Update: Raising medical malpractice damage caps does NOT result in higher premiums
Thursday, October 16, 2014
Opponents of updating California’s 39-year-old cap on noneconomic damages in medical malpractice cases to account for inflation since 1975 (the $250,000 cap has never been raised since it was enacted) argue that any increase in the cap will lead to dramatic increases in premiums doctors pay for malpractice insurance, causing physicians to either leave the state or leave the profession.
We’ve written earlier that this claim is nonsense, based on recent experience in states where caps on noneconomic damages were not just raised but eliminated completely. And new data show malpractice premiums in those states continue to fall, not rise.
To review: In February 2010 the Illinois Supreme Court found the cap there violated the state constitution’s separation of powers clause, by giving the legislature authority to determine a matter that should be determined by judges and juries. A month later the Georgia Supreme Court found the cap there violated citizens’ constitutional right to trial by jury, in that the cap could override the jury’s determination of damages. Georgia’s chief justice wrote, “The very existence of the caps, in any amount, is violative of the right to trial by jury.” Then in 2012 the Missouri Supreme Court also found the cap “infringes on the jury’s constitutionally protected purpose of determining the amount of damages sustained by an injured party.”
What’s happened to premiums since the caps were eliminated? Medical Liability Monitor conducts an annual survey of malpractice rates for physicians in three specialties: internal medicine, general surgery and OB/Gyn. (In their words, “We believe these specialties reflect the wide range of rates among specialties.”) The chart below reflects the average of the three specialties for the given year in each state. The dollar amounts in bold are the premiums the year the cap was stuck down in that state. The percentages at right show how much lower premiums are now than they were the year the cap was struck down in that state.
2010 2011 2012 2013 2014 Georgia $46,765 $46,765 $44,064 $43,215 $42,794 -8.5% Illinois $71,616 $71,753 $72,011 $70,466 $68,548 -4.3% Missouri $56,460 $47,951 $42,563 $42,563 $40,457 -4.9%
Did the elimination of the cap cause insurers to raise premiums? They never went up at all in Georgia or Missouri; in Illinois, after the average premium rose just 0.2% in the first year after the cap and 0.4% the second year, premiums fell in 2013 and again this year. Premiums in all three states are now lower than they were when the cap was lifted (and notice premiums in Missouri are now 28% lower than they were in 2010, when the cap was in effect).
Where is the evidence that lifting caps raises malpractice premiums?
Proponents of caps have argued that OB/Gyns would be especially sensitive to the elimination of caps due to the high-risk nature of childbirth. But the Medical Liability Monitor numbers only for that specialty don’t show any spike in premiums after caps were removed:
2010 2011 2012 2013 2014 Georgia $71,640 $71,640 $67,443 $67,608 $66,900 -6.6% Illinois $103,173 $104,273 $104,979 $103,558 $100,570 -2.5% Missouri $86,025 $72,815 $64,884 $64,884 $62,568 -3.6%
Same story here: premiums never rose in Georgia or Missouri, and after a slight rise in Illinois premiums dropped. Again, premiums in all three states are now lower than they were when the cap was struck down.
Have malpractice insurers suffered without caps? Certainly not in Illinois, as seen in this story from Crain’s Chicago Business:
Profits at the state’s largest medical malpractice insurance carrier [ISMIE Mutual Insurance Co.] reached a record $57 million in 2012, two years after the Illinois Supreme Court struck down a law capping damages in jury verdicts. That’s not the doomsday scenario the insurance industry was predicting….According to state filings, ISMIE’s net income in 2012 was its highest in at least 20 years. The company, which holds more than half the market in policies for independent physicians in Illinois, earned it even after committing a $17 million dividend to its 12,000 members.
Meanwhile, NORCAL Mutual Insurance Company, the second-largest provider of medical malpractice insurance in California, decided to enter the Illinois malpractice insurance market earlier this year and likewise will be offering policies in Missouri— after the caps in both states were eliminated. NORCAL has contributed $10 million (as of this writing) to defeat California’s Proposition 46, which would update the state’s cap to give it the same economic value it had when it was enacted in 1975. The insurance giant says Prop 46 “jeopardizes health care in California” even while it starts writing premiums in a state with no cap at all. Of course, NORCAL brags about its $634 million surplus — money above and beyond what it has reserved for projected payment of future claims and all its expenses (including $15 million in policyholder dividends declared in 2013).
(The Doctors Company, the largest provider of medical malpractice insurance in California, also offers policies in Illinois. It too has given $10 million to defeat Prop 46, saying it “will have a profound negative impact on all healthcare providers in California,” while boasting of its $1.7 billion surplus. The company announced a $23 million member dividend earlier this year.)
We won’t argue that updating California’s cap will guarantee premiums will go down. But it’s impossible to argue that updating the cap will guarantee premiums will go up. Many market factors are at work in setting premiums, and the existence of a damages cap seems to be a minor one. Also keep in mind that, thanks to Proposition 103, California physicians have a protection doctors in other states don’t: malpractice premiums are regulated by the state Insurance Commissioner, who can order reductions of unjustified rate increases.
Do doctors flee when caps are lifted? We’ll refer you to our earlier post on that matter for details, but both Georgia and Illinois have seen an increase in the number of doctors per capita since their caps were lifted. Data for Missouri won’t be available until the American Medical Association publishes its 2013 numbers in November.
Caps on noneconomic (also known as “pain and suffering”) damages have a significant impact on a number of victims of medical negligence, especially in cases where there is no compensation for lost wages or ongoing medical care. Noneconomic damages compensate for such harm as loss of limbs, loss of mobility, loss of vision or hearing, loss of the ability to have a child, brain damage, disfigurement, chronic pain, or the life of a family member killed by medical negligence.
J.G. Preston is press secretary for Consumer Attorneys of California, an organization whose members include some attorneys who represent victims of medical malpractice. CAOC supports Proposition 46. Some members of CAOC are on the board of directors of the group that funds ProtectConsumerJustice.org.