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Orlando Sentinel (Florida)
May 14, 2003
by Harvey Rosenfield, Special Op-Ed to the Sentinel
TO SOLVE MALPRACTICE-INSURANCE CRISIS, ROLL BACK RATES, NOT RIGHTSIf the insurance industry and the medical lobby have their way, Floridians will soon become guinea pigs in an experiment that has failed everywhere else it has been tried: caps of compensation for victims of medical malpractice. Backers, including Gov. Jeb Bush, insist caps will lower insurance premiums. But the experience in California shows that the only way to cut premiums is to regulate insurance company profits and expenses.
California has tried it both ways. In the mid-1970s, skyrocketing premiums galvanized doctors to join the insurance industry in support of damage caps. Intimidated by the medical profession's threat to leave the state (sound familiar?), lawmakers capped pain and suffering damages at $250,000. The 1975 law enriched the insurance industry by reducing what it had to pay out to
victims of medical mistakes. But contrary to the insurers' promises, premiums continued to rise -- 450 percent in the 13 years after the law's passage.
In the mid-1980s, another insurance crisis hit the nation. Insurers boosted premiums for auto, home and business coverage. Medical-malpractice premiums soared again: 47 percent between 1985 -- the year the damage cap was upheld by the courts -- and 1988. Again, insurers blamed a "litigation explosion." More "tort reform" was passed, but premiums continued to soar.
Finally, in 1988, angry California voters passed a ballot measure that imposed the toughest regulation of insurance rates and practices in the nation. Proposition 103 mandated rate rollbacks, required insurers to open their books and justify future rate increases, while limiting the expenses, phony loss projections and profits that insurers can pass on to consumers. It stripped the industry of its exemption from the antitrust laws. And it gave consumers the right to challenge unjustified rate increases and other insurer abuses.
Only after Proposition 103 passed did medical-malpractice insurance premiums go down 20.2 percent, according to the insurance industry's own data. Insurance companies were forced to give back more than $1.2 billion in the form of refunds, including $135 million to physicians. Proposition 103's reforms have saved consumers more than $23 billion in auto-insurance premiums, according to a 2000 study by the Consumer Federation of America. Although insurers threatened to leave the state if Proposition 103 passed, the voters ignored that economic blackmail, and the insurers remained -- California, like Florida, is simply too lucrative a state to boycott.
The insurance crisis that is afflicting Florida has nothing to do with lawsuits or damage awards, both of which have not increased significantly in Florida or elsewhere. Insurance companies are boosting premiums to offset investment losses. The stock market cost liability insurance companies $10.8 billion last year. They lost hundreds of millions in the stocks of crooked companies such as Enron and WorldCom. Interest rates are at record lows. A crummy economy affects everyone. But unlike the rest of us, insurers have a ready alternative: our wallets. That's why insurers are reporting soaring profits.
Insurance companies say they are losing a fortune because of soaring lawsuits. But these huge "losses" are grossly inflated under accounting rules that permit insurers to arbitrarily project future claims and then write them off for tax purposes. The real numbers tell a far different story: From 1996 through 2001, insurers in Florida paid out an average of only 81 cents in claims for every malpractice premium dollar they took in.
Scapegoating lawsuits has three advantages for insurers. First, it's a diversion. Second, it reinforces their demand for damage caps, which let them keep money that would otherwise go to compensating victims. Third, it's good for their political allies. Limiting lawsuits limits the income of trial lawyers, who are major donors to the Democratic Party. As a prominent Republican
operative put it, "tort reform" is a way to reduce the power of the Democratic Party. (Insurers, doctors and HMOs are big Republican givers). If Gov. Bush calls a special session to push caps through the Legislature, Floridians should understand that his plan is part of a cynical political strategy to get rid of the electoral competition.
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