We use variation in medical malpractice payments driven by the recent “medical malpractice crisis” to identify the causal effect of rising health insurance premiums on wages, employment and the distribution of part-time and full-time work. We estimate that a 10 percent increase in health insurance premiums reduces the aggregate probability of being employed by 1.2 percentage points, reduces hours worked by 2.4 percent, and increases the likelihood that a worker is employed only part-time by 1.9 percentage points. For workers covered by employer provided health insurance, a 10 percent increase in premiums results in an offsetting decrease in wages of 2.3 percent. Thus, rising health insurance premiums may both increase the ranks of the unemployed and place an increasing burden on workers through decreased wages for those with employer health insurance and decreased hours for those who may be moved from full time jobs with benefits to part time jobs without.

The quality of care received by Medicare beneficiaries varies across areas. We find that states with higher Medicare spending have lower-quality care. This negative relationship may be driven by the use of intensive, costly care that crowds out the use of more effective care. One mechanism for this trade-off may be the mix of the provider workforce: States with more general practitioners use more effective care and have lower spending, while those with more specialists have higher costs and lower quality. Improving the quality of beneficiaries’ care could be accomplished with more effective use of existing dollars.

The growth of medical malpractice liability costs has the potential to affect the delivery of health care in the U.S. along two dimensions. If growth in malpractice payments results in higher malpractice insurance premiums for physicians, these premiums may affect the size and composition of the physician workforce. The growth of potential losses from malpractice liability might also encourage physicians to practice "defensive medicine." We use rich new data to examine the relationship between the growth of malpractice costs and the delivery of health care along both of these dimensions. We pose three questions. First, are increases in payments responsible for increases in medical malpractice premiums? Second, do increases in malpractice liability drive physicians to close their practices or not move to areas with high payments? Third, do increases in malpractice liability change the way medicine is practiced by increasing the use of certain procedures? First, we find that increases in malpractice payments made on behalf of physicians do not seem to be the driving force behind increases in premiums. Second, increases in malpractice costs (both premiums overall and the subcomponent factors) do not seem to affect the overall size of the physician workforce, although they may deter marginal entry, increase marginal exit, and reduce the rural physician workforce. Third, there is little evidence of increased use of many treatments in response to malpractice liability at the state level, although there may be some increase in screening procedures such as mammography.