Capitol Hill Hearing Testimony
TESTIMONY BY: JOANNE DOROSHOW, EXECUTIVE DIRECTOR, CENTER FOR JUSTICE & DEMOCRACY BEFORE THE HOUSE JUDICIARY SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW OVERSIGHT HEARING ON HEALTH CARE LITIGATION REFORM: “DOES LIMITLESS LITIGATION RESTRICT ACCESS TO HEALTH CARE?”
Mr. Chairman, members of the Subcommittee, I am Joanne Doroshow, President and Executive Director of the Center for Justice & Democracy, a national public interest organization that is dedicated to educating the public about the importance of the civil justice system. I appreciate the opportunity to address the issue of health care litigation. I might respectfully disagree with the premise of the hearing, however, in that health care litigation is certainly not limitless in this country today.
Following the conclusion of this written testimony, you will find a list of major tort restrictions in medical malpractice cases that state lawmakers have enacted since the mid-1980s. They enacted these laws after medical and insurance lobbyists told them that legislation was needed to reduce medical malpractice insurance rates, just as they are telling you today. It should be noted that this extensive list does not include every state restriction on patients’ right to sue, such as laws found in many states requiring patients to present affidavits or “certificates of merits” before cases can even be brought.
Today, I would like to discuss why these laws have had terrible consequences for patients while doing nothing to improve the affordability or availability of insurance.
For the last 17 years, doctors and hospitals nationwide have experienced a relatively stable medical malpractice insurance market. Insurance was available and affordable. Rate increases were modest. In fact, over the last 10 years, average premiums increased by only 1.9 percent nationwide, far below medical inflation. Meanwhile, profits for medical malpractice insurers soared, generated by high investment income.
Medical malpractice insurance companies are now experiencing a downturn and they are raising premiums and canceling coverage for doctors, or at least threatening to do so, in virtually every state in the country. One insurance insider, Richard G.M. Marko, senior Vice President of National Markets at Liberty Mutual Insurance Co. in Boston, recently told an insurance audience that from 1994 to 1999, insurance rates decreased by about 50 percent and that now, after two straight years of increasing rates, only about half of that decrease has been made up. This is not a state- specific phenomenon. It is not even a country-specific phenomenon. It is even happening in countries like Australia and Canada that do not have jury trials in civil cases.
This so-called insurance “crisis” is an exact repeat of the last insurance “crisis” that hit the United States in the mid- 1980s and an earlier one in the mid-1970s. As its predecessors, today’s insurance “crisis” has absolutely nothing to do with the U.S. legal system, tort laws, lawyers or juries. It is driven by the insurance underwriting cycle and remedies that do not specifically address this phenomenon will fail to stop these wild price gyrations in the future.
One solution that Congress has proposed to respond to these problems, H.R. 4600, would be as egregious for patients and the quality of health care in America, as it would be ineffective in bringing insurance rates under control. It is based entirely upon a false predicate – that the U.S. civil justice system is to blame for insurance price-gouging. Moreover, this particular bill fantastically overreaches, providing immunities for drug companies that have no relation whatsoever to medical malpractice issues.
Contrary to insurance company claims that medical malpractice verdicts are “exploding,” the current average medical malpractice insurance payout is about $30,000 and has been virtually unchanged for the last decade. In fact, total insurance payouts to all claimants have hovered between $2.5 billion and $4 billion per year. By comparison, Americans spend twice that much – about $8 billion – on dog food each year. Moreover, medical malpractice costs, as a percentage of national health care expenditures, are at an all time low, 0.55 percent. In light of the fact that medical malpractice is the eighth leading cause of death in the United States, killing more people than breast cancer, AIDS and traffic deaths, medical malpractice insurance is an amazing value, covering all medical injuries for about one- half of one percent of health system costs. On the other hand, the cost of medical errors is huge. Total national costs (lost income, lost household production, disability and health care costs) are estimated to be between $17 billion and $29 billion each year. The problem here is the degree of malpractice itself.
Volcanic eruptions in insurance premiums for doctors have occurred three times in the last 30 years. The cause is always the same: a severe drop in investment income for insurers compounded by severe underpricing in prior years. Each time, insurers have tried to cover up their mismanaged underwriting by blaming lawyers and the legal system. Under this theory, one would have to believe that jury verdicts or trial lawyers have timed their “aggression” to precisely coincide with the insurance industry’s economic cycle, so that the aggression impacts just when the market turns hard. In other words, one would have to accept the notion that they were aggressive in the mid 1970s, then non-aggressive for a decade, then aggressive in the mid-1980s, non-aggressive for 17 years and are now aggressive again. This is ludicrous.
