Rising Malpractice Insurance Premiums? Yes and No

October 5, 2011 — In yet another plea for tough tort reform, organized medicine told the deficit-cutting Congressional super committee earlier this week that problems in the current medical liability system “contribute to the increase in medical liability insurance premiums.”

That assertion would be true — and yet also would be untrue.

Premiums indeed rose dramatically in the early part of the new century, but in 2011, they declined for the fourth straight year for 3 representative medical specialties, according to a publication called Medical Liability Monitor (MLM). Its annual rate survey, highly regarded in the field, was published this week.

Rates for obstetrician/gynecologists, general internists, and general surgeons decreased on average by a miniscule 0.2% this year after a 0.5% decrease in 2010. Rate decreases of 2.5% in 2009 and 4% in 2008 were more substantial. These declines have only partly erased premium increases from 1999 to 2007 that topped 80% for obstetricians/gynecologists and 100% for general internists and general surgeons, according to MLM.

Still, a downward trend is a downward trend, even though it is leveling out, and another upward trend is not imminent, said Chad Karls, a consulting actuary from a company called Milliman, who edits the MLM rate survey.

“Rates will remain flat in the foreseeable future,” Karls told Medscape Medical News.

MLM tracks hundreds of medical liability insurance rates charged by multiple carriers on a regional basis: an entire state, a portion of a state, or a single county. It asks insurers for the standard rates that they filed with state insurance regulators for policies with limits of $1 million for an individual claim and $3 million in any given year for all claims.

Rates listed in the survey, effective as of July 1, do not reflect credits, debits, or other factors that may tweak the cost up or down. Insurers have stepped up their use of credits, awarded for attending risk management seminars and using electronic health record systems, for example, and thus deepened the extent of rate cuts on the books with state insurance departments. So an average 0.2% reduction reported for this year could be closer to those seen in 2008 and 2009 (4% and 2.5%, respectively), when credits were not offered as freely, according to Karls.

The percentage changes in premiums cited by MLM apply to the 3 surveyed specialties on a nationwide, aggregate basis. The MLM report does not present national trends for each specialty. Karls notes that the medical liability insurance is a “state-by-state business.”

Of the rates that insurers quoted on a regional basis in 2011, 55% did not change from the previous year. Roughly 30% of the rates decreased, and another 15.5% increased. Most increases and decreases were lower than 10%, according to Karls. Last year, 67% of rates stayed flat, 19% were lower, and 14% were higher.

“Caps Can’t Be the Only Reason”

Karls attributes the recent downward curve in premium rates to several causes. One is a wave of tort reform legislation passed by various states in the preceding 10 years that, among other things, limits how much plaintiffs in a malpractice case could collect for noneconomic or pain and suffering damages. A $250,000 cap found in California, Texas, and other states is what organized medicine seeks on a national basis. Advocates of caps say they discourage frivolous lawsuits and prevent runaway jury awards.Those laws, Karls said, have led to fewer malpractice claims being filed, which in turn has lowered premiums — a pattern attested to by a number of academic articles. However, premiums also have decreased in states, such as Oregon, that do not cap noneconomic damages.

“So caps can’t be the only reason,” Karls said. “I think the push for patient safety and risk management also has played a role” in reducing claims and premiums.

14-Fold Difference in Highest, Lowest Rates for Internists

Premiums for medical malpractice insurance within a given specialty vary widely by region, reflecting differences in not only state medical liability laws but also judges and plaintiffs’ lawyers, the willingness of injured patients to sue, the willingness of juries to award hefty damages, and the quality of medical care.

As in 2010, the highest quote for a $1 million/$3 million policy for a general internist is found in Miami-Dade County, Florida, where First Professionals Insurance charges $47,431, down 1% from the year before. The lowest quote is $3375 throughout Minnesota, offered by ProAssurance Wisconsin Insurance.

Miami-Dade County puts in another repeat performance as the most expensive place for general surgeons needing coverage: First Professionals charges them $190,926. On the other extreme, ProAssurance Wisconsin quotes $11,306 for this specialty in Minnesota.

Obstetricians/gynecologists in the New York counties of Nassau and Suffolk on Long Island continue to pay the highest rate in their field, at $206,913, as quoted by Physicians Reciprocal Insurers. On the low end is a quote of $15,484 for obstetricians/gynecologists in mid-California from Cooperative of American Physicians, a rate that rose almost 16% from the year before.

Rates for a particular specialty also vary widely within states, in part because of demographic differences among patients and juries. In Detroit, Michigan, a medical malpractice carrier called Medical Protective quotes $34,922 for a general internist, but if the same internist practiced on the other side of the state, in Kalamazoo, the Medical Protective rate would be $14,143, or 60% less.

When Will the Market Harden Again?

Medical societies use dramatic adjectives like “soaring” and “skyrocketing” to describe premiums for medical liability insurance. However, the American Medical Association and 98 other medical societies linked the milder adjective “rising” to premiums in their October 3 letter to the Joint Select Committee on Deficit Reduction, or the super committee, as it is called.

The recent debt-ceiling deal that averted a government default on its debt assigned this bipartisan group the task of finding $1.5 trillion in savings that Congress must enact by December 23. The medical societies urged the committee to include a set of tort reform measures, including a $250,000 cap on noneconomic damages, in its recommendation to Congress. Such tort reform, they write in their letter, would make healthcare less costly, reduce the federal deficit by $62.4 billion over the course of 10 years, and protect patient access to care.

When asked to comment on the recent downward direction of malpractice insurance premiums, an American Medical Association spokesperson told Medscape Medical News that “national premium trends do not mean much for physicians in states that have not seen medical liability insurance costs go down.” Despite improvements in this market, he said, the MLM data suggest that “premiums in many states remain much higher than they were before the liability crisis.”

The gradual flattening of rate decreases, from 4% in 2008 to 0.2% in 2011, might suggest to some that premiums are poised for another upswing in what insurance professionals call a “hard market.” Karls, the editor of the MLM rate

survey, said he does not envision such a turnabout for at least several years. However, several factors may be setting the stage for an eventual hard market.

In the current “soft market,” competition between insurers is stiff, causing them to loosen their underwriting policies for the sake of insuring more physicians. In other words, they undercharge physicians whose risk for medical liability warrants a higher rate, or even denial of coverage. When insurers go too far in such laxity, they may not take in enough premium dollars to remain profitable, which motivates them to jack up their rates again. Karls said the industry is not at a point of such a rate rebound, “but we’re headed in that direction.”

Likewise, Karls also sees indications of patients filing more malpractice claims. Several years ago, claims frequency was trending downward for all malpractice insurance carriers in their various regional markets, he said. Today, for about a third of these carriers there are signs of higher claims frequency.

“It’s too early to make a definite statement that frequency is on the rise, but it’s something we’re watching closely,” he said.

Yet another pressure on premiums is the rising cost of defending physicians accused of malpractice on a per case basis. Karls offers several possible explanations as to why:

  • Plaintiffs’ attorneys are filing more medically and legally complex cases.
  • Plaintiffs’ attorneys are spending more on expert witnesses and medical animation technology, raising the ante for the defense.
  • With claims frequency declining substantially since 2003, malpractice carriers can devote more staff and time to defending each case.

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