might go wrong; but what if you go into a doctor who announces there is a 1 percent chance he wont identify the condition.) Let’s park these questions.
I was recently stimulated by some of Calabresi’s insights. I have not found a succinct account for my purposes, so I’ll just set down a recent statement I found. While tort lawyers tend to see Compensation as the main goal of liability rules. In Calabresi’s view is the ‘major goal of liability rules is to minimise the costs of accidents’. (As a crucial step an economist is not here concerned with the costs of accident to this or that party, but the costs to society as a whole, including non-financial costs.)
Calabresi is of course working in th American environment with its focus on tort and the dealing with a particular failure and the possibly vague hope it would minimise accidents. He draws our attention to the system as a whole. What is the best way to minimise the costs of accidents. My hunch is that the no-fault system with an emphasis on prevention is superior to the litigation option, not least because one estimate had litigation costs under a fault regime adding 50 percent to the other costs.
1. So let us assume that a no-fault treatment injury system, not too different from the existing one is the more efficient (i.e. less wasteful of resources) – according to Rob Bowie is one requirement for equity.
2. The second step is the innocence of the victim, means we can treat that independently of the way the rest of the system configures, I think. My approach to the equity issue is Rawlesian. Behind the veil of ignorance, I reckon one is likely to go for full practical remediation compensation.
So far so good, but what about paying? A Rawlesian would I think, expect the victim to accept small injuries. (E.g. the elastoplast hurt more than expected when it was removed.) Bother were are back to where to draw the line. My problem is I dont know enough about the issue of what outcome is it reasonable to expect the remediation and compensation start).(An economist would probably try to include a cost function with some notion.) I suspect one can worry at it, more if one is more knowledgeable.
I am not unaware, as an economist should be, that payments arrangements need to be thought about in this second step. However, initially I have ignored it.
3. What is a fair way to fund the process, given that it is no-fault. The current funding is odd, as it comes from the levy on wages – huh?
Calabresi developed the concept of the ‘cheapest cost avoider’. Liability should be the responsibility of the actor who is in the best position to make the cost-benefit analysis between accident costs and accident avoidance costs and to take preventive measures if they are cheaper than the avoided accident costs.
If we take this as a guide the liability (i.e. cost) should be on the treatment provider. How to do it in a no-fault system? Insurance! (Incidentally the principle already exists in that worker levies vary according to occupational risk.)
Suppose that we used a more insurance model, in which the levy was on the treatment and related to the cost of the treatment injury and the probability of it occurring. That would mean that some activities – say podiatry – would pay a very low level, some – perhaps midwifery – a high level. One advantage would be that it would give each profession an incentive to reduce their insurance costs by providing better care. That sounds like a good idea.
It is a feature of NZ heath care that much of it is publicly funded. I am trying to avoid here the practical intricacies; I am just after principles. But what that seems to be saying is that treatment injury should be funded from the public health budget, not a levy on wages.
What about private treatment. Then the social insurance should be a part of the fee to the patient (or private health insurance or what). That solves, by the way, the problem of cosmetic surgery, or whatever. The insurance would be part of the fee the treated would pay. At which point it does not matter whether they are ‘innocent’ or not.
So in summary you get both improvements in efficiency and equity as follows.
Prevention. Oops, for got to mention that earlier.
1. A no-fault system because it has lower transaction costs.
2. Remediation and compensation of the patient according to some Rawlesian or other ethical principle
3. A funding system which is based on social insurance which is both equity promoting in a Calabresi sense, but also contributes to efficiency-prevention.