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Jul 29, 2003
by Chris Grier, associate editor
GAO FINDS NO SINGLE CAUSE FOR HIGHER MEDICAL-LIABILITY PREMIUMSWASHINGTON D.C. -- Three weeks ago, a handful of congressmen asked the General Accounting Office to find out why medical malpractice premiums were skyrocketing. Late on July 28, the GAO released its report. Its conclusion? There's not enough data to say for sure. The GAO made no recommendation for any executive action based on its report, which was produced at the request of 10 Democrats led by U.S. Rep. John Conyers Jr., D-Mich.
The report did say Congress "may wish to consider encouraging" the National Association of Insurance Commissioners and state insurance regulators to gather more data to better understand of the market. Recommendations of the GAO, however, aren't binding.
The GAO, the investigative arm of Congress, reported little that insurers and legislators didn't know already. Malpractice premiums "have increased dramatically" and "multiple factors...have contributed to (the) recent increases" in the seven states examined. GAO investigators looked at California, Florida, Minnesota, Mississippi, Nevada, Pennsylvania and Texas.
The report comes amid a battle on Capitol Hill to control the spiralling costs of medical-malpractice insurance. The American Medical Association says 18 states are experiencing a health-care crisis because of medical liability, and it says 27 more states show signs of trouble. The Senate earlier this month blocked President Bush's plan to cap jury awards in medical-malpractice cases, and several states are taking up the issue in their statehouses. Large increases in medical-malpractice premium rates have raised concerns that physicians will no longer be able to afford insurance, thereby forcing them to move to states with lower rates, go into early retirement or curtail risky-but-necessary procedures.
A critical point in the escalation of the crisis came at the end of 2001, when St. Paul Cos. left the medical-liability market, leaving 40,000 doctors without coverage (BestWire, Dec. 15, 2001). Other insurers followed.
Several factors combined nationwide to push premiums up: Few remaining medical-liability carriers led to reduced competition; the recession led to reduced investment income for insurers; and steadily rising jury awards led to bigger claims losses.
Interest groups offered wildly varying interpretations of the July 28 GAO report. The American Medical Association, which has been pushing for caps on jury awards for years, said the report "confirms what we have long held...premiums have skyrocketed in some states and specialties--and increasing awards are the main driver."
The California-based Foundation for Taxpayer and Consumer Rights, however, said the GAO report called for no such cap and called on the insurance industry to open up its books to public scrutiny.
"The GAO report reinforces insurers' contention that loss costs, not poor investment
performance, are the most significant contributor to higher premiums," said David M. Golden, director of commercial lines for the National Association of Independent Insurers, in a statement. "The insurance industry has always made it clear that although other factors have a marginal impact, rates are driven by losses, plain and simple. The leading cause of current market conditions was the massive increase in losses in the mid-to late 1990s. When the median judgment doubles from $500,000 to more than $1 million in just five years, this is bound
to have an impact on premiums."
The GAO said that losses on claims do, in fact, make up the largest part of insurers' costs, but it noted that most claims are settled and that caps only apply to cases that make it to trial. The report found that claims losses for the industry have shown an upward trend overall, but insurers' experiences varied "dramatically" among the seven sample states.
Also, the lag time between collecting premiums and paying claims means that losses might be increasing while premiums are being held down, requiring large rate spikes when premiums finally go up. Falling investment income and rising reinsurance costs, the GAO report found, also are a factor in rising rates.
"While these factors may explain some events in the medical malpractice market, GAO could not fully analyze the composition and cause of losses at the insurer level owing to a lack of comprehensive data," the report concluded.
Though the GAO looked at only seven states, there is plenty of evidence to suggest problems elsewhere. Thirty-four states debated medical-malpractice reform this year, according to the National Conference of State Legislatures. Arkansas, Idaho, Montana, Nevada, New Hampshire, Ohio, Texas, Utah and West Virginia all enacted some form of reform legislation this year.
In Florida, the Legislature is about to be called back for a third special session Aug. 5, at which liability caps will likely be the main focus. Among state actions taken recently:
- In Florida, Gov. Jeb Bush and the House of Representatives support a $250,000 cap on noneconomic damages in jury awards for malpractice, but the Senate has only agreed to a $1.5 million cap. The issue has been in play in the Legislature for a year.
- In New Jersey, Gov. James McGreevey declined to hold a special session to address the state's malpractice crisis. The New Jersey Department of Banking and Insurance, meanwhile, has said Princeton Insurance Co., the major medical-liability insurer in the state, will stop writing new policies effective Aug. 21.
- New Hampshire Gov. Craig Benson signed a bill that reverses a 2001 state Supreme Court ruling expanding plaintiffs' rights. The bill prevents some medical-malpractice lawsuits from being filed.
-In Kentucky, a gubernatorial candidate, physician Ernie Fletcher, has called for a cap on jury awards for malpractice by amending the state's constitution.
- In West Virginia, lawmakers established tax credits to help doctors pay insurance costs.
- Ohio passed a bill capping noneconomic damages at $350,000. The Council of Insurance Agents & Brokers on July 22 released a survey in which it asked respondents about medical-malpractice premiums. Nearly half the agents and brokers reported premium increases of 20% or more. Twelve percent of those surveyed reported increases of 50% to 100% (BestWire July 22).
Contact the author at: Chris.Grier@ambest.com
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