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
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:
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1999, during which marketing goals superceded prudent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.
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