California caps or Proposition 103? Lawyers, doctors debate what really brought malpractice insurance rates down

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Charleston Gazette

In the medical malpractice debate, most people agree that California doctors pay less for insurance than their counterparts in other states.

And they do pay less – about half their counterparts in Texas, Michigan and three other large states, according to the Medical Liability Monitor.

But lawyers, doctors, and consumer advocates disagree on why that is so.

Doctors’ groups in the Golden State and in West Virginia give credit to a California tort reform package passed in 1975 – the Medical Injury Compensation Reform Act.

Now, those “California caps” are part of a bill passed by the West Virginia House of Delegates last week. The most controversial would place a $250,000 cap on pain and suffering damages for malpractice victims.

President Bush proposed a national bill this week that closely mirrors California’s caps.

A California consumer group says insurance reform, not lawsuit caps, is responsible for a decline in the total amount state doctors paid in malpractice premiums.

The Foundation for Taxpayer and Consumer Rights released a chart last week that shows the total malpractice insurance payments for California and the United States going up and down at about the same rate for more than a decade after the state Legislature passed MICRA.

The California totals start to dive below the national line about the same time voters passed Proposition 103 in 1988, which gave the state insurance commissioner new powers of regulation.

A California health-care organization has another explanation – a trio of state Supreme Court cases in 1985 that upheld MICRA and lawsuit caps.

MICRA may have passed in the 1970s, but it really didn’t kick in and produce lower rates until a few years after the court cases, said Danielle Walters, executive vice president for Californians Allied for Patient Protection.

Now, a West Virginia attorney’s group is calling on the state Senate to study the impact of Proposition 103 on California’s insurance rates before passing California-style tort reforms.

“If the West Virginia Legislature is going to rush to end civil justice waving the California flag, then we certainly must consider the entire California plan, which was only effective with the addition of strong insurance industry regulation,” said Tim Bailey, a trial lawyer and member of the Consumer Attorneys of West Virginia.

Voter revolt

Earthquakes, mudslides, wildfires, riots – California is no stranger to crisis.

In the 1970s, California’s newspapers were filled with stories of a medical malpractice crisis. Insurers threatened to pull out of the state, and thousands of doctors scrambled to find new coverage. Doctors said they couldn’t afford to stay in the state unless their medical malpractice premiums were reduced.

In response, the California Legislature passed MICRA in 1975. The new law:

– Placed a $ 250,000 limit on noneconomic damages, such as pain and suffering

– Forced disclosure of other sources of payment to injured parties

– Limited lawyer fees

– Strengthened the system that disciplined doctors

After MICRA, several non-profit physician mutual groups sprung up to provide insurance. Today, a variety of different for-profit and nonprofit groups insure state doctors, Walters said.

Walters said that medical malpractice rates declined right away for California doctors, but the true effect of the legislation wasn’t felt until 1985, when the state Supreme Court upheld MICRA.

In that first ruling, the majority stated that “the Legislature hoped to reduce the cost of medical malpractice insurance, so that doctors would obtain insurance for all medical procedures and would resume full practice; indeed, in this respect statistics suggest that MICRA was in fact successful.”

At the time, lawyer Harvey Rosenfield was working for Cal PIRG, a public interest group. California voters had passed Proposition 51, an insurance-industry backed tort reform measure. Rosenfield received a call from his former boss, Ralph Nader, asking him to put together a grass-roots campaign to call for insurance reform.

Rosenfield created the group “Voter Revolt,” which gathered hundreds of thousands of signatures needed to place an insurance reform proposition on the ballot.

Proposition 103:

-Created an elected, not appointed, insurance commissioner

-Forced insurers to justify their rate increases to the insurance


-Opened up insurance company books so regulators could determine if they

needed rate increases

-Allowed citizens to challenge proposed rate increases

The insurance industry sponsored three alternate propositions that would cancel out Proposition 103. They funded an $80 million campaign to defeat 103, Rosenfield said.

The Proposition 103 people spent less than $3 million in their campaign. The average donation was $10, he said.

But on Election Day, Proposition 103 won, and the other proposals were defeated.

Insurance companies threatened to abandon the state, but by and large, most stayed.

“We called their bluff,” Rosenfield said. “We said we’d walk them to the border. They never did.”

Only pre-approval required

Walters said that Proposition 103 has had little to do with California doctors paying less than their counterparts in most states.

For example, it doesn’t stop insurance companies from raising rates; it only requires them to seek approval from the insurance commissioner.

Also, she said that state insurance companies have asked for double-digit rate increases in other areas in recent months, but not in malpractice.

But Rosenfield said not to underestimate the importance of Proposition 103 in reducing insurance rates across the board.

He said state malpractice premiums almost tripled between 1975 and 1988, when they began to fall, dropping 20 percent by 1991. Its no coincidence, he said, that Proposition 103 passed the same year, and was upheld by the courts in 1989.

In West Virginia, the Insurance Commission already has most of the powers granted their California counterparts by Proposition 103, said Commissioner Jane Cline.

“We are already a prior-approval state,” she said. “An insurance company files a rate increase request, we do an evaluation and determine whether we think that rate is appropriate.”

But Proposition 103 gives California regulators the power to disallow unnecessary costs, Rosenfield said.

California regulators can look inside a bloated insurance bureaucracy and take into account huge salaries for executives, excessive defense costs and other expenses when determining if a rate increase is necessary.

Huge legal defense costs

In November, Cline released a report that showed huge legal defense costs for Medical Assurance, West Virginia’s largest private medical malpractice insurance.

Medical Assurance’s expenses ate up 88 cents of every $1 collected in premiums. Other state malpractice insurers spent 28 cents of every $1.

Cline said it was not the role of her agency to tell Medical Assurance not to defend claims aggressively.

Bailey of the state Consumer Attorneys said that’s exactly what the Insurance Commission should do.

“I think the commission should be able to say, ‘Your defense costs are out of line, that’s a form of bad management, and we’re not going to allow you to sock it to the doctors,'” he said.


To contact staff writer Scott Finn, use e-mail: [email protected] or call 357-4323.

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