Health care reform and medical malpractice have become increasingly visible issues in the current political climate. Most health care reform proposals that have been entertained by Congress have included language that seeks to reduce the ability of citizens to seek redress in courts for injuries suffered due to medical malpractice. The popularly accepted reasoning is that malpractice insurers, faced with an onslaught of medical malpractice claims in recent years, must increase the premiums they charge doctors for malpractice insurance to keep up with the ever-increasing claims paid out to policyholders. Indiana medical malpractice law currently caps total damages at $1,250,000 in all cases of malpractice since 1999. The previous cap was $750,000, which was an increase from the original $500,000 cap first established in 1975.
Data provided by the malpractice insurers themselves, however, paints a very different picture. The numbers reported in their Insurance Expense Exhibits by medical malpractice insurance providers to the National Association of Insurance Commissioners revealed that the average profit of the top ten providers was higher than an astonishing 99% of Fortune 500 companies.1
In order to calculate future losses, insurance companies use a concept called incurred loss. This is an estimate of how much money will have to be paid out for future claims based on the number of claims made in the current year as well as the previous history of claims. These initial estimates are revised in subsequent years as claims are paid (or not paid) and closed out and the actual figures replace the original estimates. The data shows that in these initial estimates profitability is routinely and significantly underestimated while losses are consistently overestimated, and as the figures are revised over time losses are usually revised downwards to reflect the real figures, thereby increasing the overall profitability compared to the initial estimates. When losses are revised downwards, less money is paid out than initially estimated. This results in a larger cash reserve for the insurer, which collects interest over time before some portion is paid out to settle claims.
Data from the top 15 insurance carriers’ own 2004 Annual Statements shows that malpractice insurance premiums continue to rise sharply year over year despite a lack of evidence that insurance companies are paying out increasingly larger or more numerous claims. For the years 2000-2004 the top 15 malpractice insurers in the country raised their net premiums by over 120% while the claims paid increased only 5.7%. This constitutes an increase in premiums 21 times greater than the increase in actual claims paid.2
While these practices drive up the cost of health care for the average citizen as the health care industry passes off costs to the consumer, doctors are the biggest victims in this situation as they must continue paying ever-increasing malpractice insurance premiums while insurance companies are routinely overestimating their losses and downplaying their profitability. A common call from both Insurers and the physicians they insure is to seek caps to damages, however, the largest and most profitable malpractice insurance carriers have reaped exceptionally large profits even in states which have no caps on medical malpractice damages, such as New York, Pennsylvania and Arkansas.1 This seems to contrast sharply with insurance company claims that medical malpractice caps are a necessity to prevent the industry from collapsing under the weight of excessive litigation.
While doctors are being burdened with sharply increasing insurance premiums and citizens continue to pay higher and higher health care costs year after year, malpractice insurance companies continue to show record profits. Despite insurance company claims that their industry is in crisis, the numbers that insurance companies themselves are reporting show that they are enjoying profitability better than 99% of Fortune 500 companies, and medical malpractice premiums continue to increase despite evidence that the amount insurance companies pay out to policyholders as well as the number of claims filed has not changed significantly in the last ten years. The last year for which data is currently available, 2008, saw the fewest medical malpractice payments on behalf of doctors since the creation of the National Practitioner Data Bank in 1990, which collects data on such payments. This was the third consecutive year that payments had reached an all-time low.3 If the numbers reported by medical malpractice insurers are accurate, it demonstrates that there is no evidence in the form of more numerous claims or payouts to policyholders to substantiate the dramatic rise in malpractice insurance premiums we have seen in the last decade.
1 The Insurance Hoax: How Doctors and Patients Pay for the Huge Earnings of Medical Malpractice Insurers, October 2009 located at http://www.justice.org/resources/Medical_Negligence_-_Insurer_Profits.pdf
2 Falling Claims and Rising Premiums in the Medical Malpractice Industry located at http://www.justice.org/resources/CJD_-_Med_Mal_Report_-_July_2005.pdf
3 The 0.6 percent Bogeyman: Medical Malpractice Payments Fall to All-Time Low as Health Care Costs Continue to Rise, July 2009 located at http