Malpractice insurance

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Malpractice insurance has become a crisis issue in the United States today. Physicians are facing high insurance premiums in many states and the largest national medical malpractice insurer, The St. Paul Companies, and certain multistate physician supported liability firms have left the market. The last sharp increase in insurance premiums occured in the 1970's and 80's when a new wave of physician-owned malpractice companies became vogue. This made many states adopt reforms that worked to cap insurers costs. Such spikes in insurance premiums has made it increasingly difficult for hospitals to retain physicians who are opting out of practices that require large amounts of malpractice insurance.

Although premiums have risen to 15-30 percent around the nation, the rise varies greatly by state. Some of the hardest hit states which saw a 26-73 percent increase include Ohio, West Virginia, Pennsylvania, and Nevada, where several malpractice firms withheld a significant amount of market shares ^[1]. This great spike in premiums has caused physician strikes in West Virginia, impeded work flow in New Jersey and temporary hospital service closings. Physicians from other states such as Connecticut are holding rallies at the state capitol demanding caps and reform.

Economic and Ethical Implications of Increasing Insurance

When the malpractice insurance crisis began the 1970's, aggressive campaigns shot up everywhere to demand reform of state laws that governed medical liability suits. Since then, every state except for West Virginia passed some reforms. This decreased the number of lawsuits but could not stifle the size of the claims. The monetary amount of claims continued to grow so doctors began to form their own malpractice insurance companies to cover their peers in response to the inabilitiy of other agencies to provide insurance. These companies now provide half of all medical malpractice insurance in the United States.

Insurance companies simply are unable to stay in business because they are paying more out for claims than they are collecting in premiums. In 2002, medical malpractice insurers paid out $1.65 for every dollar they collected in premiums and while premiums rose by 16.8 percent between 1996 and 2001, the losses and expenses incurred by insurers increased by 68.9 percent^[2]. Doctors spent around $6.3 billion to obtain coverage in 2002 with OB/GYNs bearing a large proportion of the expenses due to the nature of their practice. General surgeons and neurosurgeons have been hard hit as well ^[2].

The medical implications of such ballooning costs are detrimental to health care across the system. Of surveyed doctors, 79 percent of them say they've ordered unnecessary tests, and 74 percent have referred patients to specialists when they could have diagnosed the patient on their own medical judgement^[2]. Surgeons will opt not to take patients they know have a greater chance of dying on the operating table and OB/GYNs order C-sections much more often in fear of law suits. Sadly, three fourth of doctors feel that malpractice litigation has forced them to lower the quality of health care they provide to patients and is a large factor to why health care spending reached $1.4 trillion in 2001.

The Insurance Market

Traditional insuraers, physician and hospital owned insurance agencies and alternative risk transfer entities make up today's mix of medical malpractice insurance. In the past ten years, the market has changed considerably. In this decade, many insurers have been leaving the market. In December of 2001, St. Paul's Company, which insured 40,000 physicians (6 percent of the market) and 72,000 other health care workers exited the healthcare insurance industry because malpractices losses threatened their solvency ^[3]. Additional large insurers in New Jersey, New York and Pennsylvania also left the market causing an enormous gap in the market and sharply driving premiums to new heights. From 1990 to 2001, malpractice insurers have seen profits in two years out of this twelve year span and in the same period losses and expenses rose more than 100 percent ^[2]. In the current crisis, alternative risk transfer options such as self insurance, pooling and even the formation of offshore captives are becoming the best possible options.

References and Resources

1. ^ Thorpe K. The medical malpractice ‘crisis’: recent trends and the impact of state tort reforms. Health Affairs: The Policy Journal of the Health Sphere. 2004 January 21

1. ^ Hartwig R., Wilkinson C. Medical Malpractice Insurance. Insurance Information Institute: Insurance Issues Series. http://www.iii.org 1(1) 2003 June

1. ^ Freudenheim M. St. Paul Cos. Exits Medical Malpractice Insurance. New York Times 2001 December 13