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Connecticut Law Tribune
Feb 24, 2003
by Santa Mendoza, Law Tribune Contributing Writer
Med Mal Caps Won't Solve Insurance HikesIt will be a dark day for hypochondriacs, when, on March 26, state doctors take the day off to travel en masse to Hartford. The trip will involve a protest, organized by the State Medical Society, of the escalating malpractice insurance rates that state doctors have been forced to swallow. This bitter pill, coupled with shrinking Medicare/Medicaid pay-outs, has caused a crisis in the business practice of medicine, both here and across the country. Insurers blame malpractice claims. This connection has led the medical profession to begin serious agitation for statutory caps on non-economic damages awarded by juries.
It sounds irresistibly simple. A cap on the amount to which insurers will be exposed in claims should result in enough of variable change in the premium calculation to lower rates, and thereby keep doctors practicing. But according to the research done by the Foundation for Taxpayer and Consumer Rights (FTCR), this logical syllogism will not necessarily come to pass. California has been down the "malpractice cap" road and back, and nothing has proved logical.
In 1975, California doctors persuaded the state legislature to pass the Medical Insurance Comprehensive Reform Act (MICRA), which, in one of its sections, capped the amount of pain and suffering, or non-economic damages, obtainable by injured patients at $250,000. According to a report by FTCR, this statute left many victims without large wage losses unable to locate an attorney in California interested in taking their case. In addition, juries were not told of the cap, and large jury awards were reduced ex post facto, without jurors' knowledge. MICRA supporters were sure that caps would solve the "insurance crisis" of the day. However, the research shows that, under MICRA, rates continued to rise. In 1988, malpractice premiums were 190 percent higher than they were in 1976, the year after MICRA's passage.
How was this explained? Insurers said that court challenges to MICRA cost them millions. But after the Supreme Court of California upheld MICRA in 1985, there was an enormous 40 percent increase in malpractice insurance rates in 1986. Between 1985, the year the cap was upheld and 1988, premiums increased by 47 percent.
It became apparent that caps did not succeed in lowering insurance rates, since just the opposite occurred. Punishment for insurers was swift and severe. In 1988, California voters passed Proposition 103, which rolled back and severely regulated insurances rates. Today, an elected insurance commissioner has to bless every rate hike, a true regulatory purgatory. Since the passage of this regulation, insurers have been forced to give back $135 million in premiums and interest to their physician policy-holders.
If the caps result in less pay-outs to injured patients, what do insurers do with the premium dollars? According to the CFTCR report, instead of reducing premiums commensurately with the lower claims pay-outs, California insurers just spend more fighting claims. Across the U.S., insurers spend 69 percent of a premium dollar paying losses, and 35 percent in defense costs. In California, insurers report that 40 percent of their premium dollars go to losses and 40 percent to defense costs (i.e. defense lawyers, experts and claims adjusting expenses). While California's stiff regulation and uneasy politics has succeeded in stabilizing malpractice insurance rates, no other logic exists with respect to how medical malpractice insurance works.
Medical professionals are inextricably caught in the middle of this debate, and their victim status in the squeeze being put on them by illogical insurers has helped them win over popular opinion. But clearly caps are unfair to those victims with loss of fertility, disfigurement, and other traumas, and they just don't work. Before the Connecticut legislature enters the fray, hopefully someone will take a glance at the California experience.
Santa Mendoza is an associate with Suisman Shapiro in New London.
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