Medical malpractice "reform" and insurance rates.
In the July 16 issue of the Michigan Lawyers Weekly, dramatic rate information was published, documenting the impact of twenty years of malpractice "reform" on insurance premiums: for the most part, the impact was non-existent. Although the reforms had reduced the number of paid claims by about fifty percent, and the number of filings even further, the cost of premiums continued to increase dramatically faster than the rate of inflation for every insurance company except one. The newspaper headlined the fact that after twenty years of "reform", filings dropped by 75 %, while rates experienced average overall increases of nearly 150 percent.
The newspaper noted that the subject "reforms," which dramatically diminished the right to compensation of injured citizens, were justified by the need to reduce malpractice premiums. The primary sponsor of the House bill, Richard Bandstra, confirmed to the authors the legislative intent to lower premiums or to prevent their escalation. While the resulting malpractice court filings have "plummeted" (3,500 in 1986; 1,500 in 1992; 930 in 2006); and payments to victims have shrunk from 1017 made in 1995 to 472 in 2005 (median payment of $96,000.00); the cost of malpractice insurance has continued its exorbitant rise with most carriers.
Among Michigan's larger malpractice insurers, American Physicians Insurance has raised overall rates 138 percent; ProNational Insurance Company raised rates 149 percent over this period; Medical Protective has bumped its rates by 148 percent--while filings have been whittled in half. For all but one carrier, these increases have substantially out-stripped the rate of inflation--meaning they would still be an increase in 1986 dollars--even if claims had simply remained stable.
Further, exorbitant rates have resulted in loss ratios (percent of premiums collected paid out to victims, without considering investment income on tax-free premium reserves) ranging from 36 to 62 percent for the major insurers. In other words, with its 36 percent loss ratio, Medical Protective paid out to victims 36 cents of each premium dollar collected. Industry experts say that loss ratios should be up around 80 percent and are clearly excessive when they fall near fifty percent.
While the insurers claim that their expenses are now higher, they are not substantially higher and even including expenses in the loss ratio of these carriers would leave them with what the industry considers to be "highly profitable" or even "excessive profit" profiles. Frankly, one reason why there has been a modest increase in expenses would seem to be the current belief that even the most excessive defense claim will probably be honored in the Supreme Court. One can gauge the impact of this argument by analyzing some of the Court's malpractice decisions elsewhere in this blog.
The insurers would not comment on the claim that their premiums had become excessive, and since the legislature took away the State OFIS' power to regulate commercial insurance policies in 2002, this information is not collected by any regulatory agency. The entire system amounts to legitimizing an unregulated tax on health care providers, and then providing them with judicial "relief" from victims in order to keep them from complaining. During the interim, by the way, the number of doctors practicing in Michigan has increased by more than fifty percent, so apparently they are not overly burdened by what they pay: a national study once concluded that relative to actual income, most physicians pay less in liability insurance than persons who operate a motor vehicle as a full-time occupation.