Every election cycle, with one approaching, both Republicans and Democrats argue about who is responsible for the fact 14% of America's GDP is devoted to health care. Health care is expensive, and getting even more expensive, so who is to blame? Democrats blame insurance companies and say that the Republican party is beholden to insurance interests, while Republicans blame trial lawyers and say they control the Democratic party.
Assuming for the sake of argument that the civil litigation system is out of control, what can be done about it? Notwithstanding the disaster that was Wall Street and the credit default swap fiasco, is there is any reason to think free market reform of the civil litigation system will better evaluate claims and liabilities than juries and judges?
Under English common law, which America follows, a plaintiff does not have the right to sell his claim. In other words, if you are hurt and have the right to sue someone, you do not have the right to sell your claim, collect the money, and let someone else deal with the lawsuit. The rational against allowing this behavior is that it would encourage speculation.
But what if a plaintiff could sell his claim, and in addition, a defendant could buy insurance after the fact, which could be purchased serially by numerous parties? Eventually, the price to buy the claim will equal the price to purchase after the fact insurance, in which case the case will be liquidated by free market pricing.
By way of example, assume Bill hurts John in a car accident. John sells his claim for $15,000 to Greg. Bill purchases after the fact insurance from David for $17,000. A neutral third party observer (the selling of claims and purchasing of after the fact insurance is secret from one another) gives Greg $15,000 and David makes $2,000 for his effort, and thus, the market values the injury at $15,000.
Now assume John sold his claim to Greg for the same $15,000 price, but David only paid Bill $13,000. Because David paid Bill less than Greg paid John, nothing happens and these rounds will continue until eventually the amount paid for after the fact insurance equals or exceeds the current price of the claim. If there is no resolution, let's say for 10 days, then all parties are returned to starting position and they can either try again through this process, or the normal civil litigation process.
For anyone reading this, keep in mind this is not how the personal injury actually works, just a possibility for evaluating and liquidating claims.