Article
Medical Malpractice Caps Fail to Prevent Premium Increases
In June, 2003, Weiss Ratings, Inc. published a study demonstrating that caps on non-economic damages in medical malpractice cases have failed to prevent sharp increases in medical malpractice insurance premiums for physicians.
Weiss Ratings is the nation’s leading independent provider of ratings and analyses of financial services companies, mutual funds, and stocks. Weiss issues safety ratings on more than 15,000 financial institutions, including HMO’s, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, banks and brokers. (www.weissratings.com)
The comprehensive study performed by Weiss reviewed the impact that tort reform has had on medical malpractice premiums paid by doctors in three high risk specialties: internal medicine, general surgery, and OBGYN practice.
The Weiss Study demonstrated the following trends between 1991 and 2002:
Despite caps on damages, physicians’ med mal premiums rapidly increased.
The insurance companies enjoyed slowed increases in payout levels.
In 32 states without caps on damages, medical malpractice premiums actually rose more slowly than in the 19 states that had implemented caps during the 12 year period. In those 19 cap states premiums jumped 48.2% (from $20, 414 in 1991 to $30,246 in 2002). In the 32 non cap states, premiums only rose by 35.9% ($22,118 in 1991 to $30,056).
Martin D. Weiss, chairman of Weiss Ratings concludes “The escalating medical malpractice crisis will not be resolved until the industry and regulators address the other, apparently more powerful factors driving premiums higher.” The Weiss study identified six other factors driving the sharp increases in medical malpractice premiums:
Medical Inflation Rate:Medical costs have risen 75% since 1991.
The insurance business cycle: The insurance industry suffered a 12 year “soft” period through 1999, during which marketing goals superceded prudent underwriting practices. Moreover, decision makers relied too heavily on high investment income to make up for losing operations. To catch up, insurers have tightened underwriting standards and raised premiums.
Financial Safety- 34.4% of the nation’s med mal insurers are vulnerable to financial difficulties, compared to 23.9% of the property and casualty as a whole. To restore this financial health med mal insurers will remain under pressure to increase rates.
The need to shore up reserves: Since 1997, med mal insurers have consistently under-reserved in the amount of $4.6 billion. The only way to shore up reserves is to increase premiums.
Decline in investment income: Investment income declined by 23 percent in 2001 and another 2.5% in 2002. This is particularly critical for med mal since the duration of claims payouts span several years.
Supply and demand for coverage: the number of med mal carriers increased through 1997 to 274, but fell to 247 in 2002.
Weiss recommends that legislators should put all proposals for non-economic damage caps on hold until convincing evidence can be produced to demonstrated the true benefit to doctors in the form of reduced med mal premiums. He also states that insurance companies should not be allowed to let marketing divert or pervert prudent actuarial analysis and planning. Finally, he recommends that the medical profession must assume responsibility for policing itself.
