TheStreet) -- As lawmakers take up health-care reform, we ought to recognize how dangerous it is to fix a system without understanding how it became broken in the first place. Among nations with comparable average life spans, Americans pay more for health care than anyone else in the world. The system is grossly overpriced because it has structural problems, among them the so-called American Rule in lawsuits. The American Rule stipulates that, everyone is responsible for his or her own legal fees. That means if someone brings a lawsuit against you, though you may have done nothing wrong, you still have to pay for your defense. The American Rule encourages a kind of legalized bullying because the system doesn't deter people from starting lawsuits -- and actually encourages frivolous legal action. The effect of the American Rule on America's health-care industry is twofold. First, because of frivolous lawsuits, insurance companies like American Physicians Service Group ( AMPH), ProAssurance Corp. ( PRA) and FPIC Insurance Group ( FPIC) charge doctors more for malpractice insurance than is reasonable. As the problem is system-wide, rates are high for all doctors regardless of whether they've ever lost a lawsuit. If they actually do become involved in a lawsuit, the fees go up from there. To pay these unreasonable fees, doctors must charge more for their services, which in turn causes health-care insurance companies like Aetna ( AET), UnitedHealth ( UNH) and Cigna ( CI) to demand premiums that are sky-high. Thus, it costs more to be a doctor in the U.S. than it does anywhere else. American doctors are more vulnerable to lawsuits.
Second, the bullying encouraged by the American Rule requires doctors to be overly cautious, so as to avoid suits. The system encourages health-care providers to run more tests and prescribe more preventative treatments than are necessary. The benefit of this thoroughness is disproportionate to the costs, because it's not designed to address the well-being of patients, but instead to cover all the doctor's legal bases. It's easy to talk about health-care reform in terms of increased government spending, but the right kind of reform should make the necessary hard choices that will be required to create a self-sustaining system rather than the next Medicare disaster. For this reason, we are calling for politicians to make what will be a tough decision concerning the structure of health care in this country, and to abolish the American Rule. We expect that any discussion of this degree of change will summon up, once again, argument concerning the rights of the poor, who will have trouble bringing forth a lawsuit if they are at risk of having to pay both their own and their opponent's legal fees. The abolishment of the American Rule will make it more expensive for everyone who loses a lawsuit and less expensive for everyone who wins. At the end of the day, there are legal costs involved in lawsuits, and we reject the idea that the loser and the winner should share those costs. So long as lawsuits are initiated in earnest, the system will increase the legal power of the economically challenged and even save them money on their health insurance.