13 Years of Insurance Regulation: CA Premiums DECREASE 2%

Washington, D.C. — Medical malpractice premiums rose 450% in the thirteen years following passage of California’s cap on victim compensation, and decreased 2% in the same time number of years after enactment of insurance rate regulation, according to testimony today by the California-based Foundation for Taxpayer and Consumer Rights (FTCR). The group presented industry data showing that California’s Proposition 103, a 1988 voter-approved insurance reform initiative, and not the state’s malpractice caps law — known as the Medical Injury Compensation Reform Act of 1975, or MICRA — lowered malpractice premiums for physicians in that state.

“Insurers had promised doctors lower premiums, but instead of reducing premiums commensurate with the lower claims payouts associated with malpractice caps, insurers simply captured higher profits in California,” testified Harvey Rosenfield, president of FTCR and author of Proposition 103.

Appearing today before the House Energy and Commerce Committee Subcommittee on Health, Rosenfield illustrated that MICRA‘s arbitrary $250,000 cap also fails to discourage medical negligence because doctors, hospitals and HMOs are faced with insignificant liability for their actions, even if they repeatedly commit medical errors.

“California’s cap system has limited the liability for egregious systemic error to an acceptable cost of doing business, permitting systemic medical negligence to continue undeterred,” said Rosenfield.

Rosenfield’s testimony also highlighted insurance industry research which shows that malpractice caps and tort reform do nothing to lower physicians’ malpractice premiums. In April, 1987, the insurance industry’s rate-making agency, the Insurance Services Office (ISO), released the results of a study intended to respond to repeated demands from policymakers and legislators across the country that the industry provide empirical data to support its claims that changes in the tort law system would alleviate the nation’s insurance crisis.

“Some state legislators are going to be shaking their heads after hearing us tell them for months how important tort reform is, and now we come out with a study that says the legislation they passed was meaningless,” one insurance industry official said upon its release.

Rosenfield’s testimony, available as a .pdf file at FTCR’s website, also proves:

• By 1988, thirteen years after the passage of MICRA, California medical malpractice premiums had reached an all-time high — 450% higher than in 1975, when MICRA was enacted;
  

• Premiums dropped 20.2% during the first three years in which insurance reform Proposition 103 was in effect. The law mandated that rates be immediately rolled back 20%;
  

• Insurance rates were frozen for four years;
  

• Medical malpractice insurers refunded over $135 million to policyholders as a result of Proposition 103. By 1992, three of the state’s largest medical malpractice insurance companies — Norcal Mutual, SCPIE and The Doctors’ Company — had returned more than $69 million directly to physicians;
  

• During the first twelve years of the malpractice caps in California, insurers spent less than 32 cents of every premium dollar compensating victims and more than 68 cents of every premium dollar on other costs such as overhead, profit and insurance defense lawyers;
  

• In California, medical malpractice insurance companies spend 35% of premiums fighting claims, as compared to the national average of 21%.

Recommendations for Reform

In addition to the industry data analyzed, FTCR recommended malpractice reforms which do not blame victims, but will address the insurance cycle which has led to a “crisis” every ten years. The recommendations include:

Premium Reduction

• Require medical malpractice insurers to provide an automatic 20% discount to good doctors
  

• Differentiate poor doctors from the rest of the pool by charging rates based on “experience rating,” a physician’s history of malpractice claims
  

• Require insurance companies to spread risk more equitably by placing physicians in a reduced number of underwriting categories
  

• Prohibit insurers from arbitrarily canceling or refusing to renew policies
  

• Mandate a 20% rate rollback and rate freeze

Insurer Accountability

• Require state departments of insurance to approve all malpractice rate increases before the rates can go into effect and demand that insurance companies open their financial books for public scrutiny
  

• Make the insurance commissioner of each state an elected official, responsible to the public

New Mechanisms for Insuring Doctors

• Allow state to enter into multi-state agreements that create regional medical malpractice pools, thereby spreading risk more effectively in states with few doctors.
  

• Create a national not-for-profit insurance company that insures every doctor in the nation. This could also be done at the state level.

End Insurance Industry Collusion

• Revoke insurance companies’ federal exemption from anti-trust laws so they must compete

Make Malpractice Data Public

• Make malpractice data obtained by the taxpayer-funded National Practitioner Data Bank public.
  

• Toughen government monitoring and discipline of physicians. Boards should be controlled by non-physician majorities, provided adequate resources, and given more disciplinary authority.