Study Contends Malpractice Insurers Gouging
Jul. 8–Medical malpractice insurers in recent years have reaped a windfall in premiums that have far outstripped their claim payouts, a report issued by consumer groups said Thursday.
The report, written by former Missouri Insurance Commissioner Jay Angoff, contends that the amount of premiums collected by 15 major medical malpractice insurers has more than doubled over the past five years. At the same time, the report found that the companies’ claim payouts have remained essentially flat.
“This can be a hazard to all of our health,” said Richard Blumenthal, Connecticut attorney general, in a telephone news conference after the report was released. “We’re dealing with a hurricane-force trend.”
The insurance industry quickly disputed the study, saying it was based on a methodology that skewed the results in favor of critics.
The report, commissioned by the New York-based Center for Justice & Democracy, a consumer advocacy group, is the latest salvo in an ongoing controversy over one of the most contentious issues in health care.
The report said malpractice insurers as a group raised their net premiums between 2000 and 2004 by 120.2 percent, to about $4.2 billion, even though their net claim payments rose by only 5.7 percent, to about $1.4 billion.
As a result, the amount of claim payments made as a percentage of premiums dropped from 69.9 percent in 2000 to 33.6 percent in 2004.
In the news conference, Angoff and Blumenthal called for oversight of malpractice insurance premium increases in every state.
“There are efforts we can make, but the most important point here is the law needs to be strengthened,” Blumenthal said.
For years, doctors and insurers have blamed voracious trial lawyers and patients filing “frivolous” lawsuits for causing malpractice insurance rates to skyrocket. Meanwhile, lawyers and consumer advocates have pointed fingers at doctors and profit-hungry insurers.
One of the key battlegrounds in the debate has been Missouri, which passed significant tort reform legislation this year.
The report by Angoff, who now works for Roger Brown & Associates, a personal injury law firm based in Jefferson City, drew fire from the malpractice insurance industry.
“We think the report is very misleading,” said Larry Smarr, president of the Maryland-based Physician Insurers Association of America.
Smarr said it is not valid for the report to compare premiums and claims from the same calendar year because malpractice claims usually are paid years after premiums are collected. He also noted that the report doesn’t include money the industry pays for legal expenses.
Angoff countered that the insurers’ loss projections went down in 2004 but they still raised premiums. He also noted that the report did not include profits that insurers made investing excess premiums.
Amid the controversy, most agree that medical malpractice insurance contributes to a growing national health-care bill that threatens the country’s long-term economic health.
“All employers are very concerned about rising health-care costs, and they recognize that medical malpractice costs are one of the factors in this increase,” said William L. Bruning, president of the Mid-America Coalition on Health Care, a Kansas City area alliance of employers and other health-care stakeholders.
The report said some malpractice insurers substantially increased their premiums while their claim payments and projected future claims were decreasing, and the insurers accumulated record amounts of surplus over the past three years.
Some experts disagreed with the report’s findings.
“The experience of the marketplace over the last several years does not support the conclusions of the report,” Sandy Praeger, Kansas insurance commissioner and secretary-treasurer of the Kansas City-based National Association of Insurance Commissioners, said in an e-mailed statement. “Many insurers have left medical liability markets because they did not believe they could continue to provide medical malpractice coverage profitably.”
Tom Holloway, director of government relations for the Missouri State Medical Association, also was skeptical of the new study.
Holloway said insurance companies haven’t made much money in Missouri. But he expects tort reform to limit the risk of outsized claims, to allow premiums to decline and to encourage more insurers to enter the market.
That said, Holloway said greater regulation of the insurance industry is “second only to tort reform as a legislative priority. We fight the insurance industry on that.”
Trial lawyers who represent patients in malpractice suits have been saying for years that malpractice insurance premiums were out of line, said Sharon Jones, director of governmental relations of the Missouri Association of Trial Attorneys.
But doctors have tended to believe insurance companies when they’ve said excessive malpractice awards were to blame, she said.
Jones said the trial lawyers have proposed a variety of changes that have been turned down by state lawmakers. Among them are experience rating of individual doctors and giving tax credits to doctors to help pay insurance premiums until the market stabilizes.
Recent academic studies have found that although malpractice payments have been growing steadily, they have been in line with increases in health-care spending.
Between 1991 and 2003, payments made on behalf of physicians grew an average of 4 percent a year nationwide, according to a study in the journal Health Affairs. The large jury awards that attract public attention were rare and didn’t contribute significantly to overall malpractice costs, the researchers found.
A separate study in the Journal of Empirical Legal Studies looked in depth at 15 years of Texas data and reached a similar conclusion that the size and number of claims have remained stable.
“We found a steady upward trend in award amounts that I would regard as predictable,” said one of the researchers, William Sage, a doctor and lawyer on the faculty of the Columbia Law School. “What we didn’t find was any sudden epidemic of malpractice litigation. We didn’t find any evidence of juries or lawyers out of control.”
Missouri this year reduced the inflation-adjusted cap of $579,000 for noneconomic damages, such as pain and suffering, in medical malpractice cases to a flat $350,000. The new law applies that cap to the total amount owed by all defendants in a case, rather than against each defendant for each occurrence of negligence, as was permitted under the previous law.
In April, the Missouri House passed legislation that would tighten the regulation of medical malpractice insurers, but the bill was not voted on in the Senate.
Angoff and Blumenthal on Thursday called for reforms such as requiring insurers to get approval from state insurance departments before they can raise rates.
Doug Ommen, deputy director and general counsel of the Missouri Department of Insurance, said requiring state approval for malpractice insurance rate increases would be a “significant departure from the historical approach of Missouri insurance regulation,” which he characterized as relying on competition to keep down costs.
At the same time, Ommen noted that a committee of Missouri legislators is studying the possibility of a malpractice stabilization fund such as in Kansas. Such a fund assumes the major risk of liability for doctors.
The Missouri Association of Osteopathic Physicians and Surgeons has been fighting for insurance regulation for the past three years, said Bonnie Bowles, the association’s executive director.
Insurance companies should have to report their financial status to the state, she said, and the state insurance department should be able to demand public hearings if insurers want to make significant changes in premiums.
“There is not enough accountability, and insurance companies can charge whatever the market can bear,” Bowles said. “Without insurance industry reform, we won’t see a significant drop in premiums.”
By Julius A. Karash and Alan Bavley
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