Who Does Tort or Medical Malpractice Reform Really Benefit?

side note: Nice to see an independent study look into this. Do you agree with the findings?


We have been told repeatedly over the years that medical malpractice claims are destroying the business of healthcare. Various groups have advanced this claim at various times, but the usual suspects are insurance companies, doctors, and conservative politicians. Today, let’s take a look at the insurance industry and see if we can’t sort out some of their claims. Perhaps we can take a look at the other groups a bit later.

Insurance companies claim that medical malpractice claims are the primary driver behind the high prices doctors pay for insurance. This seems reasonable, if the cost of being a doctor goes up, either doctors will stop being doctors, change to less risky fields, or pass the costs along to the consumers of healthcare. It is true that malpractice insurance premiums have drastically increased over the last 25 years. Are these price increases being driven by lawsuits? For this charge to be true, either the overall number of claims must have increased or the awards for individual judgments must have increased massively. If increases in damage awards were responsible, then one would expect to see lower payouts and lower premiums in states that have statutorily capped such damage awards. So, when we do the research, do we see such an explosion, of either claims or payouts? The short answer is no, we do not.

A study of malpractice claims in Texas 1988-2002 found after controlling for inflation and population growth that there had been a decline in the number of small claims (under $25,000) and that the number of large claims had remained roughly constant. In addition, the amounts of those paid claims only rose 0.8-1.2 percent per year. As for the effects of capped non-economic damages, one national study found that while payouts did decline in the nineteen states that then had caps, premiums in capped states rose far faster than those in uncapped states. In states with statutory caps, the median annual premium increased 48.2%, while those states without caps saw a median increase of only 35.9%. This suggests that while something is driving premiums higher, it isn’t malpractice claims. A slightly more recent bit of research shows that nationwide the number of claims declined by four percent between 1995 and 2000. (pages 24-25). Declining numbers of lawsuits doesn’t sound like a crisis.

So, from the perspective of the insurance companies, what is driving up the cost of insuring doctors? According to Martin Weiss, an analyst with Weiss Ratings, Inc., there are several factors, including: increases in the cost of medicine generally, the cyclical nature of the insurance market, a need to shore up capital reserves for policies already in force, and a decline in investment incomes due to poor investment choices. (pages 9-11). These are all real forces, and it is utterly rational for the insurance industry to raise its prices in response to them. What is wrong is for the industry to hide those increases behind a smokescreen of some phantom ‘crisis’ of lawsuits.

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