Tort Reform Does Put Brakes on Malpractice Premiums
In the 24 states where medical malpractice awards are capped by state laws, physicians paid malpractice insurance premiums that were 17.1% lower than their peers in other states, according to a study in the January 21st issue of Health Affairs.
In spite of the benefit, state limits on malpractice awards could not prevent a 23.2% average increase in malpractice premiums in 2002, the last year examined in the study by Ken Thorpe of Emory University. In 2001, premiums increased by 14.1%, compared with just single digit increases in the three preceding years.
Tort reform can only choke off some of the dramatic increase in malpractice premiums, said Thorpe.
“Unfortunately, the number of ÄmalpracticeÅ claims is rising and many of the claims turn out to be frivolous,” explained Thorpe. “In Louisiana, there is a $500,000 cap on awards but there is an average of 30 claims per 100 doctors compared with the national figure of 15 claims per 100 doctors.”
Other factors driving up malpractice premiums include increased administrative costs such as fees to expert witnesses, the exit of malpractice insurers, and declines in insurance companies’ investment income.
According to Thorpe’s study, every premium dollar collected in 2002 resulted in $1.29 in total expenses, awards, and settlements. Historically, insurers have offset this difference with their investment earnings, but these have fallen.
The St. Paul Companies, which was the largest malpractice insurer throughout most of the 1990s, stopped underwriting policies in 2002. Other large, regional carriers left the market, leaving 14% fewer insurers in the overall national market.
Overall, Thorpe concludes that capping malpractice awards would improve insurers” profitability and reduce premiums. However, “whether this is socially desirable or improves the goals of deterrence and compensation remains an open question.”
Even though malpractice awards and premiums are rising, the researcher points out that only 1 in 8 patients who suffer from malpractice ever bring a claim to insurers or the courts.
“There is sort of an odd lottery system at work,” said Thorpe. “Even if a patient has suffered some damage, the ÄpotentialÅ injury is too small or not interesting to an attorney, so it doesn’t go forward. A lot of patient injuries don’t make it to trial and they should, if the objective is improving medical care.”
For the cases that do make it to trial, very few are paid. Thorpe points again to Louisiana where only 10% of the patients in malpractice claims ever receive any money. The other 90% of the claims are thrown out or defeated in trial.
Overall, 60% of all settlement payments and jury awards are consumed by administrative costs and attorneys’ fees, said Thorpe. Just 40% of the awards in successful malpractice claims are received by patients.
Health Aff 2004.
