Medical Malpractice Insurance: Study Challenges Insurance Industry’s Explanation
By Richard H. Adler
November 13, 2002
The nation’s insurance companies are advancing a legislative agenda to limit liability for doctors, hospitals, HMOs, nursing homes and drug companies that cause injury. Federal and state lawmakers and regulators (and the general public) are being told by medical and insurance lobbyists that doctors’ insurance rates are rising due to increasing claims by patients, rising jury verdicts and exploding tort system costs in general.
The insurance industry argues that patients who file medical malpractice lawsuits are being awarded more and more money, leading to unbearably high losses for insurers. Insurers state that to recoup money paid to patients, medical malpractice insurers are being forced to raise insurance rates or, in some cases, pull out of the market altogether.
Since insurers say that jury verdicts are the cause for the current “crisis” in affordable malpractice insurance for doctors, the insurance industry insists that the only way to bring down insurance rates is to limit an injured consumer’s ability to sue in court.
Insurance rates for doctors have skyrocketed twice before: in the mid-1970s and in the mid-1980s, each “crisis” occurring during years of a weakened economy and dropping interest rates. Each of these periods was followed by a wave of legislative activity to restrict injured patients’ rights to sue for medical malpractice. Medical and insurance lobbyists told legislators that changes in tort law were needed to reduce medical malpractice insurance rates.
For the first time, Americans for Insurance Reform (AIR), a coalition of nearly 100 consumer groups around the county, has produced a comprehensive study of medical malpractice insurance, examining specifically what insurers have taken in and what they’ve paid out over the last 30 years.1 AIR examined everything that medical malpractice insurers have paid in jury awards, settlements and other costs over the last three decades, and compared these actual costs with the premiums that insurers have charged doctors. This study makes two major findings:
First, the amount that medical malpractice insurers have paid out, including all jury awards and settlements, directly tracks the rates of medical inflation. Not only has there been no “explosion” in medical malpractice payouts at any time during the last 30 years, but payments (in constant dollars) have been extremely stable and virtually flat since the mid-1980s.
Second, medical insurance premiums charged by insurance companies do not correspond to increases or decreases in payouts, which have been steady for 30 years. Rather, premiums rise and fall in concert with the state of the economy-insurance premiums (in constant dollars) increase or decrease in direct relationship to the strength or weakness of the economy, reflecting the gains or losses experienced by the insurance industry’s market investments and their perception of how much they can earn on the investment “float” (which occurs during the time between when premiums are paid into the insurer and losses paid out by the insurer) that doctors’ premiums provide them.
“These data together constitute a “smoking gun,” which should, once and for all end the debate about the cause of these periodic medical malpractice crises,” said the author of the study, J. Robert Hunter, Director of Insurance for the Consumer Federation of America, former Texas Insurance Commissioner and AIR co-founder. Mr. Hunter went on to add that “Insurers, whose own investment actions have created a ‘crisis’ in insurance affordability and availability, are blaming others for their own mismanagement by manufacturing a crisis for policyholders that simply should not exist. By increasing rates, insurers are forcing hospitals, doctors, and ultimately patients, to suffer for their poor business and investment decisions.”
1 Medical Malpractice Insurance: Stable Losses/Unstable Rates. October 10, 2002