Commercial liability insurance
Medical Malpractice Blog
- The Synthesis Project Analyses Medical Malpractice Insurance
The Synthesis Project recently released a report entitled Understanding medical malpractice insurance: A primer. The Synthesis Project is an initiative of the Robert Wood Johnson Foundation to produce relevant, concise, and thought provoking briefs and reports on today’s important health policy issues. This particular report, Report No. 8, is authored by Dr. Michelle M. Mello, of the Harvard School of Public Health.
In the report, the authors note that several important shifts in the liability insurance market affect the cost of malpractice insurance paid by health care providers. These factors include:
-Exit of some commercial carriers and the advent of physician mutuals (physician owned companies)
-Problems obtaining affordable reinsurance after September 11
-The growth of hospital self-insurance
-Shift from occurrence policies to claims-made policies
-Increasing interest in hospitals buying insurance for doctors
-The growth of joint underwriting associations
-Relatively poor returns on investment since 2000
Conspicuously absent from this listing is the greedy insurance company mantra that trial lawyer medical malpractice verdicts are the reason these insurers are raising their rates on health care providers. In fact, the study reports that with regard to claims frequency there is no evidence that an increase in the number of malpractice claims has contributed to the current malpractice insurance crisis. Significantly, the source for this statement came from statistics obtained from The National Practitioner’s Data bank, a federally funded site that tracks every malpractice payout made by any entity on behalf of a physician.
Also noteworthy in this study is the analysis on how medical malpractice insurers actually go about setting their premiums. According to the report, insurers set premiums on a prospective basis based on four (4) separate criteria: (1) their expected payouts for providers in a particular risk group; (2) the uncertainty surrounding this estimate (3) their expected administrative expenses and future investment income; (4) and the profit rate they seek.
The report notes that medical malpractice insurers do not set their premiums like those who provide automobile insurance. Automobile insurers use an experience rated basis to set premiums.
When an auto insured has a claim, his insurance goes up. Thus, an individual is accountable for his own claim’s experience and corresponding premiums. In the medical malpractice arena however, premiums are priced by the specialty, regardless of a particular physician’s claim’s history. Thus, good doctors pay for bad doctors’ mistakes. This inequitable basis for determining premiums is driven by the insurance companies’ profit motives. Past experiments with using a more equitable model like the auto insurers have used have resulted in a less stable estimate of the insurer’s risk, and thus correspondingly lower profits.
Insurers always want to focus the medical malpractice insurance debate on only one of the four elements used to set rates: the one based on payouts for a particular risk group. However, since claims frequency has not risen in real terms over the past 10 years, the other three elements used to set rates account for increased premiums. Where is the debate concerning the unreasonably high profit rates, poor investing and high administrative costs of these insurance companies.
The recent horror citizens have had to endure with their insurers following the natural disasters, including Hurricane Katrina, are finally exposing insurers’ profiteering at the consumer’s expense.
The Synthesis Project recently released a report entitled Understanding medical malpractice insurance: A primer. The Synthesis Project is an initiative of the Robert Wood Johnson Foundation to produce relevant, concise, and thought provoking briefs and reports on today’s important health policy issues. This particular report, Report No. 8, is authored by Dr. Michelle M. Mello, of the Harvard School of Public Health.
In the report, the authors note that several important shifts in the liability insurance market affect the cost of malpractice insurance paid by health care providers. These factors include:
-Exit of some commercial carriers and the advent of physician mutuals (physician owned companies)
-Problems obtaining affordable reinsurance after September 11
-The growth of hospital self-insurance
-Shift from occurrence policies to claims-made policies
-Increasing interest in hospitals buying insurance for doctors
-The growth of joint underwriting associations
-Relatively poor returns on investment since 2000
Conspicuously absent from this listing is the greedy insurance company mantra that trial lawyer medical malpractice verdicts are the reason these insurers are raising their rates on health care providers. In fact, the study reports that with regard to claims frequency there is no evidence that an increase in the number of malpractice claims has contributed to the current malpractice insurance crisis. Significantly, the source for this statement came from statistics obtained from The National Practitioner’s Data bank, a federally funded site that tracks every malpractice payout made by any entity on behalf of a physician.
Also noteworthy in this study is the analysis on how medical malpractice insurers actually go about setting their premiums. According to the report, insurers set premiums on a prospective basis based on four (4) separate criteria: (1) their expected payouts for providers in a particular risk group; (2) the uncertainty surrounding this estimate (3) their expected administrative expenses and future investment income; (4) and the profit rate they seek.
The report notes that medical malpractice insurers do not set their premiums like those who provide automobile insurance. Automobile insurers use an experience rated basis to set premiums.
When an auto insured has a claim, his insurance goes up. Thus, an individual is accountable for his own claim’s experience and corresponding premiums. In the medical malpractice arena however, premiums are priced by the specialty, regardless of a particular physician’s claim’s history. Thus, good doctors pay for bad doctors’ mistakes. This inequitable basis for determining premiums is driven by the insurance companies’ profit motives. Past experiments with using a more equitable model like the auto insurers have used have resulted in a less stable estimate of the insurer’s risk, and thus correspondingly lower profits.
Insurers always wa
