Insurance Regulation, Not Malpractice Caps, Stabilize Doctors’ Premiums

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In this study FTCR compares the impact of the 1988 insurance reform (Proposition 103) on malpractice premiums, on the one hand, and the effect of 1975 restrictions on victims’ recovery of non-economic damages (the Medical Injury Compensation Reform Act, or MICRA), on the other.

The Foundation for Taxpayer and Consumer Rights analyzed annual earned premium data available from the National Association of Insurance Commissioners’ annual reports on profitability. Adjusted data reflects changes in the Consumer Price Index as defined by the Bureau of Labor Statistics.

Data summarized in the graphs linked to below show that:

  • Overall, California medical malpractice premiums increased dramatically during the first decade with MICRA — overall, California med-mal premiums increased 175% during the first decade with MICRA — and substantially decreased during the first decade of Prop 103. ( See graph)

  • Medical malpractice premiums remained extremely volatile after MICRA and did not stabilize until Prop 103 imposed rate regulation in 1988. ( See graph)

  • California medical malpractice premiums tracked closely with national trends until Proposition 103 set California apart, by statutorily requiring lower insurance rates. ( See graph)

  • In 1986, after a decade of MICRA, California was once again mired in an insurance crisis, with medical malpractice premiums rising at a rate of 26% annually, faster than premiums rose nationally during the same period. In fact, the year MICRA‘s cap of damages was upheld in court (1985), California malpractice premiums increased by 20% and the following year rates jumped an additional 40%. ( See graph)

  • Conversely, after three years of insurance regulation under Prop 103, medical malpractice rates had fallen by more than 20%.

  • Between 1988 and 2000, California medical malpractice premiums were down overall by 8% ( See graph), while, nationally, premiums were up by 25%.

  • After adjusting for inflation California medical malpractice premiums are down by 35% since the enactment of regulation, while adjusted premiums are down by 7% nationally during the same period. ( See graph)

  • With malpractice caps in place, California insurance companies are more litigious and spend much more on their own defense lawyers than the national average. ( See graph)

Proposition 103

Californians enacted the strongest insurance rate regulation in the nation in 1988 through insurance reform Proposition 103, a ballot initiative passed by the voters and authored by FTCR president Harvey Rosenfield. This law resulted in a rate freeze, a rate rollback, and stringent regulation that reduced premiums in all lines of insurance — including medical malpractice. Read Proposition 103.

Medical Injury Compensation Reform Act (MICRA)

In 1975, California enacted a series of legal restrictions on injured patients — the Medical Injury Compensation Reform Act (MICRA). The law:

  • Places a $250,000 cap on the amount of compensation paid to malpractice victims for their “non-economic” injuries.

  • Eliminates the “collateral source rule” that forces those found liable for malpractice to pay all the expenses incurred by the victim.

  • Permits those found liable for malpractice to pay the compensation they owe victims on an installment plan basis.

  • Imposes a short “statute of limitations” on malpractice victims (generally three years).

  • Establishes a sliding scale for attorneys fees which discourages lawyers from accepting serious or complicated malpractice cases.

Read FTCR’s testimony before Congress regarding MICRA.


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