Tort Reform, Caps on Damages Won't Lower Physician Premiums

It is claimed by those fighting for caps on medical malpractice awards that excessive awards are the reason for high insurance premiums the doctors pay - and doctors say that these premiums drive them out of business. The truth, however, seems to be quite different.

The Foundation for Taxpayer and Consumer Rights reports that the nation's largest medical malpractice insurer, GE Medical Protective, has admitted various caps and limitations on awards don't have any impact on the premiums they charge doctors:

The insurer's revelation was made to the Texas Department of Insurance (TDI) in a regulatory filing obtained by FTCR. The revelation was contained in a document submitted by GE Medical Protective to explain why the insurer planned to raise physicians' premiums 19% a mere six months after Texas enacted caps on medical malpractice awards. In 2003, Texas lawmakers passed a $250,000 cap on non-economic damage compensation to victims of medical malpractice caps after Medical Protective and other insurers lobbied for the change.

According to the Medical Protective filing: "Non-economic damages are a small percentage of total losses paid. Capping non-economic damages will show loss savings of 1.0%." The company also notes that a provision in the Texas law allowing for periodic payments of awards would provide a savings of only 1.1%. The insurer did not even provide its doctors that relief and eventually imposed a rate hike on its physician policyholders.

We can reasonably think that other insurers are probably in the same situation. Even if they could save double or quadruple the amount saved by GEMP through caps, they would still only be saving as much as 4% — not nearly enough to justify the claims that caps are needed in order to lower doctors' malpractice premiums.

The Texas rate increase and the actuarial data submitted by the company contradicting the oft-stated importance of caps should lead policymakers to look to insurance regulation, rather than malpractice caps, as a solution to high premiums, according to FTCR.

"While medical malpractice caps limit the rights of injured patients, they do not lower doctors' premiums. If lawmakers and physicians want to reduce costs, they should start fighting to reform insurance companies rather than restrict patients' rights," said Heller.

Particularly sad is the manner in which physicians have been co-opted by insurance companies in their fight to impose malpractice award caps. The insurers know that it won't help doctors, but the doctors have been fooled into thinking that award caps will help them and so they campaign for reforms that hurt patients who have already been harmed by bad medical decisions, help insurance companies who are only interested in their own bottom line, and thus waste precious resources and time.

In 1986, after insurers and doctors lobbied for, and Florida lawmakers enacted, a cap on non-economic damages for medical malpractice claims, insurers Aetna and St. Paul increased doctors' premiums. The companies argued that, despite earlier promises, malpractice caps do not actually lead to savings for doctors, much in the manner of Medical Protective in its recent Texas filing.

According to a St. Paul Insurance company study provided to the Florida Department of Insurance at the time: "The conclusion of the study is that the noneconomic cap of $450,000, joint and several liability on the noneconomic damages, and mandatory structured settlements on losses above $250,000 will produce little or no savings to the tort system as it pertains to medical malpractice."

The evidence has always been there that insurance industry claims not only aren't accurate, but made with full knowledge that they are inaccurate.

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