In the midst of the last insurance “crisis” in the mid-1980s, state lawmakers enacted often severe tort restrictions on patients’ rights in this country, to reduce insurance rates. These laws had absolutely no impact on insurance rates. Some states that resisted enacting any “tort reform” experienced low increases in insurance rates or loss costs relative to the national trends, and some states that enacted major “tort reform” packages saw very high rate or loss cost increases relative to the national trends. In other words, there was no correlation between “tort reform” and insurance rates. Indeed, a few years after the mid-1980s insurance “crisis,” the insurance cycle flattened out, rates stabilized and availability improved everywhere – until now, over a decade later. The flattening of rates had nothing to do with tort law restrictions enacted in particular states, but rather to modulations in the insurance cycle everywhere. In 1991, Washington’s insurance commissioner Dick Marquardt concluded in a report that it was “impossible to attribute stable insurance rates to tort-law changes or the damages cap,” since rates also improved in states that did not pass tort reform. The American Insurance Association (AIA) and the American Tort Reform Association (ATRA) have admitted in published statements that lawmakers who enact “tort reforms” should not expect insurance rates to drop, most recently with the AIA‘s March 13, 2002 statement, “[T]he insurance industry never promised that tort reform would achieve specific premium savings.”
H.R. 4600 is a cruel bill that would reduce the protections and rights of citizens in every state in this country. The bill directly interferes with the independence of our nation’s civil justice system, tying the hands of judges and juries who hear the evidence in a case, and undermining our country’s uniquely individualized system of justice. H.R. 4600 would make it more difficult or impossible for injured patients to hold accountable those who have injured them. Adding to the already existing barriers that prevent injured patients from turning to the courts, H.R. 4600 presents a peril to both family safety and democracy in our country.
History is clear on this matter: legislative attempts to reduce insurance rates by taking away the rights of the most seriously injured in our society has been and continues to be a failed public policy.
California Is A Failed Model For Proposed National Restrictions On Patients’ Rights
In the mid-1970s, California enacted severe tort restrictions for patients who have been injured by malpractice (MICRA). Among other things, this law allows patients to recover no more than $250,000 in non-economic compensation no matter how egregious the malpractice or serious the injury; prohibits patients from receiving damages in a lump sum; repeals the collateral source rule; and imposes restrictions on the attorneys’ fees of patients. The medical establishment is campaigning to spread this law, one of the most draconian in the nation, not only to other states, but also to the entire nation in H.R. 4600, arguing falsely that this cap has kept premiums down dramatically.
The Center for Justice & Democracy (CJ&D) and the California- based Foundation for Taxpayer and Consumer Rights submit to the Subcommittee today data that show California’s MICRA law has failed to slow premium increases for doctors and hospitals. In fact, over the last decade, the average malpractice premium in California has grown more quickly than it has in the nation overall.
This actuarial analysis was done by nationally recognized actuary J. Robert Hunter, former Texas Insurance Commissioner and Federal Insurance Administrator under Presidents Ford and Carter, who compared national malpractice premium trends to those in California. Hunter found that from 1991 to 2000, malpractice premiums in California stayed close to national premium trends. The 2000 average premium per doctor in California was only 8.2 percent below that of the nation ( $7,200.61 vs. $7,843.75) while the average malpractice premium in California between 1991 and 2000 actually grew more quickly (3.5 percent) than it did in the nation overall (1.9 percent.) According to Hunter, “There is not much difference in the rates or the rate of change between California and the nation based on the latest decade of experience.”
This analysis has, for the first time, exposed as an insidious public relations scam the notion that California’s cruel law has controlled the growth of malpractice insurance premiums. This law has had terrible consequences for many innocent people, while doing nothing to improve the affordability of liability insurance for doctors. Jamie Court, Executive Director of the Foundation for Taxpayer and Consumer Rights, says, “California is a failed model for the national restrictions being proposed on patients. California patients have been denied adequate compensation and representation for their injuries, and California doctors have seen almost no premium savings. Only the insurers have gotten rich in the good times.”